Employee Referral

Meaning & Definition

Employee Referrals are an effective way to hire new staff. In this type of program, companies encourage their current employees to refer potential job applicants. If they have a candidate hire who was referred by one of its employees and completes the minimum employment requirement, that refer or will receive a monetary reward (bonus). Refer to the company to help fill positions with trusted, safe employees who have already been screened (pre-screened) by other employees.

Important Aspects of Employee Referral

• Helps speed up the recruitment process by providing access to candidates who have been validated in advance.
• Offers an affordable alternative to using job boards and recruiting agencies.
• Provides a higher-quality candidate due to the use of trusted employee referrals.
• Increases employee involvement in the process by helping to keep employees engaged.
• Supports in developing an employer brand or network within a company.

Compliance & Policy Considerations 

There is no specific statutory compliance that will be directly applicable to an employer’s referral program. However, payment to employees (i.e., those who refer an employee) of a referral bonus will be treated as taxable income to the employee and will need to be included in payroll and TDS computations under the Income Tax Act, 1961.