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Expand Your Workforce With a Referral Bonus

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One of the most common challenges for business owners is finding the right fit for every role.

Whether you’re a CEO or a hiring manager, you’ve probably experienced hiring talented employers who end up not thriving at their roles.

Not to worry, you don’t have to go through all this alone. Your team can boost your chances of finding the perfect fit for vacant positions. That’s when a referral bonus comes in handy.

But what’s a referral bonus? Why is it significant in the hiring process?

In this article, we’ll tell you everything you need to know about a referral bonus. We’ll discuss its types, advantages, and significance.

What Is a Referral Bonus?

In a nutshell, an employee referral bonus is an incentive for employees who help bring in new talent to the organization.

In other words, it’s when someone recommends a friend or a colleague to join the company. When the company hires that referred applicant, the referrer receives something in return.

It can be a monetary reward, such as a cash bonus or a discount. It can also be a non-monetary referral award, like free services.

An employee referral bonus is a convenient way to expand the workforce and allow current employees to benefit financially from referring the right people.

Is a Referral Bonus Taxable?

It depends. According to the IRS, cash benefits are taxable, and your employer should include them in your gross income. Cash benefits include cash bonuses, gift cards, and prepaid credit cards.

An employee referral bonus may not be taxable if it’s a non-cash reward. That includes gift cards under $100, meals, and parking spots. The IRS considers such rewards “de minimis” so they’re not taxable.

Why Offer a Referral Bonus?

So what’s the point of having an employee referral bonus program? What’s wrong with posting job ads and waiting for candidates to apply?

Incentivize Employees to Recommend People They Know

Establishing a robust referral program isn’t only a great way to find new talent. It helps motivate your employees too.

Since they have a chance to get something in return, employers will do their best to bring in the best candidates.

With a decent referral rate, you can also expect your employers to value the business more and contribute to the company’s success.

Find Great Employees

Statistics show that candidates who get a referral are four times more likely to get hired. Another stat shows that 45% of referred employers stay at the company for more than four years.

These stats show that referral programs are excellent for finding the right talent for your team.

Get Connected With Qualified Candidates

Even though only 7% of the hiring pool are employee referrals, 30-50% of those who get hired are referrals. This data shows how much an employee referral program can give you access to an excellent talent pool.

By educating your employees about the role you want to fill, they’ll suggest candidates who fit in perfectly with the job description.

Saves Your Company Resources

A referral bonus isn’t only an effective way to find talent, it’s also a cost-effective method. Employers save around $7,500 per referred employee in sourcing costs and productivity. 

When it comes to more advanced positions, the hiring costs are usually high. Hiring teams need more money and time to fill these roles.

Employee referral programs help cut down these costs and save your company valuable resources.

What Can a Referral Bonus Be?

Even though most referral bonuses are monetary, there are other effective ways to reward employees for referring qualified candidates. Let’s take a look at the types of referral bonuses.


Cash bonuses are the most common type of referral bonuses.

Depending on the company, cash bonuses are either paid when the candidate is hired or when he spends a certain period in the company.

Some companies offer higher cash bonuses in case the referral was for an advanced job position too.

Gift Card

While cash might be more valuable to some, gift cards are also a decent way to reward your employees.

Gift cards are often used to test how the referral system will work so that you can include a more valuable referral incentive in the future.


Monthly or quarterly raffles are an ideal way to reward employees who recommend talented candidates.

If you don’t have enough budget to reward every successful referral, you can include the employees who refer the most candidates in a raffle. The winners will get a bonus prize at the end of the month, quarter, or year.


Some companies opt for prize bonuses instead of cash or gift cards. These include gifting a laptop or a mobile phone to the employee who refers the ideal candidate.


Who doesn’t love a fully paid trip to their chosen destination?

While this might be a huge incentive, it creates competition between employers to recommend the most talented candidates.


Offering perks and benefits is another way to reward employees for successful referrals. For example:

  • More paid-off days
  • Paid lunch by the company for a specific period
  • Allowing pets at work
  • Flexible work schedule or remote work

How Do You Get a Referral Bonus?

