How Technology Supercharges Employee Referral Programs

By Dave Zielinski June 8, 2023

​Employee referral programs continue to be one of the most effective ways to recruit new workers amid ongoing labor shortages. Studies show getting employees to refer candidates from their own networks results in lower recruiting costs, improved hiring rates and new employees who stay longer with a company. 

But the effectiveness of employee referral programs increasingly depends on the quality of the technology platform chosen to administer the process. Outdated systems or those lacking the right automated tools can result in lower participation rates among employees; more manual work for already time-starved recruiters; and referral programs that can work in opposition to diversity, equity and inclusion (DE&I) initiatives.  

How Technology Fuels the Referral Process

Interest continues to run high in technologies that help advertise, automate and track processes tied to employee referral programs. No longer do recruiters have to rely on an applicant tracking system (ATS) or company intranets with limited functionality to administer referral programs. Research from Select Software Reviews, a company that provides reviews of HR and recruiting software in Cambridge, Mass., found that interest in employee referral-based recruiting increased 64 percent in the past year.

"Companies are still looking to hire faster and in more cost-effective ways," said Phil Strazzulla, founder of Select Software Reviews. "Many are hesitant to spend more money on yet another sourcing tool or more on LinkedIn and are doubling down on getting their employees to refer more qualified people in their own networks."

Referral technology platforms can provide many benefits to recruiters and employees, but not all are created equal. SHRM Online spoke with recruiting industry analysts and practitioners to identify what capabilities separate the best referral platforms from the rest, how to get the most from an existing system and criteria to use when selecting a new platform.

Keep Employees Informed

One of the biggest frustrations employees have with referral programs—an issue that often makes them "one and done" with the referral process—is not being kept in the loop on the status of their referrals. People naturally want to know if their referral has been received, whether interviews have been scheduled and where their referred candidate stands in the hiring process.

"You don't want employees to think they're sending their referrals into a black hole," Strazzulla said. "You need a platform that automates communication and keeps employees apprised of what's happening to their referred candidates once they've been submitted."

A platform also should be able to automatically track changes in referral outcomes as well as the progress of referred candidates through a hiring pipeline. For example, if an employee refers someone to a level 1 nursing job but they're eventually hired as a level 2 nurse, the system should automatically calculate a different incentive bonus for the referring employee.

Build a Seamless Integration with the ATS

The foundation of an effective and user-friendly referral platform is a seamless integration with an ATS. Experts say that integration should be so strong that recruiters never feel they're working in two separate systems.

"In terms of change management, you don't want to change your recruiters' core technology experience, which is within the ATS," said Mike Stafiej, CEO of ERIN, an employee referral platform in Pittsburgh. "With a seamless integration they should still be able to do their referral work right out of the ATS without having to toggle between two platforms. The referral platform should simply feed more qualified candidates into the ATS."

Provide Referral Recommendations

Employees often don't have time to scour their professional or personal networks for contacts who are the best fit for open roles, and in other cases may not be current on the latest qualifications of many in their networks. For that reason, automated tools and artificial intelligence that can access employee networks and identify the best matches for job openings can be invaluable features of referral platforms.

"Most people don't know all of the current skills and capabilities of everyone in their networks," said Kara Yarnot, vice president of strategic consulting services at recruitment agency HireClix in Gloucester, Mass.

Strazzulla said top referral platforms have these "social graphing" capabilities. "A recruiter trying to fill an open engineering position might be able see an employee went to school with a certain contact, so the recruiter can then ping the employee and ask to be put in touch," he said.  "That's a good way to supercharge the recruiting process."

But recruiting analysts say it's essential that these recommendation engines be used in ways that are compliant with data privacy laws like the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act. Such laws require companies to receive consent before storing any data from contacts in employees' LinkedIn, social media or other networks who might be good referral candidates.

"Providing recommendations within employee networks is a feature many recruiters want, but there are legal hurdles involved," Stafiej said. "It's important to support the process with a very compliant workflow."

