How Employee Referrals Can Reduce Hourly Worker Turnover

With the unemployment rate at its lowest level in fifty years, sourcing candidates is an acute problem for all employers. What was called the “War for Talent” has now given way to the “War for Attention”. This battle is particularly evident in the market for hourly employees. More than 80 million Americans, representing nearly 60% of the U.S. workforce, are paid on an hourly basis. Despite the high numbers of people, employers with a high concentration of hourly workers battle high turnover rates and are constantly struggling to fill open positions in this economy.

Often, an overlooked weapon in this war is the employee referral program. There is overwhelming evidence that employees hired through employee referrals consistently outperform hires from other sources such as job boards, walk-ins or even career websites. Numerous studies have shown employee referrals are hired up to 50% faster and remain employed up to twice as long. Even a simple employee referral program can be an effective way to recruit and retain employees.

Despite the strong evidence, referral programs in many organizations are undervalued and weak, failing to utilize current employees to drive candidate engagement. Ideally, in an increasingly socially connected world, every employee in a company should act as an ambassador for every job opening.

At Cadient Talent, we specialize in distributed hourly hiring. We help companies with geographically diverse operations conduct their talent acquisition program through their local manager consistently and effectively.

For many of our clients, candidate referrals are a statistically significant source of hires. There are numerous benefits, including but not limited to:

• Applicant to hire ratio is significantly lower

• Time to hire is reduced

• Onboarding and training are faster (they already have a good idea of what the job is like)

• Workplace morale is often improved

• Referred employees tend to turnover less frequently and perform better

Let’s take a closer look at one of the benefits – reduced turnover.

Everyone knows that turnover is costly but what is the real economic cost? Many people think it’s the cost to advertise the job or pay a recruiter. It is that, but it’s much more. Local store managers are responsible for many functions; serving customers, managing suppliers, operational issues, motivating and training employees and yes, recruiting.

Turnover means that managers must spend more time interviewing candidates and less time with other matters. Once a candidate is hired, that employee must be trained. Sometimes the required training period is extensive – maybe 40 hours or more. You’re paying for that training period and you’re also paying another employee to oversee the training. If the new employee isn’t on board yet, you may be paying overtime to cover open shifts. Don’t forget the cost of uniforms and equipment. The overall cost adds up and is expensive. It’s not a stretch to say that turnover can cost $1,000 or more per new hire for an hourly employee.

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In our experience, an employer can achieve a 20% reduction in turnover or more, relative to employees hired through an effective employee referral program. If you use an employee referral program to successfully hire 30% of new employees, your turnover rate should decrease 6%. Even after paying a nominal referral fee to your employee, that’s a fantastic return on investment – and great motivation for more referrals! This will also improve customer satisfaction with a more experienced and engaged workforce.

The bottom line is that each employer needs an effective talent acquisition strategy and an employee referral program should play a key role in that strategy. A best practice is for employers to maintain a workforce where around 30% of their employees were sourced through employee referrals. Going below that threshold is missing an opportunity to better control costs and hire better employees and going above the threshold could risk missing your diversity goals and thwarting innovation due to like mindedness in the organization.

There is a sweet spot, and successful organizations gain significant advantage from implementing an effective employee referral program. Employee referral programs save you time, money and energy throughout the hiring process and help you maintain an effective and productive workforce.

Read More: 6 Key Trends and Statistics to Drive Your Recruitment Strategies