Monday, June 21, 2021

How to Create an Employee Referral Program

The biggest problem people have with creating an employee referral program is achieving long-term success. While referral programs often start out with lots of buzz and excitement, maintaining them successfully past the short term often proves difficult.

After reading our “how-to” process, you’ll know how to build a program that keeps employees engaged and produces consistent results month after month.

A successful employee referral program will make the hiring process more efficient, reduce employee turnover, and build a better connection with existing employees.

The Easy Parts of Creating an Employee Referral Program

Creating an employee referral program can be fun and easy when done correctly. Forming a vision and defining your goals takes some time, but it’s easy once you get started. Finding out what motivates your employees can be achieved through one simple survey.

Promoting a program is the most fun part. It requires planning, but it can be engaging and done with ease. Creatively brainstorming how to host an official launch is exciting. And thanking employees for their contributions and hosting competitions is simple.

On the technical side, a software tool like JazzHR can be an enormous help. JazzHR is a recruiting software tool that understands the power of employee referrals. It has a tool dedicated to helping people set up and manage a company-wide employment referral program. A dedicated software tool can make creating and managing a program much easier for you.

The Difficult Parts of Creating an Employee Referral Program

Creating an employee referral program isn’t all sunshine and rainbows. While it includes fun competitions and awards, some aspects can be frustrating. Budgeting and long-term management are the most difficult parts of creating one.

When you’re trying to motivate your employees, you need to budget accordingly. If you can only set aside $1,000 for the entire program, it’ll be hard to motivate employees to send in more than one or two referrals. You must also set aside money for party planning and other promotional events. If you can’t put together a sufficient budget, your program will flop.

Coming up with the initial bonuses is fun and easy. Managing a program long-term requires you to continue innovating with new rewards and incentives. This can be difficult and exhausting long term. If you get complacent, your program can sputter out quickly. You need to motivate your employees every month so your program continues to produce results.

Step 1: Create a Plan

Employee referral programs must be planned out before implementation. Creating a program without a vision, goal, and budget is not effective. By creating a plan, you give your team a clear desired outcome, and you’re more likely to get the results you want.

Form a Vision

Before creating a concrete plan, think about your vision for your employee referral program. Why do you need an employee referral program? How will this help the onboarding process? What do you hope to achieve?

By determining your “why?”, you’ll be much more motivated to follow through and create a great plan. Teams create employee referral programs for several reasons. Consider what your specific reasons are. You may want to have a higher retention rate, faster hiring process, or more efficient onboarding.

Employees hired through referrals are much more likely to stay at a company longer than if hired from a cold job application. Referred candidates also have a greater chance of being hired than candidates who applied without knowing anyone.

Employee referrals cut down time spent on the candidate screening process, creating a faster hiring process. Whatever your reason for creating an employee referral program is, make sure to write it down.

Pinpoint Hiring Needs

Next, it’s time to determine exactly what your hiring needs are. Write down your answers to the following questions. What position or positions do you need to fill? Which position are you having the most difficulty finding great candidates for? What is your ideal candidate? Answering these questions will give you a clear picture of your program’s hiring goals.

Discover Employee Motivation

Before defining specific goals, it helps to get an idea of what motivates your employees. If you create an employee referral program based solely on cash bonuses for employees that only want more vacation time, it will be hard to motivate them. The best way to find out what motivates your employees is to ask them through an email survey.

Define Specific Goals

After forming your vision, pinpointing what roles need to be filled, and finding out what motivates your employees, it’s time to get specific. Write down exactly what you want to accomplish with your employee referral program. These goals should be specific and time-sensitive.

A poor example of a program goal would be, “Give us more candidates to choose from and make the hiring process cheaper.” Better examples would be, “Attract 5 new qualified candidates for the Portfolio Manager position by March 31. Reduce cost per hire by 25% in Q2.” The first example is too vague, but the latter examples provide specific outcomes to achieve.


Finally, you must budget for your program. While employee referral programs reduce the cost of attracting new candidates, you need to factor in the cost of your referral bonuses. You can’t promise an employee a vacation to Hawaii if you only have $300 to spend on the program. Know exactly what you have to spend before creating your bonuses.

Step 2: Design the Program

Once you’ve got a plan together, it’s time to start designing your employee referral program. Define referral bonuses, create clear rules, and automate program tasks. These three steps will ensure you create a program that gets results.

Define Referral Bonuses

The first step to designing your program is to define the bonuses your employees can receive. These can include cash prizes, vacation days, company awards, and charity donations. Don’t be afraid to get creative with these. Depending on the feedback you received in Step 1, create bonuses that will motivate your employees to send referrals.

