What Are the Disadvantages of In-House Referrals for New Employees?

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In-house referrals for new employees may simplify things, but there are also some very clear disadvantages that you need to be aware of. Find out about disadvantages of in-house referrals for new employees with help from an accomplished attorney, author and speaker in this free video clip.

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Video Transcript

Welcome, this is HR That Works, President, Don Phin. Today, I'm going to answer the question what are the disadvantages of having in-house referral programs. Now I'm a big fan of in-house referral programs, you know, who knows the job needs better than your existing employees so they're a great source of referral but there's some problems with them. First of all most in-house referral programs don't work because there's not enough incentive behind them for them to work properly. So a company might give somebody $100 bonus if they refer a job applicant that actually they take on board but there's a risk that comes with that $100 and the risk or the fear is that that person doesn't work out and then whose fault it is, it's my fault, okay. So is it worth having a finger pointed at you for $100? Most people are more concerned about the negative than the positive so if you have that little amount of juice in a referral program, they're not going to work. So my most successful clients put real juice behind them. Look what you pay a recruiter, typically at least 25% of what somebody pays. So if you're bringing on a $50,000 a year employee you know, are you really giving somebody $12,500 as a referral fee? No, you give them $100. Think in terms of the lifetime value of that employee that's coming on board and you can dole it out over the years to so they get so much at a time on hire, so much the next quarter and by the end of the year the whole bonus is paid. Now one of the other disadvantages of in-house referral programs is people don't language about the opportunity very well. So that's why you want to give them the one page document that explains what the opportunity is and maybe on the backside of it, even a script they can go over with that potential employee and say, look, we're looking for this, this and this or they can simply hand something to somebody so you don't leave it to just a verbal interaction between your employee and that potential prospect, you drive it through a process. The last thing you have to worry about and I haven't seen much litigation about this and again, you may know them already, an employment law attorney, is that people like to hire people like them. So if that happens enough times you might have discriminatory hiring practices where the green people are only hiring their green friends and the red people are hiring their red friends and you get into trouble that way. So you always want to have your a head check, what you want to hire is the best possible employee, not a green or red employee. So hopefully that's helpful. That's how you get around the negative aspects of in-house referral programs but use them, use them the right way and I hope that helps.

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