Is an Employee Referral Program Right for Your Business?

referral bonus in patriot hrWhen a company faces challenges locating quality candidates for skilled job openings, offering a referral bonus to employees can help.

This incentive is offered to existing employees after referring a colleague who is hired and remains with the company for a certain length of time. The amount, which is determined by the company, is generally less than the cost of recruiting a new hire.

Should employers offer a referral bonus program? The decision requires an in-depth review of their current recruiting strategy:

    • How much time and resources are used for recruiting for specialized or high-turnover assignments in the organization? Does this exceed a proposed bonus policy?
    • What information can current employees provide to help refer new candidates for open assignments?
    • What bonus amounts are fair to secure the right candidates for assignments, based on the skills and background needed?
    • How will the company track incoming referrals and those resulting in successful hires, using the current payroll system?
    • Is there a determined length of time for new hires to be on the job before referral bonuses will be paid?

When processing an approved referral bonus, all applicable state and federal taxes should apply. Any referral bonuses must also be reported as income on the employee’s year-end W-2. While some companies pay out referral bonuses 30 to 90 days after a referred employee maintains their job status, other companies may choose to pay this bonus at the end of the fiscal year.

This content is provided by Patriot Software, Inc., developer of online software solutions for U.S. small businesses, including online payroll software, applicant tracking software, employee self-serve software, and human resources software. For more information, visit www.PatriotSoftware.com.

We provide fast, simple, and affordable accounting and payroll software. After a rough start-up experience, we know first hand what small businesses need in order to breakthrough and achieve success. So we created a software service to help you keep the two things you don’t have enough of… time and money.

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