Be specific with your bonus descriptions. Common cash prize amounts for employee referrals range from $1,000 to $5,000. Promoting a “$3,000 cash prize” is much more motivating than “a large cash prize”. You can offer a $500 gift card to a day spa, 3 extra vacation days this year, or a featured article on the front page of your company newsletter. Whatever it is, be specific.

Create Clear Rules

After defining your bonuses, you need to create clear rules so employees don’t take advantage of the program. Rules also show your employees what to expect, how they can help, and how they receive their defined bonuses. If you’re having trouble coming up with a list of program rules, ask yourself the following questions.

  • Can any employee make a referral?
  • Does the employee need to be at a certain level in the company
  • Does the employee need to have worked at the company for a minimum amount of time?
  • Are your employees compensated for referring qualified candidates or only successful hires?
  • How many referrals can each employee make?
  • How does an employee submit a referral?
  • When do the bonuses go into effect?
  • Does an employee referral need to stay at the company for a period of time before bonuses are granted?

Keep the program rules clear and simple. Employees are less likely to participate if there are too many complex rules. If you fail to state clear rules, you can get employees who constantly refer unqualified friends to try and secure bonuses. There’s no need to go overboard here, but make sure to include the rules list on the promotional program materials.

Automate Program Tasks

Managing an employee referral program shouldn’t be time-consuming. However, if you’re unorganized and don’t automate tasks, you’ll be spending way more time on it than anticipated. To save time, we recommend JazzHR’s recruiting software because it has a specific tool for creating and managing company-wide employee referral programs.

Using a tool like JazzHR is particularly helpful if you’ve never created an employee referral program before. Task automation will save you heaps of time, and a dedicated tool makes program design and execution more organized. JazzHR comes with a 21-day free trial, so you can give it a test drive before making a final decision.

Step 3: Promote to Employees

Once you’ve created an employee referral program, promote it to your employees. This is a crucial step. No one’s going to refer candidates to you if they don’t know about the referral program. There are many ways to share the news with employees. It’s important to have an official launch so everyone is informed. From there, you can get creative with how it’s promoted.

Have an Official Launch

You need to have an official launch once the program goes into effect. It’s important to convey the newness and excitement of the program. You can do this by email, but it will build greater excitement if done in person. Schedule an official launch party, have the CEO announce it at a company-wide meeting, or host a company lunch to announce it.

Get Creative

After your official launch, it’s time to get creative. There are countless ways to promote an employee referral program. The goal is to create excitement and remind employees what’s in it for them. Work with the marketing department to create promotional posters with bonuses clearly visible. Send weekly emails to remind employees and give them updates.

Set up contests between departments. People love competition. The department with the most referrals gets a pizza party on the last day of the month. Host referral parties. When an employee has a successful referral, let everyone know. This can motivate others to take similar action. There is no one way to do this. Effective promotions will improve your program’s results.

Step 4: Maintain the Program

You’ve created your employee referral program and launched it. The first month is full of wins. However, many programs tend to fall flat after the initial excitement wears off. It’s important to not only launch your program but to keep it maintained long term. This is done by adding new incentives and recognizing successful employees for referrals.

Add New Incentives

Adding new incentives and bonuses is a great way to avoid employee referral program complacency. If you notice the quantity of referrals drops off, add a new incentive. “Referral cash bonuses are doubled for the month of July!”

These can also be scheduled at the beginning of each month. Another idea is hosting a company-wide party once a certain number of successful referrals is hit. Offer “referral employee of the month” awards. By keeping your program fresh, employees will continue to stay engaged and helpful.

Recognize Successful Employees

Employees love appreciation. When someone successfully refers an employee, congratulate them publicly. Have the CEO give him or her a shoutout at the next big meeting. Send a company-wide email. Show your appreciation for your employees’ help and they’ll be more likely to keep sending referrals.

Step 5: Evaluate and Update

The final step to creating an employee referral program is to evaluate and update it. You need to measure how effective your program is working. From there you can determine if it’s getting the results you need, or if it’s time to make some changes.


There are certain metrics that can help you measure the results of your program. Calculate its referral to hire ratio to measure the quality of the candidates your employees are referring. The participation rate will show you how engaged employees are with the program.

Employee referral rate reveals how effective the program is compared to other hiring methods. It’s also important to calculate the monthly time and costs of running the program.

Make Adjustments As Needed

If the program isn’t leading you to the goals you defined in Step 1, you need to make some adjustments. A low referral to hire ratio means you need to do a better job of communicating the ideal candidate to your employees. A low participation rate means you need to step up your promotional efforts.

If your program is too time-consuming, you may need the help of a software tool or additional employees. A program that’s too expensive may need a reduction in the bonuses offered. If things aren’t working, it’s your job to make the necessary changes.

from Quick Sprout