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Business is all about who you know. And when it comes to hiring new employees, it’s about who your current employees know—and who they might recommend for the job.

But what’s the best way for your employee to make that recommendation? How does the candidate apply for the position? And how should you reward your employee for recommending the candidate in the first place?

To answer those questions, you need an employee referral program. Here’s what successful employee referral programs look like and how to create your own.

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What does employee referral mean?

An employee referral program is a structured way for your employees to tell you or your hiring manager if they know someone who would be a good fit for an open position. This could be a friend or past co-worker, for example.

When this person applies for the job, you review the application and think about whether they’re worth interviewing and possibly hiring—just like you do with any other candidates who apply.

Finally, if you decide to hire the candidate and they stay with your company for a certain period of time, the employee who referred them gets some kind of reward for their effort.

READ MORE: How to build a business where employees want to work

Do employee referral programs really work?

Employee referral programs are one of the most effective ways to grow your team, and they can help your business in lots of ways. These are just a few:

  • Hire better employees. Your current employees know your company better than anyone else. Because of that, they know what it takes to do a job well. As a result, the candidates they refer are more likely to be good workers and a strong fit for your company culture.
  • Reduce turnover. Hanging onto employees can be a challenge. But here’s the good news—referred candidates stay with companies longer and have a lower turnover rate than other employees. And when your current employees feel like you appreciate their insights and recommendations, they’ll feel more valued and stick around, too.
  • Save time and money. Using an employee referral process to find job candidates means you can pay less for advertising. You can also cut down on time-to-hire and internal costs since you can spend less effort sorting through applications and interviewing candidates.
  • Market your business. When one of your current employees tells a possible candidate about a job posting, they’ll probably also tell that person why your company is a great place to work. You can’t buy that kind of positive marketing!
  • Boost employee engagement. After an employee recommends a candidate for a job, they’ll want to help that person succeed. They’ll care about who gets the job more than they normally might, which means they’ll take a more active role in the hiring process.

WATCH NOW: Try these 5 strategies to keep your employees motivated

What’s an employee’s role in your referral program?

Think of each employee as a go-between for your company and the candidate they recommend. Your employee is the one person who knows whether hiring this candidate would be a good match on both sides.

The referring employee can answer a job candidate’s questions, like what it’s like to work at your business, or if they would be the right fit for the role.

Your employee can also answer your questions about the candidate’s work ethic and experience, as well as how they would help your business provide services and impress clients.

READ MORE: Ask these questions before you hire new employees

This process isn’t going to be perfect, but you’re more likely to get better results than if you hire without any recommendations at all.

Not every employee will be ready to take part in your referral program right away. The best referrers will have worked for you for some time and have a good understanding of both the company and the role.

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How do I create a referral program for employees?

Every successful referral program needs a few common ingredients. Follow these steps to create yours:

1. Set a goal

What’s your goal in having an employee referral program? You might want to hire better employees, retain employees for longer, or cut down on recruiting costs, to name a few examples.

Whatever you want to achieve, define it right from the get-go. This will help you stay on track while you’re designing your referral program.

READ MORE: Get hiring and engagement tips from the experts

2. Introduce the program

Your team can only take part in the employee referral program if they know about it! And if you want them to actively take part, you should include them in the planning stages, too.

Book a staff meeting, bring coffee for everyone, and find out if your team is open to the idea of an employee referral program. Here are a few questions you can ask:

  • Are you familiar with employee referral programs?
  • Do you think these programs are effective? Why or why not?
  • If we had an employee referral program, would you participate?

This conversation will give you a good idea of your team’s past experience with referral programs. It might also identify some dos and don’ts to keep in mind as you build your own.

3. Share open positions

Create a way to tell employees about open positions. You could send emails or put up an employee referral flyer when there’s a new posting, or remind your team on a regular basis that you’re always hiring.

Make sure to explain job requirements to your employees. They should know what qualities and experience you’re looking for in your new hires, and you should share job descriptions for specific roles.

It’s also important to say what you aren’t looking for. Your employees will refer people they enjoy working with, but sometimes the person they like spending time with isn’t the right fit for your business.

READ MORE: Hire like an expert with Nick Huber’s top tips

4. Create a submission process

How will employees tell you about a potential candidate? Set up an easy-to-complete process that lets employees share that information with you in writing.

One of the most common ways to do this is by offering a form that current employees can fill out and submit. This is ideal if you aren’t actively hiring for a specific position but are always on the hunt for good workers.

You can also offer a simple email template that allows your workers to quickly fill in the blanks. Use this employee referral example to get started:

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Another option is for employees to share job postings directly with possible candidates by email or text. If a candidate decides to apply, they can indicate that a current employee referred them in their application.

Pro Tip: Don’t tell your employees to post about a job on their Facebook or Linkedin profile. Social media might spread the posting to a wider audience, but it isn’t nearly as effective as texting or emailing the posting directly to someone who’s qualified for the job.

