The Truth About Employee Referrals: Should You Be Using Them?

Published by:
Joe Caccavale
October 2, 2020
min read

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You need to bring someone in.

You need to bring them in fast.

And you need someone who knows what they’re doing and can hit the ground running.

Your current team is talented and trustworthy - so it makes sense to ask them to refer talent from their networks… or does it?

Employee referrals can be a quick, cheap means of talent sourcing.

But if not used correctly, referrals can actually damage your organisation.

So, here’s how to do employee referrals the right way.

Employee referral meaning

Employee referrals are programmes that entail employees of an organisation recommending job candidates from their existing networks - these schemes are often incentivised with bonuses.

Why employee referral programs work

At a glance, employee referrals are a cost-efficient and pretty reliable way of finding candidates.

For starters, they save you the effort of actively searching for and contacting candidates yourself, since the referrers are doing the advertising and headhunting for you.

If your employees are themselves talented and passionate, then there’s a good chance they’ll know the best people to recommend.

There’s also the simple fact that employee referrals feel less risky than posting on job boards or social media - candidates will have already had some degree of sign-off from whoever referred them.

And the stats would appear to back up all of the above...

A few quick stats on employee referrals

Employee referrals have the highest ROI: 82% of employers rated employee referrals above all other sources for generating the best ROI.

Employee referrals reduce time to hire: Referred candidates are 55% faster to hire, compared with employees sourced through career sites.

Employee referrals reduce cost per hire: Employee referral programs can save companies $3,000 or more per hire!

Employee referrals reduce the turnover rate: After two years, retention of referred employees is 45% compared to 20% from job boards.

Stats courtesy of Kristina Martic.

But be warned: referrals can be harmful to diversity

The reality is: in terms of demographics, referred candidates tend to reflect the employee who referred them (Forbes).

This means any diversity gaps in your organisation are going to be perpetuated.

You’ll end up hiring more and more people from an increasingly homogeneous pool.

According to PayScale’s report, female and minority applicants were significantly less likely to receive a referral than their white male peers. 

White women were 12% less likely to receive a referral.

Men of colour were 26% less likely. 

And women of colour were 35% less likely.

Check out this example role:

If your organisation has more white males than any other demographic, then naturally, that group will be overrepresented in the candidate pool.

And when you take the fact that referred candidates are more likely to be hired than regular candidates into account, then it’s easy to see how if left unchecked, employee referrals can be problematic.

Doing employee referrals the right way

Start tracking where candidates come from

Just because the stats seem to suggest that employee referrals work, this doesn’t necessarily mean they’ll work for your organisation.

Even if just for your next few hires, it’s worth tracking where candidates come from.

You might find that certain sources bring better quality or a more diverse set of candidates than others.

If you were setting up affiliate marketing, you want to know where people come from and what actions they take.

And the same should apply to employee referrals - which employees bring the most quality candidates from a more diverse range of backgrounds?

Everyone's network will be different and so some will naturally be more diverse than others.

Have employees from minority groups refer candidates

You can use the fact that referred candidates are similar to the referrer to your advantage.

For example, try asking employees from ethnic minority backgrounds to refer candidates from their network to tap into any demographics that you might be struggling to attract… it worked for Pinterest!

And your referral scheme should be open to everyone in the company, not just a chosen few. 

Generally speaking, the more diverse the referrers are, the more diverse the candidate pool should be.

Ensure all candidates are assessed equally

Just because someone was recommended, this doesn't mean they should skip any part of the assessment process.

Employee referrals are a tool for sourcing…

And sourcing alone.

All candidates should be given a fair shot, regardless of where they were sourced from.

If you’re serious about your selection process, we’d recommend checking out our end-to-end guide to fairer, data-driven hiring.

Employee referrals should never be your only source of candidates 

Different people look for jobs in different ways.

Given that both women and people from minority backgrounds don’t tend to rely on networks, if you want a genuinely diverse candidate pool, then you’ll want to advertise the job through a variety of mediums - we covered a few of the most tried-and-tested ones here.

We built Applied to remove bias from hiring so that the best person gets the job, no matter what their background is. Our process replaces unconscious bias and 'gut feeling' with the most predictive forms of assessment science has to offer. 

We’ve given away our entire process via our resources, or you can try the platform for free and see how it works for yourself.