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Employee referrals are potentially a great recruiting tool, and the conventional wisdom is that it’s unlikely for an employee to recommend someone they wouldn’t want to work with or who wouldn’t be a solid hire. However, employee referrals also come with risks. For instance, a current employee may not know enough about the potential employee’s past, or their sole purpose in making a referral might be to help out a friend who needs a job.

If a firm offers incentives for referrals, personnel also might be financially motivated. Some companies offer prizes, such as iPads and large-screen TVs, in addition to traditional cash incentives for current employees who refer new hires.

In all, the professionals at Barada Associates see both pros and cons of hiring employee referrals. When done right, hiring a referral can be a benefit for a company. However, just because a current employee recommended the candidate, it doesn’t mean you should skip a background check. For all of your company’s background screening needs, contact Barada Associates.

The Pros and Cons of Hiring Employee Referrals


Save Time

According to research from Glassdoor, the average job interview process in the country takes about 23 days, which is a steady increase from years past. Hiring a qualified employee referral can significantly speed up the hiring process. According to HR Technologist, the hiring process is 55% quicker with employee referrals.

Cut Recruitment Costs

Hiring employees is expensive, with Glassdoor estimating the cost to do so is more than $4,000 per job opening. Even if your company offers an employee referral program, you can still save a significant amount of money, perhaps as much as $3,000, on traditional job advertisements and hiring outside recruiters to fill openings.

Increase Employee Retention Rates

It’s not a big surprise that employee referrals stay with companies longer, as they’re more familiar with the company and its goals. According to studies, nearly 50% of employee referrals were still with their company after two years, compared to 22% found on job boards.

Higher Return on Investment

In a study by Careerbuilder, 82% of employers rated employees referrals above all sources for producing the best return on investment.

The Cons

Bad Hire

In most cases, you’d expect your employee to only refer qualified and high-quality candidates. But in some cases, the employee may not truly know the referral’s work ethic and skill set, and, instead, is just trying to help a friend or acquaintance find a job. This can lead to a bad hire. Perhaps the referral asked about an opening at the company, and the employee thinks recommending them is the nice thing to do, despite maybe not knowing much about the person.

Overlooking Other Candidates

Although speeding up the job search might seem appealing, it’s important not to pass over other, perhaps, more qualified candidates that may be a better fit for the job than the referral.

Severed Relationships

If the relationships between your employee and hired referral sour, it could lead to tension that negatively affects their work performance and your team’s performance.

Referrals Are on the Rise

Referrals are continuing to rise and account for anywhere between 30 to 50 percent of all new employees, according to studies.

According to an article in the New York Times, even the largest firms often prefer to hire internal referrals, and many are setting ambitious goals. For example, global accounting firm Ernst & Young has a stated goal to fill 50 percent of non-entry-level positions from internal recommendations.

Per the New York Times article, Ernst & Young looks at every résumé submitted, but “a referral puts them in the express lane,” according to Larry Nash, director of experienced and executive recruiting at the firm. Referred candidates are also two times as likely to land an interview as other applicants, per a Federal Reserve Bank of New York study. For those who are asked to interview, the study found, referred candidates had a 40 percent better chance of being hired than other applicants.

These companies often cite the savings of hiring a referral, because the candidate is “pre-vetted” by their internal contact. While it’s fine for companies to give internal hires preference in consideration for positions, the evaluation process should not skimp on (or skip) traditional screening.

Careful checking should always be an elemental part of the hiring process, especially when a referral comes with a resume attached. A recent survey by CareerBuilder found that nearly 60 percent of employers caught at least one lie on a resume that came via a referral from a current employee.

Contact Barada Associates for Background Checking Services

In summary, referrals must be vetted as carefully as any other candidate—not only to avoid missing important flags, but also to ensure a fair hiring process. Barada Associates ensures all background checks are performed in a timely and efficient manner to keep the hiring process moving. For more information about our services or to request a quote, contact Barada Associates today.