How Would Changing Our Employee Referral Bonus to 8.3% Affect Us Legally and Practically?

Hi Friends, I am working as an HR professional for a product-based US software company. Our management is prepared to offer a referral bonus to the referring employee, equal to what we pay to consultants, which is the industry standard of 8.3% of the finalized annual CTC. However, our employee referral policy specifies a minimum fixed amount such as 20K, 25K, etc., based on the cadre.

Potential Impact of Implementing Management's Option

Could any of you clarify for me the potential impact of implementing the management's option? Are there any policies or laws that regulate the referral policy?

Regards, Vineetha

If you are hiring for identical pay packages, declaring a block payment as a referral bonus would make sense. However, when there is a disparity in pay and you are hiring for various kinds of roles, here's how the 8.33% for an employee works.

The amount is divided into three parts. The first part is paid when the candidate joins the company. The amount is disbursed depending on the pay cycle. Suppose the candidate joins within the 15th of a month and your pay cycle closes by the 17th, hence the employee who referred receives the bonus along with that month's salary. However, if the candidate joins after the 17th, the payment would be processed in the following month's payroll.

The second payment is made when the candidate clears the training assessment and is ready to join the production team.

The third payment is rolled out upon the confirmation of the candidate.

The payment is bifurcated only to negate the effects of attrition or misfit.

Understand what works best for you and set the processes accordingly.

Wish you all the best!

Thank you for the reply. However, my view is that in the meantime, we should not disclose the salary details of the new employee to anyone. If we are going to share the percentage (8.33%) of the salary as the referral bonus, there is definitely a possibility of leaking the details of his salary. This could potentially create some disturbance in the work environment regarding pay disparities. How could I tackle this?

Best regards,
[Your Name]

Instead of giving a referral bonus based on a percentage of CTC, you should fix a set amount depending on the grade of the incoming employee and their experience. This amount should be released upon completion of the probationary period by the new incumbent. It is also a condition that both employees should be on the company's payroll at the time of the referral bonus release. If the referring employee has left the company by that time, they are not entitled to this bonus. This policy should be clearly defined in the company handbook.

Thank you very much, Mahaveer. The thought of documenting the clarity on the policy is greatly appreciated. This strategy will also contribute to attrition control to some extent.

Regards,
Vineetha

Employee Referral Policy Considerations

The Employee Referral Policy recognizes that your employees play an important role in the talent acquisition process. They have a strong understanding of your business, its culture and values, and what it takes to be successful in a high-performance and dynamic growth environment.

Considerations While Drafting Your Policy

- If employees refer family members or relatives, they may do so, but ensure that they are not entitled to a bonus.
- If more than one employee refers the same candidate, the one who emails the above email ID first will be the only one considered.

Regards,
Narayan

Thank you for your input. I would need further clarification on the first line of the consideration points. Even though candidates are referred, they will have to go through all rounds of the interview. In such a scenario, blocking the referral bonus for referring family members/relatives is mandatory.

Please elaborate on this point.

Regards,
Vineetha