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Determining your employee referral bonus

Referral bonuses are often a greatly appreciated talent acquisition mechanism among HR teams. Rewarding employees who put forward candidates reduces time-to-hire and cost-to-hire and increases employee loyalty. If you want to implement an effective referral programme, you need to start by defining what type of bonus your company is going to offer.
Determining your employee referral bonus

Is it better to offer a financial reward, a voucher, a gift? Which option will prove the best incentive to get employees to contribute to hiring their future colleagues? How should you go about structuring these rewards for your referrers? When and how should they receive the bonus? And how much should it amount up to? This article is intended for recruiters who are looking to encourage company employees to participate in the recruiting effort.

Deciding which reward to offer in exchange for a referral

Financial incentives

Referral bonuses are often granted in the form of money. It’s a popular choice among employees and easy to implement. Financial incentives are particularly widespread in the IT consulting industry, where bonus amounts can sometimes reach into the thousands. Other industries are now taking to it, too. For instance, in 2022, the French public transport operator RATP offered 300 euros per employee to stimulate hires in a shortage-ridden labour market.

Financial rewards carry many benefits:

  • Straightforward and easy to understand
  • Employees are free to spend or save
  • Easy to include on payslips

Receiving money is a strong incentive for employees, who can decide to spend it on a meal out or a day trip somewhere, fund their next holiday, put it into their savings account, etc. From the company’s standpoint, aside from having a simple (but indispensable) follow-up system in place to see who needs to be paid and for what, recruiters don’t need a specific tool to then grant the reward. While a good old spreadsheet can do the job, you might want to go for a digitalised referral programme that offers additional follow-up and automation advantages.

👉 Enjoy the benefits of a digital referral programme. Discover our employee referral tool

Gift vouchers

Gift vouchers are an interesting alternative to cash rewards. You can choose to partner with several service providers, including:

  • Glady: TirGroupé gift vouchers by Glady
  • Up: UpCadhoc gift cards
  • Edenred: Incentive Award Cards

But please note that granting gifts and vouchers may be subject to employer contributions. If this is the case, make sure you check with the competent authorities whether your company might be eligible for an exemption. In France for example, the cumulated value for gift vouchers and gifts mustn’t exceed 5% of the monthly Social Security threshold. The threshold for 2023 stands at €3,666, which means that each employee can receive €183 annually without the company having to pay contributions.

Although these rewards must only be granted on specific occasions, they can be a way of reducing your expenses.

Gifts in kind

Gifts in kind are subject to the same rules as gift vouchers in France: companies must pay social contributions up to 5% of the monthly Social Security threshold based on the value of the gift.

It’s easier for companies to go for the gift voucher option over the financial reward because vouchers can be exempt from employer contributions (be sure to check which rules apply in your country) and give employees the freedom to spend them as they see fit. Gift voucher/card suppliers offer applications that allow you to externalise the management and follow-up of reward programmes, taking the burden off recruiting teams in charge of referral programmes.

Granting referral bonuses to employees?

Rewarding referrers immediately

Rewards need to produce a positive, incentivising effect on programme participants. Even if you’d like to pay it out quickly, it is important to choose the right timing. Here are some examples and downfalls:

  1. The moment the candidate accepts the job offer. The downside of this is that there is no guarantee the candidate will turn up on their first day. This may wrongfully encourage opportunistic referrals.
  2. The moment the candidate begins their employment contract. This still doesn’t mean they plan to stay in your company.
  3. At the end of the candidate’s trial period. Trial periods can sometimes last over 8 months. If you wait that long to pay your referrer, the immediate benefits of referrals essentially disappear for employees.
  4. Split 50-50 between the time of hire and the end of the candidate’s probation period. This solution could be the middle ground that might work the best, as long as the reward amount is high enough to be split while remaining sufficiently attractive.

The choice is entirely up to you, but it must be consistent with the role you’re filling, your industry, and the context of your organisation.

Conditioning payment of the referral bonus

If you want to avoid recommendations driven only by financial gain, consider establishing a set of simple prerequisites for bonus payment. It needs to be clear to each employee what they need to do and when they’ll be granted the reward.

You can break down the bonus into stages that become unlocked as events unfold:

  • Upon hire
  • Upon employment contract start
  • At the end of the trial period

Notice these conditions all relate to applications, when in reality, recruiting processes involve many other aspects: publishing vacancies, employer brand, social networks, etc.

