Advantages & Disadvantages Of Employee Referrals

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Employee Referrals

Employee referral is a structured program that companies and organisations use to find talented candidates by asking their existing employees to recommend candidates from their existing networks.

Source: Baff

It is a recommendation from a current employee regarding a job applicant and it has become a productive method for finding talents.

Source: 3Q Recruiter

The employee referral program is the best bet for improving the most important hiring metrics such as time and cost per hire, quality of hire and employee retention.

Source: recruiting daily

The employee referral system is the preferred source of recruitment for many IT organizations. Thoughtfully implemented employee referral plans are excellent ways to attract the best people at the lowest cost.

Source: Career Builder

Also, employee referral programs give some monetary benefits to their employees for referring employees/candidates. This is called Employee Referral Bonus

Advantages Of Employee Referrals

Source: Wise step

Companies now recognise the usefulness of employee referrals in hiring. In fact, for many companies’ referrals are the primary method of finding new workers.

The advantages of referrals are readily apparent and here are some of the top benefits of employee referral programs.

Source: recruiting daily

1. Improved Company Culture

Source: Glassdoor

Employees who refer friends and family to open positions at their company are more than likely pretty happy with the company culture and they are likely to reach out to people with similar values to their own when making referrals.

When an employee makes a referral, they aren’t just endorsing the candidate’s skills and experience they are also saying this is someone they wouldn’t mind seeing and working with on a daily basis.

2. Higher Quality of Hire

Source: Crew Hu

Even with all the information candidates include on their applications, it can be difficult to tell how good of a fit an individual will be for the position without a few rounds of interviews. And while you should still take time to interview referred candidates, the chances of those individuals being good fits are much higher than someone you know by resume alone.

That’s because employees know that when they refer someone for a position, the quality of that candidate will reflect on them as well. The risk of being responsible for bringing in a poor-quality candidate for an interview – or worse, being responsible for a bad hire – leads most employees to carefully reflect on the person’s skills and qualifications before making the referral.

3. Better Employee Engagement


Employees like being involved in making decisions that will have an impact on themselves and the company. The very opportunity to influence the makeup and direction of a team by referring candidates can often increase workers’ happiness and level of engagement. It gives them a sense that they’re involved in the business beyond the standard contributions associated with their position, and it makes them feel like they have more of a stake in the company’s future.

4. Increases Employee Retention Rate


Employee retention is highly related to the quality of hire. The better the quality of hire, the better employee retention. It is crucial to hire the best talent that makes a perfect fit because it is more likely that they will stay longer with your company.

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If you hire someone who is not a good fit, they will leave sooner. Candidates that come from other sources, such as job boards, don’t know about you as an employee as much as candidates who talk to your current employees.

5. Reduces Time Aand Cost To Hire

Source: Bamboo HR

If you have outsourced the methods of recruitment because of the complications involved in it, then you can rely on the employee referral program to simplify the matter. The cost will also be reduced in referral recruitment methods. When you are using an employee referral program, then you will save a huge fortune on advertising, job fairs, employment agencies, etc.

Initial screening is done by the employees only, so you can save your valuable time as well. Since time to hire is shorter, the cost to hire also drops. You need less human hours to fill a position, and this automatically makes your hiring strategy more productive and efficient.

6. Best Suited For Specialized Positions

Source: Shutter stock

There are some positions that are hard to fill through conventional channels. So, if you have such a position open, then you can definitely try the employee referral program. Employees network a lot with various people in their own profession or otherwise and this is how they come across some rare talent, which is required for the extremely specialized position.

7. It Strengthens Employer Brand

Source: Career Builder

When your employee wants to recommend someone for an open position, they talk to those candidates first. Since job seekers trust much more employees’ words than CEOs’ or words coming from corporate brands, this is a great way for building up your company’s employer branding strategy and talent pool for future job openings.

However, what could be better for your employer brand than having your own employees telling their friends, families, colleagues and other people they know how great is working at your company?

8. Reduction in Recruitment Expenditure

Source: Opti Staffing

Even if incentives and rewards need to be paid to the referring employees, there are cost savings for the firm. Referral programs cost $500 for employees, versus $2,884 and S726 for print advertising, and even more for agencies and executive recruiting firms, according to the 2000 Employment Management Association’s cost-per-hire survey. The company’s Human Resources headcount can be streamlined and be used more efficiently.

Overall there are a ton of benefits to integrating an employee referral plan into your recruitment strategy. This has been a series of benefits for companies looking to increase their ability to attract the best candidates to their business.

Disadvantages Of Employee Referrals 

1. It Can Create Charges Of  Discrimination

Source: Shutter stock

Employees who are highly qualified for a position, but are rejected for an open job in favor of a referred candidate, may have a legitimate discrimination complaint. Although there may not be any legal consequences to such a complaint in every instance, the complaints can begin to tarnish the reputation of a business.

2. It Can Create Disillusionment Within The Workforce

Source: Experience

Some workers don’t know anyone that they could recommend for a job. Some workers will feel that any strict guidelines or requirements that referred candidates must meet will limit the rewards that can be earned. When this happens, any discontent or negativity which is being experienced by the workforce is going to be enhanced.

3. Referring Candidates For The Wrong Reasons


One of the disadvantages of employee referrals is that the employees may refer candidates for the wrong reasons. For example, an employee might want to bring a best friend onboard and lie about her skills and experience as a personal favor. At the same time, the employee may recommend someone she only casually knows and who is completely unqualified for the job.

4. When You Lose One Employee, You May Lose More


What happens if a referred candidate needs to be fired for some reason? There’s a good chance you’ll lose the person who referred them as well as a “protest” to your actions. If one person has referred several people to a company and they’re all very tight-knit as a group, a business could lose an entire team overnight.

What Makes Referrals Effective Employees?

Referrals tend to learn the job quickly, are more productive and stay with a company longer. They are generally more engaged with their work knowing someone when they start a new job is a great help in the transition.

They come to a company already vetted, in a sense, by the employee who referred the person. The referral is generally a part of the employee’s professional network. The employee knows the person, the person’s character and performance.

Ten Steps For A Successful Employee-Referrals Program

Source: Crew Hu

  1. Strong commitment from the top management
  2. Simple minimum rules
  3. Let everyone participate including senior managers and HR staff
  4. Involve and reward outsiders like employees’ friends and former business associates
  5. Give VIP status to referred resumes
  6. Let employees track progress on the hiring process
  7. Make it easy to refer by having a well-designed Intranet
  8. Promote constantly and motivate staff with company-wide congratulatory e-mails from the CEO
  9. Pay a decent bonus – neither too high nor too low
  10.  Pay it fast


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