Referral bonus – what, why, and does it work? How?

Referral bonus – what, why, and does it work? How?

When it comes to hiring new employees, referrals are very popular. It is common practice in many companies to reward employees who make referrals with bonuses.

How does this bonus function? Where is it more commonly used? What are the advantages for both employers and employees? This article will answer these questions and provide additional information.

What exactly is a referral bonus?

A referral bonus is a payment made to a former employee for referring a candidate for employment. In some cases, the bonus is only paid if the referred candidate leads to a new hire. Furthermore, some companies only pay them after the new hire has been with the company for a certain amount of time.

Referrals are the most common way for people to find new jobs. Bonus referral programs are merely a formalization of this procedure.

Some companies have a referral program for all positions, while others only apply to those with a scarcity of qualified candidates.

The bonus could be monetary or in the form of a reward such as gift cards or extra vacation days. Having said that, 90% of the time, bonuses are paid in cash.

If it is given as a monetary bonus, its worth can range from 1,400 € (the average in the United States) to 300 € (the average in the UK and Australia).

Which companies typically provide them?

Because of the nature of the bonus, companies that offer them are looking for new talent.

They are particularly prevalent in the United Kingdom. The UK accounts for 66% of all referral bonuses worldwide. It is also popular in the United States (24%). Australia, Hong Kong, and Canada are also used to refer to this country because they are all historically related to the United Kingdom.

As shown in the following graph, referral bonuses are common in small businesses because they cannot afford lengthy recruiting processes.

average % of jobs filled by employee referrals

Data source: Referrals Infographic 2020 ERIN.pdf .

The majority of companies that offer referral bonuses are in the Business Services industry. They are ideal for sales professionals within the industry. It is also found in the Health Care, Consumer Services, and Transportation & Logistics sectors. They are also popular in job postings for social workers.

Insights from employee referral programs

Employee referrals were rated as the best source for generating a return on investment by more than 80% of employers.

Candidates who have been referred are four times more likely to be hired.

45% of them stay with their current employer for more than four years. Only 25% of employees hired through job boards remain longer than two years.

On average, referral recruitment takes 15 days less time than traditional recruitment procedures.

Are they helpful to employees?

Employees with medium-high salaries are typically offered them. Employees who receive these benefits earn 55k GBP in the UK and $40k in the US. This means that, despite their high salary, these bonuses are still relevant to their yearly pay and are much appreciated.

Furthermore, it establishes a reputation that they contribute to the best interests of the company. That is why it is critical to only refer to professionals who make a favourable impression on you. A poor referral can undermine management’s confidence.

Indeed, research has shown that the majority of employees refer candidates to help friends find work or to help their company. Employees who refer candidates solely to make money are in the minority.

Why are sign-on bonuses advantageous to businesses?

One of the primary advantages of using a referral program is that hiring costs are reduced because the number of candidates for a position is extremely limited.

On the other hand, it strengthens an organization’s sense of community. Employees greatly benefit from positive referrals. It will bring in new talents who are eager to work for the company and will most likely not disrupt the workplace environment. It is a way of ensuring that the new hire will be easily integrated into the team.

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About Author

Èlia Adroher i Llorens

Content Writer. Èlia studied International Business Economics with a focus on digital marketing. She is also interested in learning about data analysis.