What if your employees are sharing your vacancies on LinkedIn? What if they’re commenting on your Instagram and Facebook posts? And what if they’re posting on their own profiles that your company is currently hiring? All these actions must also be accounted for with rewards if you want to encourage participation.

Setting up a points-based referral programme

Points-based referral programmes are a great way of rewarding initiatives that are smaller in scope than candidate recommendations. Although it isn’t realistic for you to compensate your employees every time they comment on or share a job vacancy, you can grant them points which they can accumulate in order to ultimately earn gifts and vouchers.

The case of Salt and Pepper:

Since 2018, Salt and Pepper’s points-based referral programme has managed to cover the company’s hires in one of the industries that’s been the most hard-hit by the labour shortage: engineering. 

Engineers are some of the most sought-after talents on the job market. Our digitalised referral programme has helped us successfully identify and hire engineers. Our tool incorporates gamification features that act as great incentives for our employees.” Hendrik Doht, Business Unit Director at Salt and Pepper in Germany

This system allows for an incremental approach to each employee’s participation and provides opportunities to gamify referrals. A points-based referral programme can include many levels, which means employees can earn something whenever:

  • They share a job vacancy
  • The vacancy they posted receives clicks
  • The vacancy leads to applications

Unlike the one-time payment model, this referral system fulfils two objectives:

  1. Long-term engagement (avoiding one-time, opportunistic recommendations)
  2. Encouraging all recruiting-related initiatives, and not just sharing resumes

The performance of gamified referral programmes is quite remarkable

  • High adoption rates: 66% of employees participate actively in the referral programme
  • More than one in two referred candidates gets hired
  • Digitalised, points-based referral programmes increase the number of applications by 29% and hires by 17%

Determining the amount of an employee referral bonus

Engage your teams, but practise caution

Methodologies vary from one company to another depending on the industry and the type of positions to be filled. Ranging anywhere from €100 to €10,000 for some executive director roles, it can be tricky to determine the most appropriate amount for your situation.

The amount you set for your bonus is a big deal, as it will greatly influence your employees’ engagement in this rather unique participatory hiring process. Setting the amount too high will certainly encourage your employees to put forward candidates, but most applications won’t meet your criteria. The lure of money is a powerful driver and can lead employees to act with less care.

One solution is to align the value of the financial reward on salary levels. We recommend that value to sit somewhere between 25% and 100% of an average salary, i.e. €500-€2,500.

Adapt the bonus to the level of recruiting difficulty

If your company is struggling to find talent, offer more attractive amounts for rare profiles. You want your teams to identify exclusive opportunities and have your company in mind when they come across someone they think might fit the bill.

Difficulty hiring is often the result of an accumulation of factors, including:

  • Workplace
  • Skills
  • Proposed salary vs. market levels
  • Level of experience

Deconstruct your preconceptions: referrals aren’t just for rare skills in the IT sector. You’ll find that a Spanish and German-speaking sales assistant role is just as difficult to fill, for example. If you haven’t jumped on the bandwagon yet, introduce indicators to measure the level of recruiting difficulty for each of your vacant roles, including the number of applications received, the quality of the candidates (number of CVs received against interviews conducted), the amount of time the vacancy stayed online, etc.

Setting up a referral programme is also an opportunity for you to conduct an audit of your talent acquisition processes.

Align your referral bonus on your competitors

It’s not called a “talent war” for nothing. In a context of skill shortages, it’s a candidate’s market and recruiters from different companies are up against each other. Organisations in the IT consulting industry are all too familiar with this – so much so, that they regularly hold referral contests to recruit seriously lacking profiles.

Some companies have even gone so far as to hand out referral bonuses of up to €4000. Temp agency network group LIP recruits in some shortage-struck fields such as the health sector, hospitality, and the construction industry. The group increased its financial reward from €1,500 to €4,000 in order to staff a hundred or so positions it was struggling to fill.

If you’re interested in restructuring your referral programme, consider benchmarking your competitors. A quick Google search will lead you to great tips on which practices the most influential companies in your industry are leveraging.

👉 Enjoy the benefits of a digital referral programme. Discover our employee referral tool

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