Referral Bonus

Referral bonus: incentives for success in the workplace
As the UK labor market heats up, companies need to find creative ways to attract talent. Referral bonuses are one such tactic you can employ by leveraging your employees’ personal and professional networks to find qualified applicants. Below is a comprehensive overview of a typical referral program and tips on how to make it as successful as possible.

The most important facts
– Bonuses are an incentive for employees to use a referral program.

– Cash rewards are common, but there are other reward options that might be a better fit for your business.

– An effective referral program can help find employees for more complex positions within your company.

Referral bonus and referral rewards explained
While it’s not a complex concept, a thorough understanding of what a referral program typically entails will help ensure it is implemented correctly.

What is a referral bonus?
A referral bonus is a financial or material incentive offered to employees or customers who refer qualified candidates to a job opening at your company.

How does the referral program work?
Through a referral program, employees are encouraged to recommend qualified candidates in their network. If the applicant gets the job, the referring employee will receive a bonus in the form of cash, stock, or similar bonuses. In some cases the referral bonus is paid immediately, in other cases the new employee must stay for a certain period of time before the referral bonus is paid.

While referral programs help with recruiting, they are actually part of your marketing strategy. Companies use incentives to encourage their employees to tell their friends and family about your company. Ideally, the people they tell will either apply directly or pass the information on to others who are interested in the job opening. This makes a referral program not only an effective recruiting tactic, but also a good promotional tool.

What are the advantages and disadvantages of a referral bonus?
Implementing a referral program has significant benefits for your business, but it can also come with some disadvantages that you should definitely be aware of.

Advantages
– Save time and money. Searching for potential candidates for a vacant position is often a resource-intensive process. A referral program can help reduce the time spent reviewing resumes by leading you directly to a qualified candidate. Plus, your employees know the company culture, so they’re more likely to recommend people who fit the work environment.

– Easier to find good employees. Employees usually recommend friends or family members who can make their working life easier. Therefore, you can be confident that a recommended candidate has the necessary qualifications for the position to be filled.

– Better employee retention. Candidates who are recommended by current employees are more likely to stay in their position long-term. For one, referred applicants have a built-in support network with the employee who referred them, which can motivate them to stay on board.

Disadvantages
– Biased recommendations. While many employees recommend people who are a good fit for the company, there is also the possibility that they may be less than honest. Sometimes employees suggest someone because they would like to spend time with them at work, rather than because they are a good fit for the job. In other cases, the referrer recommends someone randomly because they are more interested in the incentive being offered.

– Negative reaction from colleagues. Although recommendations tend to boost overall morale, your decision may create negative feelings within the workforce. Because referrals are incentivized in the form of cash rewards or office perks, friction can arise if one employee’s referral is preferred over another’s. The same negative feelings can arise if your company hires someone for a vacant position instead of promoting them internally.

– The risk of losing two employees instead of one. Since there is likely already a friendly dynamic between the employee and the person they recommended, it may happen that one employee leaves the company and the other follows. If someone is hired based on a recommendation, it is important to establish a connection between them and the company as quickly as possible. Otherwise, you risk losing twice as much as you won.

Recommended Candidates: Who should be recommended?
Clearly setting your expectations for the referral program from the start can help you avoid one-sided or low-quality referrals. Requirements may vary from company to company, but there are some basic expectations you can use when designing your referral program.

For example, most companies want their employees to recommend candidates who have at least the minimum qualifications for a vacant position. This means that they have relevant work experience, specific skills and a certain level of education.

Another criterion is the interest of the recommended applicant in the position. A candidate who doesn’t show enthusiasm for the job and the company is more at risk of leaving if they get the job. For similar reasons, they should also have values that fit well with the company culture.

Another common requirement for recommended candidates is that they have not had any contact with the company. If you hire someone based on a recommendation, there is a risk that they will quickly leave for the same reasons as the first time. This may not be the case for every returning employee, but it is best to process their applications as part of your normal hiring process.