If you’re an employee, once you know that your company offers a referral bonus, you should understand the job description and requirements.

That way, you can search for the right talent that matches the company’s strategy and goals. Then, you can write a letter of recommendation for a friend.

Depending on your company, you might get your referral bonus immediately after the referred candidate is hired or after he spends a certain period in the company.

Learn more about the basics of letters of recommendation if you want a successful referral.

When Should You Refer Someone for a Job?

Before referring a friend or a family member for a job, you need to make sure he’s a good fit. You should understand the job description, requirements, and duties to ensure he’s the right one.

It’s worth noting that having the skills and qualifications isn’t enough to refer a candidate. He should be able to fit in well with the rest of the team to create a healthy work environment.

The candidate should also be motivated and excited about the job. Before you go ahead with the referral, ask yourself if you’d like to work with that person. If you’d like to work with him every day, then probably he’s the right one. If not, maybe you need to look further.

How Much is a Job Referral Bonus?

Job referral bonuses differ from one company to another. For instance, companies with high turnover rates usually offer fewer referral bonuses.

What is the Average Employee Referral Bonus?

The average referral bonus range is around $2500. But bonuses can range from $1000 to $5000.

Employees who help fill advanced positions usually get higher referral bonuses.

How Do Companies Pay a Referral Bonus?

When implementing a referral bonus program, companies should consider the amount, timing, and taxation.

To repeat, the average amount of referral bonuses is $2,500. The amount varies depending on the budget, position, and size of the company. 

Regarding timing, some companies pay referral bonuses as one lump, while others prefer to split it into multiple payments.

For example, you can pay a referral bonus for your employee after the new candidate spends 90 days at the company. In another scenario, you can pay 50% of the bonus when the candidate is hired, and the rest after he spends six months at the company.

Taxation is another essential factor to consider. If the referral bonus is a cash prize, then it counts as income and is subject to tax withholding.

If the referral bonus is minor, such as gift cards, meals, and employee parking spots, then it’s not subject to taxation.

Frequently Asked Quetions

Who pays for referrals?

Companies that have a referral bonus program usually pay around 5% to 10% of their revenue as rewards for employees.

Some companies also offer a referral bonus for loyal customers who refer the product or service to their friends and family.

Does HR get referral bonuses?

Since HR representatives and executives have control over who gets hired, they’re not eligible for referral bonuses.

How effective are job referrals?

Job referrals are effective in the job search process for employers and job seekers.

Candidates referred by a current employee have a better chance of landing a job as they come with a level of credibility and trust.

Referrals also boost the hiring process and increase the chances of finding a perfect job fit.

Who’s allowed to take a referral bonus?

Employees who submit a referral form to Human Resources or the hiring manager are eligible for a referral bonus. The form usually includes the candidate’s resume and application form.

HR representatives and executives aren’t eligible for referral bonuses because they have control over who gets the job.

What happens after a job referral?

After a job referral, the HR or hiring manager will review the candidate’s resume and application. He’ll consider the candidate’s skills and qualifications to determine if he’s a good fit.

If the referred person is deemed a good match, HR will invite him for an interview for further assessment and can potentially hire him.

Do referrals have a bigger chance of getting a job?

Yes, referrals often have a higher chance of landing a job as they come with a recommendation from a trusted employee. That’s why hiring managers see them as credible and trustworthy.

Studies show that referrals increase the chance of a job match by 2.6% to 6.6% compared to other candidates.

Wrapping Up

A referral bonus is an incentive that rewards employees for helping the company find new talent by referring a qualified candidate. It’s an effective way to expand your business workforce, motivate your employers, and cut down recruitment costs.

There are many types of employee referral bonuses, from cash bonuses and gift cards to paid time off and extra vacation days.

Ensure you pick the type of bonus that’s favorable for your employees so that you motivate them to refer the right people.

We hope you enjoyed our article about referral bonuses as much as we enjoyed writing it. If you have any comments or questions, don’t hesitate to leave them in the comments section below.

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