What Are Employee Referral Bonuses?

employee referral form
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Companies seeking talent often devise an incentive system whereby current employees are rewarded with a referral bonus if they recommend a candidate who is ultimately hired.

A few employers award bonuses for viable referrals that don't result in a hire. However, most employers require incentive hires to remain with the firm for at least a few months before paying the bonus to the employee who referred the new hire.

Companies Offering Bonuses

According to the Society of Human Resource Management (SHRM), roughly 1 of every 2 employers offers a formal referral bonus program. Such programs account for close to 25% of all hires, on average. Many other employers have an informal referral system.

At some companies, such programs cover any job. In other cases, bonuses are restricted to positions with an insufficient supply of talent – for example, an e-commerce company might provide bonuses for software engineers, especially if they're in a competitive market for tech talent, but not other roles that are easier to fill. The United States government even offers an employee referral bonus program at the discretion of individual agencies to staff hard-to-fill jobs.

It's important to note that the roles selected for bonus programs aren't inherently more valuable than non-bonus eligible roles; often, they're just harder to fill.

So if your job title doesn't make the cut, don't feel undervalued. (But do, perhaps, go through your own network and see if you have connections to refer for these in-demand jobs.)

Why Companies Pay Bonuses

Employers often believe that accessing the social networks of current staff can be more cost-effective than other recruiting techniques, including the use of executive recruitment services.

Some research indicates that incentive programs yield a higher quality employee and enhance retention of staff.

In any case, referral programs are a good way of building a sense of community and teamwork. It's in employees' best interests to recommend potential colleagues that are skilled, responsible, creative workers. No bonus is worth the social fallout from making a bad referral (especially if the referrer in question has to work directly with a less-than-stellar candidate).

When Should You Refer a Contact?

With this in mind, it's important to screen your contacts carefully before passing their resume along to human resources. Before making a potential connection, ask yourself:

1. Is this person qualified for the role? Look at the job description and at your contact's resume. Do you see overlap? Does your friend have the relevant experience, education, and skills? If they were a stranger, would you see them as a viable candidate?

2. Are they interested in the position? This might sound obvious, but if the potential candidate isn't enthused about the opportunity, he or she shouldn't be pushed to take it. You burn social capital every time you make a recommendation that doesn't work out.

Don't set yourself up to lose by trying to force a fit that doesn't exist.

3. Would you want to work with them? Even if you wouldn't be working directly with your connection in the new role, it's only fair to ask yourself if you'd want to do so. If not, why would you subject your current colleagues to the experience?

Finally, once you've made the referral, your role in the interaction is finished. Don't follow up on your friend's behalf or put pressure on the hiring manager to select your candidate. At best, you'll make your connection look like someone who's not able to fight their own battles; at worst, you'll come off as less than professional and possibly stalkerish. Neither scenario will help your friend get hired, or you get that bonus.

Employee Bonus Amounts

Incentives vary greatly by company, with cash, gift certificates, trips and even cars being awarded.

The value of incentives ranges from $250 to more than $25,000 (for executive positions) with the most common range being about $1000 - $2500 according to a survey by WorldatWork.

Bonus payments were made in a lump sum about 70% of the time, on average. In other cases, a partial initial payment was made with the remainder awarded at a later date (often after one year).

If a company has an employee referral program, company policy will determine the guidelines including how to refer a prospective employee, the amount of bonuses, eligibility, and payment.