We asked the NFP sector about how they use employee referral programs. Here’s what they said

We asked the NFP sector about how they use employee referral programs. Here’s what they said

Recruiting staff in the NFP sector is never easy. But the current environment feels tougher than ever, with limited funding for salaries, short term government contracts, not to mention the extreme lack of affordable housing in regional areas – to name just a few of the challenges!

Many managers and leaders right across the sector face difficulties finding employees, with recent comments like:

“It’s much more difficult to find new staff especially in specialist roles.”

– CEO, Financial, legal and emergency support services, NSW

“It is becoming more difficult to recruit appropriately trained and qualified staff.”

– CEO, Provider of multiple services, NSW

“It’s diabolical to recruit in WA right now. Staff vacancies and onboarding times have increased.”

– CEO, Provider of multiple services, WA

Those challenges are good reasons for NFP recruitment professionals to make use of as many tools as possible when it comes to hiring. Improving your job ads and application process can help. And so can creating a strong Employee Value Proposition.

But one tool that many NFPs have yet to embrace is an employee referral program.

As the name suggests, that’s an incentive program to encourage your current employees to refer friends, family or former colleagues for open vacancies in your organisation.

Employee referral programs have some well-established benefits for organisations of all sizes, including:

1. Referred employees stay longer

Research from the US shows that referred hires stay 70% longer than other employees, with 50% of all referred employees staying in their position for at least three years compared to just a year and a half for 50% of non-referred employees.

That’s a pretty significant gain, and it accords with what you might expect given referred employees are likely to start on their first day with at least one friend or supporter established within the organisation – giving them a headstart in creating connections.

2. Referral programs are cheap and easy to establish

While advertising on EthicalJobs.com.au is very inexpensive, many organisations advertise jobs across multiple platforms, which can really add up. Add in the considerable time required to read and shortlist applications, and traditional recruitment can be expensive, particularly for NFPs with limited budgets. Using an agency recruiter for a hard-to-fill role can add $10,000 or more to that total.

Employee referral programs can significantly reduce recruiting expenses by leveraging the network of existing employees. They don’t require a lot of time to set up or run, and you only need to incur a financial expense if the program is successful.

3. Hiring via a referral can speed up your time-to-hire

A study by Jobvite found that it takes an average of 29 days to hire a referred candidate compared to 39 days to hire a candidate through a job board.

An employee referral program is a simple idea. But implementing it successfully can involve navigating a surprising amount of complexity. Some questions that may come to mind include:

  • Do we need to pay a referral bonus? Shouldn’t people just refer their friends because they like working here?
  • Are NFP staff even motivated by money?
  • Do we need to offer a lot of money to make it work?
  • What about other incentives – could we offer something non-monetary?
  • How should we communicate the program to staff to keep it top-of-mind?
  • What happens if the employee doesn’t work out?

To help answer some of these questions, EthicalJobs.com.au surveyed and compiled benchmark data from Australian NFP organisations ranging in size from just a handful of staff, through to the largest (1000+ employees) organisations.

With 43 NFPs sharing their experience and data, here’s what we found:

Only 37% of the NFP sector currently use an employee referral program.

That’s a really low rate compared to the broader economy, where 72% of employers report that they have an employer referral program. But that means it’s also a significant, new opportunity for many organisations to engage with.

Large NFPs are much more likely to make use of an employee referral program than small NFPs.

Overall, larger organisations are more likely to have implemented an employee referral program.

For organisations with less than 10 staff, just 20% of those surveyed currently have a program, while for organisations larger than 1,000 staff, 60% of respondent organisations have a program.

NFPs can hire up to 25% of their workforce via employee referrals – though most hire less than 5%.

While it might seem unlikely, it is definitely possible for an Australian NFP to have a highly successful employee referral program: one organisation in our survey was able to recruit between 21-25% of their employees through their program.

Unfortunately most organisations are not currently anywhere near assuccessful, with the majority reporting that less than 5% of their team came through employee referrals.

That’s a much lower success rate than among employers more generally, where 22-25% of all hires come through referrals.

Most employee referral programs use cash or vouchers as a reward for successful referrers.

While NFP employees may be passionate about changing the world or making a difference, everyone needs income to live on, and just about everyone appreciates a bonus or a gift.

That’s probably why 93% of NFPs that have a referral program provide a monetary incentive – either a cash bonus or a gift card – for successfully referring a new staff member. No organisations surveyed are using more ‘exotic’ rewards like travel, additional leave/time off or a donation to a charity of choice.

More organisations (49%) do prefer to use gift vouchers rather than cash – which 44% use – as an incentive. One advantage of using a gift voucher is that it allows an organisation to work with local businesses to request a donation of gift cards that can be used for this purpose.

Most employee referral programs in the NFP sector pay less than $500 for each successful hire.

An employee referral program doesn’t need to be expensive – in fact most NFPs with a program (80%) pay or gift less than $500 per successful referral. The other 20% spend between $500 and $1000.

That’s to be expected in a sector where budgets are often very tight. And it’s a lot less than some Australian private sector employers who pay as much as $10,000 for a successful candidate for some hard-to-fill roles.

The difference in incentive payment amount may also explain the significant difference between the low percentage of hires that come via referral in the NFP sector vs the 22-25% in the broader economy. Research has found that up to a point, a higher incentive payment generally results in more successful hires via referral.

When it comes to timing their incentive payments/gifts, most NFPs wait some time after the new employee starts to pay the incentive bonus, rather than immediately on hiring.

50% of respondents said they paid the incentive between 1 and 6 months after the hire, while a third of respondents waited more than 6 months before paying the incentive.

Key tips for starting an employee referral program

The survey respondents had a variety of great tips for other NFPs looking to implement a referral program, including:

  1. Be clear on what the criteria are for being eligible for the referral payment/gift– for example, make sure those involved in the recruitment process or decision making process for the candidate they have referred are not eligible;
  2. If you’re limited by tight budgets, ask local businesses to donate gift cards that can be used for staff incentive payments;
  3. Be clear on the timeframe of when the referral bonus/gift card will be processed, to avoid disappointment;
  4. Make sure the program is communicated well when first launched and with regular communications from then on;
  5. Provide regular updates to your workforce on what roles are currently open or are difficult to fill, so they know who to consider;
  6. Ensure you ask how candidates heard about the role in your interviews – to make sure you catch when someone has been referred; and
  7. Remember to continually promote this – put details in your onboarding documents, in internal staff or volunteer newsletters, on your internal messaging platform, and on your intranet.

Got any tips for other NFPs wanting to implement a successful referral program? Please leave a comment below!

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