5. Offer bonuses, incentives, and gifts for job referrals

Some employees will participate in the program because they care about the company, but you need a bigger incentive to get results.

What is a good employee worth to you? Remember, if you get a great new hire because of a referral, you’re saving money that you can redirect to your employee referral program.

Try offering one or more of these incentives:

  • Cash bonuses
  • Gift cards to a store, restaurant, or coffee shop
  • Movie or sporting event tickets
  • Paid vacation days
  • Swag items like a hat or t-shirt
  • Donation to the employee’s favorite charity
  • Entries into an even larger prize draw (e.g., smartphone, laptop)

It’s a good idea to have a mix of referral bonuses, not just cash incentives. Different people are motivated by different things, so test out a few options to see what earns the best results.

READ MORE: Learn how to set up an employee bonus program

You can also offer special incentives (like getting to use the boss’s parking spot) when you’re hiring for hard-to-fill roles or management positions, or if you want to reward employees who refer for multiple job postings.

Pro Tip: Want to boost your employee retention rate? Give the referring employee rewards over time when the new hire hits certain milestones (e.g., $300 in gift cards paid out in $100 increments at 30, 60, and 90 days).

6. Recognize your employees

Now that your employee has actually taken the step of referring a candidate for a job, you need to thank them for participating, too. This can happen one-on-one or in front of the whole team.

Why does this step matter if your employee already gets an incentive, you might ask?

Because the incentive rewards them for their time and effort, but a verbal thank-you recognizes how they’re helping your business grow—and it makes them feel valued.

READ MORE: Try these 5-minute team-building activities

7. Track referrals

You’re starting to get applications for your job posting, but you need a way to connect referred candidates with the employees who referred them.

This is actually pretty easy to do. Just add another question to your application form, whether it’s in print or online: “How did you hear about this job?”

When the candidate enters your employee’s name and sends in the application, you can see who referred them and store that information in a spreadsheet or software program.

Pro Tip: Want to keep all your hiring and job information in one place? Jobber allows you to add notes to employee profiles. Just set up a custom field where you can capture referral data, then go into a specific employee’s profile to add and update their list of referred candidates.

8. Keep employees updated

What happens to employee referrals? Your team wants to know!

If a candidate is being hired, tell the referring employee. That way they know they’ll be seeing a familiar face on the job site—and getting the promised referral incentive.

If you aren’t hiring the candidate, the referring employee should know why you didn’t choose them. You can explain why the person wasn’t the right fit and encourage them to refer someone else for the next job posting.

Your employees might get discouraged if they keep referring candidates that you don’t hire, and they might stop participating. Regular feedback can keep this from happening.

READ MORE: Here’s how to give your employees continuous feedback

9. Keep promoting the program

Your team changes as current employees leave and new hires come on board. And as the team changes, it’s easy for employees to forget about the program or never hear about it at all.

Send reminders about the program every few months, or when you’re hiring for a new or important position. You can do this in person, in staff meetings, or by email—however you usually talk to your workers.

This ensures your new hires know about the program and can take part, and reminds longtime employees that the program is still up and running.

Pro Tip: Ask employees for feedback regularly to see how the employee referral process is working and how you can improve it. You should also check in with referred candidates during onboarding—there might be ways to improve the process from their perspective.

READ MORE: Learn how to build a business where employees want to work

Get your employee referral program template

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What are some employee referral program ideas?

Once your program is in place, there are many tactics that can make it effective for your team. Try these employee referral program ideas:

  • Communicate incentives. Make sure your incentives are both appealing and easy to remember. Employees should always know exactly what they’ll get for a successful referral, since that’s what really makes it an incentive. You can even put incentive items on display in the office as a visual reminder.
  • Provide resources. Give your employees the tools they need to succeed, like email templates, job descriptions, and an FAQ with easy answers to common questions. This makes it easier for them to participate in the program.
  • Create an FAQ. This gives employees easy answers to common questions. It also provides a way for you to address any complications before they arise—for example, what to do if multiple people recommend the same candidate.
  • Encourage quality connection. You’ll get better candidate quality if your employee and the candidate know each other well and aren’t just acquaintances. The best connections are between people who have worked together in the past for an extended period of time.
  • Qualify your candidates. Ask employees how long they’ve known the candidate, how they met, and if they’ve worked together before. This helps you go after worthwhile candidates and lead to better hires who will stay with your company longer.
  • Reward participation, not just results. You can offer something like a $5 Starbucks gift card just for submitting a referral, whether you hire the candidate or not. Keep in mind that you’re focusing on quality, not quantity, so participation rewards should be smaller than your actual incentives.

READ MORE: Try these hiring and and recruiting tips to attract employees

Grow your business with employee referrals

An employee referral program is literally meant to work for you, cutting down on time and money spent recruiting. Your team is your greatest hiring tool, so make sure the program works for them, too.

Start up your employee referral program today and see how it can help your business grow!

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