The Advantages & Disadvantages of Using Employee Referrals

An employee-referral program can help your small business more easily find qualified job candidates by tapping into your employees' social networks. Using referrals can not only help you save time and money, but it also provides benefits and rewards for current employees as well. At the same time, though, you'll find you have a smaller pool of candidates from which to choose when using this method, and personal issues can come into play. Understanding the advantages and disadvantages of employee referrals can help you use this recruiting method more effectively.

Advantages of a Employee-Referral Program

One of the advantages of the employee-referral method is that it serves as an easy way to find candidates who might be a good fit for the job you need to fill. When an employee knows a person well, he probably has a good idea of the person's work quality, personality and skill set. You also get the reassurance that most employees would not want to refer a poor candidate since that could reflect negatively on them. Even if the referred person is great but just not fit for a certain role, you can still add his name to your list for future opportunities.

Using employee referrals is also cheaper and more efficient for your business. Posting jobs through job sites, traveling to career fairs and having recruiters call possible candidates all take time and money that you could use elsewhere. By using employee referrals, you're having your employees do some of the hard work so you can focus on appropriate screening and training. It takes around 30 days to fill a position with a referral, while you'd need 40 to 50 days using traditional methods like seeking outside hires through job boards.

Finally, another of the advantages of an employee-referral program is that it benefits your current employees and may help retain new talent. Not only is offering rewards for new hires a good way to boost employee morale for existing employees, but new hires may want to stick around longer when they feel comfortable working alongside someone they know. Possible bonuses for successful hires also serve as a motivational tool for referrers.

Disadvantages of an Employee-Referral Program

A disadvantage of using employee referrals is that you may end up with a less-diverse job pool from which to choose. While having employees find candidates can bring qualified employees, those employees may be very similar to their referrers. At the same time, you might miss out on better-qualified candidates whom your employees don't know. Recruiting through job ads, employment agencies and social media will help more people learn about your company's job openings, so those methods may bring more people with different backgrounds and experience levels.

An employee-referral program can also lead to personal conflict. Having employees who know each other personally can lead to the formation of cliques in the office along with arguments due to personal issues. In addition, other employees may feel there is some favoritism in the office when a colleague brings a new hire on board, which might result in worse team performance. In the worst cases, you might even lose employees from the conflict.

Lastly, you risk that 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.

Using Employee Referrals Effectively

With the pros and cons of employee referrals in mind, you can create an effective employee-referral program that brings in more qualified candidates and keeps employees informed about the people they've referred. To avoid poor candidates, provide employees with enough information about the job role, including its duties, required skill set and the personal qualities you seek in the candidate.

When you are in the hiring process with a referral, keep the referrer informed about the progress. Preferably, you'll also want to provide the referrer with some type of reward like a bonus once the new hire has successfully completed an initial work period.

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About the Author

Ashley Donohoe started writing professionally about business topics in 2010. Having eight years experience running all aspects of her small business, she is knowledgeable about the daily issues and decisions that business owners face. She also has earned a Master of Business Administration degree with a leadership and strategy concentration from Western Governors University. Some other places featuring her business writing include JobHero, LoveToKnow, PocketSense, Chron and Study.com.