What different types of referral rewards are there?
Cash bonuses are widely used because it is easy for employers to adjust the amount of the bonus based on the complexity of the position being filled. However, there are various incentives that companies offer their employees in return for a good recommendation, such as: E.g.:

• Social bonuses. An employee is rewarded with public recognition for a successful referral. Their contribution may be recognized on the company’s social media, or they may receive praise from the CEO for finding a suitable candidate.

• Altruistic bonuses. Instead of giving the employee a reward directly, the employer donates a bonus to a charitable or humanitarian organization of their choice. This is suitable for employees who value charitable initiatives more than personal gain.

• Tiered bonuses. Employees receive smaller bonuses for each stage of the hiring process their referral goes through, and a larger bonus when the referred person is hired. Some companies reward both the recruiter and the referred person, and offer additional bonuses if the applicant stays with the company for three to six months.

• Raffle prizes. If an employee makes a good recommendation, their name will be entered into a raffle for a chance to win various prizes. As a rule, the employee’s name is re-entered into the drawing for each candidate he proposes, and the employer draws the tickets at a time specified by him.

• Prize bonuses. Employees receive valuable prizes for recommending a good candidate, rather than a cash prize. The best results are achieved when the reward is something that most people would want, e.g. a restaurant voucher or popular technology such as high-quality headphones or a tablet.

• Holiday bonuses. Employees are rewarded with the tools they need to enjoy themselves in ways they might not otherwise be able to. You could offer a package trip overseas, financial assistance with travel costs, or additional vacation days.
  
• Individual bonuses. The company lets employees choose the rewards they would like to receive after a successful referral. These are usually limited to what the company can reasonably provide and employees must discuss their bonuses with HR in advance.

4 steps to create an optimal referral program
If you want to implement a referral program in your company, there are a few steps to consider. By following these, you can create a program that fits your business and achieves the best possible results.

1.Identify your priorities
Referral programs are useful, but can cost more resources than necessary if there is no motivation behind them. A clear understanding of your hiring needs can help you determine your expectations for candidate recommendations from your employees. For example, if you want to fill a vacancy quickly, you can use referrals as part of your normal hiring process. Or, you can set up a referral program if there is a senior position open and people with the right qualities are hard to find.

2.Simplify the referral process
Once you’ve established your program’s goals, it’s time to develop the referral process itself. It is important that the recommendation system is as user-friendly and fast as possible so that employees are motivated to use it. If they have to submit piles of documentation for every candidate they suggest, you probably won’t get the best results.

One of the best ways to streamline your referral system is to use referral program software. This allows you to send your employees referral emails that they can then share with their personal network or social media accounts.

3.Set up a reward system
The way you incentivize referrals is an essential part of your referral program that largely determines its success. Many companies use cash rewards to encourage their employees to participate in the program, as this is usually the most effective. But just because financial incentives work for most companies doesn’t mean yours will. Finding a reward that interests your employees is just as important as offering a reward itself.

4.Measure success
Track how your referral program impacts your hiring efforts over time. Your measure of success is the number of qualified applicants you can attract. Paying close attention to your program, especially in the early stages, will help you determine whether it is right for your business. It can also highlight weaknesses within the process that could stand in the way of success.

Frequently asked questions about referral rewards
What is a referral bonus?
A referral bonus is an incentive offered by the company to employees who refer qualified candidates for an open position.

What is the average referral reward?
The amount of the bonus varies from company to company, but the average payout is usually £700.

How are referral bonuses paid?
Part of the referral bonuses are usually paid out on the referral’s first day, while another part is paid out after a few months with the company. However, there are different structures and you may find that a different structure is more suitable for your business.

Can a referral program help your hiring efforts?
While referral programs are rarely used when recruiting employees for entry-level positions, such programs become more useful the more complex the position being filled. While implementing an effective system will take some trial and error, it could be just what your company needs to attract the best candidates. Take stock of your business and determine if your employee referral system is right for you.