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What Is An Employee Referral Bonus, And Is It Worth It?

If you are looking for a way to both attract new talent and reward your best employees, an employee referral bonus program may be for you. But how can you best maximize this perk? And what pitfalls should you avoid? With any bonus structure, there are rules to make before you start. See what some of the biggest and most successful companies are doing to get the best ROI with this compensation program.

What is an Employee Referral Bonus?

When a company pays a current employee money or perks for recruiting a new employee to their workplace, this is called an employee referral bonus. The practice isn’t new, and it can be an effective way to fill your candidate pool without spending on ineffective advertising. It can also potentially work to fill positions quicker, with a lower cost per hire than traditional full life cycle recruiting methods.

Companies have some leeway on what point in the recruiting process to offer payments. You may choose to give a smaller bonus for candidates who interview, with larger payments when a referred candidate is hired. Even larger payments are often given for new hires who stay with the company until a particular benchmark, such as three to six months after hire. Also, some businesses reward both the new hire and the referrer.

Types of Employee Referral Bonuses

While cash incentives are common, they aren’t the only way to reward referrals. Additional bonuses may include:

  • Trips and gift certificates to vacation destinations
  • Paid time off
  • Company equity
  • Recognition
  • Use of exclusive perks, such as premier parking

These bonuses can be as varied or unique as the company that provides them. Remember to pay any bonuses consistently, and leave any favoritism or bias out of your programs. Once you establish a program, be sure to document it, communicate it widely to your workforce, and stick to it.

What Constitutes an Employee Referral Bonus?

Even if your bonuses are modest, having rules in place can make sure the program is effective. These rules also distinguish employee referral bonuses from other bonuses. Most programs qualify as a referral bonus program if they follow these basic parameters:

1. Referred Employees Must Stay with the Company for an Established Period of Time

In order to discourage abuse of the system, design employee referral bonuses to reward qualified applicants who move through the hiring process and stay with the company for at least one month. You can also offer larger bonuses to those who stay on longer. You can break up bonuses designed for larger milestones into chunks at each step, such as at hiring and then again at 45 days of employment, for example.

2. Referred Employees Must be Permanent Additions to the Company

Employees who refer temp workers or seasonal workers, for example, may not qualify for the bonus, or the bonus may be smaller.

3. Referred Employees Should be New to the Company

Suggesting that an employee be promoted to a new position, or rehiring former workers, won’t usually qualify for a referral bonus. People who have already applied for a position (and either didn’t get a job offer or turned an offer down) usually aren’t eligible, either.

4. HR and Recruitment Teams Cannot Make Bonus Referrals

While it’s nice to have your leaders share the good word about your company, they often have too much clout. Executives, human resources professionals, and others who may influence a hiring decision shouldn’t be eligible for referral bonuses.

Employee Referral Bonus Amounts

Even if you’ve settled on the idea of an employee bonus program, it may be hard to decide on a dollar amount for your payouts. You should stick with a value that won’t strain your budget, but consider that you may be saving a significant amount on each hire over the cost of making contact with brand-new job leads.

If you’ve calculated large savings from a program, don’t shy away from putting a good portion of that savings toward the bonus payout. Let’s now explore some additional considerations.

Should Employee Referral Bonuses be Cash?

Since the point of a bonus program is to motivate workers and give them what they really want, cash may be the most effective. The question then isn’t, “should you pay cash?” but “how much should you pay?”

With major companies offering up giant amounts of money, it’s not a good idea to try to compete on a dollar amount. Instead, figure out a number that seems like a reward to your employees, but that won’t distract them to the point that they focus only on bringing on new team members. You also don’t want them to possibly start referring to lower quality workers just to get the bonus.

Creative Employee Bonus Ideas

In addition to cash, you may consider these more unique ways to say “thanks” to referring employees:

1. Public Recognition and Praise

Some people just want to hear that they did a good job. Making this announcement public can help add value to the praise. Ways to give thanks include:

  • Sharing good work on social media or in a company newsletter
  • Giving a special award at the annual company dinner or shareholders’ meeting
  • Creating a parking spot or desk location just for the referring employee
  • Sending out an email from the CEO or founder giving accolades for the job well done

Even those who love public praise may still appreciate a cash gift or tangible reward. Use public recognition as a way to boost lower payouts or to further promote the employee bonus program within your business.

2. Giving Back to the Community

Many employees value specific charities and community initiatives over getting something for themselves. These workers may appreciate a donation made in their name to an animal shelter, food pantry, or other non-profit work. This works best when you know enough about the employee to know what projects they value. If you’re unsure, issue a blank donation of a certain dollar amount that they put toward an approved charity.

3. Experience Rewards

Cash may be king, but some workers aren’t comfortable spending money on things like vacations or travel. That’s where an experience-focused employee referral bonus comes in. Whether you give them a voucher to a travel agency or send them on a carefully-curated trip for the top referring employees, this is an effective way to reward team members and help them treat themselves in a way they may not otherwise.

For companies with a smaller budget, consider day trips, gift cards to restaurants or museums, and thrill-seeking opportunities. Coffee tours or escape rooms are very popular as well.

In Conclusion

Often, the best way to learn what your employees want is to ask them. Whether through a formal survey or in their next performance review, get at the heart of their values and seek to reward them with the currency they love the most.

Employee referral programs are one way to bring on better employees. Used in conjunction with Comeet’s robust ATS tool, you can optimize and streamline the way you hire.

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Adrienne Smith

Adrienne Smith

Adrienne Smith is a content strategy consultant working with high-growth businesses on their brand messaging, content strategy, and content creation. A digital nomad, she's exploring the world's cultures and cuisines as she works.

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