ERIN, for example, has a feature in its platform that allows recruiters to turn on a GDPR-compliant workflow tool in these circumstances. "No personal data is stored in our databases when it's turned on," Stafiej said. "We send a message to the contact, but until they accept the message and give us explicit permission to store their data, we store no background on them."

Mobile-First Design and Flexible Options

Recruiting analysts said today's platforms should feature a mobile-first design that allows employees to easily refer candidates via text or email from their phones, especially if companies are looking to expand referrals beyond white-collar positions.

"Referrals used to be thought of only as a channel for recruiting white-collar workers, but they're an increasingly successful strategy with blue-collar roles," Strazzulla said. "That makes having a mobile-first strategy essential, since many blue-collar employees work in deskless environments and rely entirely on their phones."

Employees also should have flexible referral options that allow them to either provide a resume for a referred candidate or simply send an email and phone number if that's all they have to get a process started, Yarnot noted. "Employees should be able to share jobs with the networks via text, social media or by email using branded templates," she said.

Boost Employee Participation with Rewards, Gamification

Next-generation platforms aim to address a long-standing problem with referral programs: the considerable period of time employees often have to wait to receive bonuses for referring candidates who are hired.

"Part of the problem historically is bonuses might be big, but they are too far out to motivate people," Stafiej said. "It might take months to hire someone that's referred, then the employee making the referral has to wait another 90 days or more during a waiting period after the hire before the bonus pays out."

To counter that problem, more platforms now use micro-rewards and gamification strategies to reward employees not just for eventual hires but for participating in the referral program.

"People are rewarded for participating and sharing a job opening with their networks or logging into the platform with regularity," Stafiej said. "It might be a gift card or things like points that go toward raffles for a large prize. It helps keep employees engaged and incentivized beyond the bonus they might receive."

Yarnot said platforms also should have flexible leaderboard tools to help drive gamification.  "This allows you to run custom contests for individuals or between groups around referrals broken out by divisions, locations or employee resource groups," she said.

Automatic Onboarding

Experts say platforms that automatically onboard newly hired employees into referral programs can help boost results and jump-start the referral process.

Research shows those most likely to make referrals are new hires, and automatically sending them an invite that explains the benefits of a referral program can get more employees enrolled in the process right away.

Solving Conflicts Between Referral Programs and DE&I Initiatives

A long-standing concern about employee referral programs is that they can work in opposition to DE&I initiatives. Because employees tend to refer those with similar educations and backgrounds—and often of similar race and gender—it can limit the diversity of referral candidate pools, research shows.

Yarnot believes when implemented with an eye toward DE&I, referral programs and technology platforms that administer them can actually increase candidate diversity. "The best first step is to engage with employee resource groups (ERGs) as you're building your referral program and designing workflows on your technology platform," she said.

One key is to involve a diverse group of leaders from your company who can effectively champion the referral program. "I've worked with many organizations that have leveraged their ERGs to increase diversity by running contests among groups for the most qualified, diverse referrals and by hosting recruiter visits during ERG group meetings," Yarnot said.

Candidate, an employee referral platform in Seattle, takes a unique approach to the DE&I issue by soliciting referrals from outside an organization's existing employee base. Candidate is a two-sided referrals marketplace where employers can post open roles with a corresponding referral bonus for individuals at large who make successful referrals.

"Making referrals shouldn't just be limited to people working inside your four walls," said Ryan Agresta, CEO and founder of Candidate. "By working to attract referrers from a wider range of backgrounds and specialty areas, we think the odds of making referrals of more diverse candidates grows."

Stafiej said recruiters need to encourage and incentivize employees to think in terms of diversity when making referrals. "We have a client organization in Spain, for example, that gives employees a $500 bonus for referrals but increases that number to $1,000 if people refer a woman that gets hired in the sales department, since that group has historically been male-dominated," Stafiej said.

Dave Zielinski is principal of Skiwood Communications, a business writing and editing company in Minneapolis.



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