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Disadvantages Of Employee Referral Programs

Diversity hiring High impact hiring
By Taggd Editorial Team

July 28, 2022


1 min read

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Have you ever considered hiring talent for your business by using employee referral programs? If you look at it, your teams who are working on different projects are on the front-line and they know the ground realities about those projects.

While it is beneficial in many ways, and statistics also favor Employee Referral Programs (stands at the top of talent acquisition pools at 58%), there is a downside to it too. What are they? Let’s find out.


Employees usually refer candidates in their close network, such as people they worked with earlier or attended professional courses with or people from their social circle, and so on.

While it is fine to have such close individuals as fellow coworkers, employees who are not part of this relationship can feel alienated.

A different aspect of this groupism is that when an employee refers talented individuals through the referral program, there are chances that when this employee quits the organization, he or she might take these referred employees along with them to the next organization because they are aware of the skill and talent that these employees possess.


Referrals can give rise to favoritism simply because employees are referring their friends and close associates. While the hiring parameters for referred candidates remain the same, one cannot overlook the aspect of partiality creeping into the process in such cases. Hence, there is a chance that referred candidates have a better scope of moving to the next stage of the talent hiring process and eventually being hired.

Lack of Diversity

For any business to thrive, fresh thinking, new strategies, and access to various perspectives are needed. This helps nurture a variety of ideas. If your team consists of individuals who come from the same background and are like-minded, it will lead to a lack of diversity. It will limit the variety of ideas and opinions, which again will affect the overall quality of business.

Unprofessional Practices

While employee referral programs are implemented based on the trust that an organization has on its employees, there are chances that some employees may take advantage of this process and take part in unethical practices. For instance, an employee referring many individuals can be hand in glove with an external and unauthorized hiring agency and share the incentives received from these programs with that agency.


To conclude, while employee referral programs are a good idea and give employees additional involvement in the hiring and recruitment process, there needs to be some ground rules and guidelines in place to make it a great hiring tool. There must be a limit on the number of individuals that an employee can refer, and the referred individual should be in a different team or project. The referral incentive should be a mix of monetary and non-monetary rewards so that money is not the only incentive to refer someone. A report should be generated that gives a clear picture of how many employees take part in the referral program and what is their contribution towards it.

Although referral programs are a boon for hiring talent, positive results cannot be achieved unless it is effective and fool-proof.

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By Anshuman Srivastava

Chief Customer Success