Let me start by clarifying what I mean by "referral fee."
I'm not referring to a placement fee paid to a recruiting firm determined by contract terms. I'm referring to a "bonus" paid to either an internal employee and/or a professional not associated with a recruiting firm upon the hiring of a candidate who was referred by that individual.
Many firms have such a referral program in place with the goal of motivating people to refer candidates, so that they don’t have to pay the much higher recruiting fees. I agree with this strategy. However, I think some stipulations need to be put in place, and there should be some clarification as to what a “referral” is.
Our firm has offered referral fees in two separate types of scenarios. The first is when one of our internal employees refers someone to come and work as a recruiter/employee of our firm. In this case, the fee is paid to the employee once the new hire has either hit the 90-day mark of successful employment or they have made their first sale.
This way we’re protected against paying a referral fee to our employee only to learn, two weeks later, that the candidate was not at all a fit for our organization. So, if you’re going to pay this type of fee, make sure that “deliverables” are put in place prior to the fee being paid.
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The second scenario is a referral fee we offer to our current independent consultants for referring another consultant whom we sign on to an engagement. In this situation, the current consultant is someone with whom we have a relationship and trust his or her professional opinion.
The referral is someone they know, someone whose skill set and performance they can attest. In most cases they will have worked with the referred candidate at a client site or worked with the same consulting firm.
They know they’re available and have already discussed with them working with our firm. In other words, the referred candidate is “delivered” to us ready to start on a new engagement. Once the contract is signed, the referral fee is paid to our consultant.
There is one circumstance in which referral fees have been requested of our firm, but we do not pay them. This is almost always from someone with whom we have no relationship who hears we have an open position and inquires about the amount of our referral fee if they, in fact, know someone who would be a good fit. This is a red flag. Usually, in this case, the person looking for the referral fee has no relationship with the candidate referred.
They cannot attest to their skillset and/or integrity, they do not know if they’re available and/or qualified, and they’re just looking for some extra cash for giving us a name. Ninety-nine percent of the time, when someone gives us a name, it’s just that — a name. And we waste a lot of time to determine that this person is not qualified, not available, and not even interested in speaking with us.
In my opinion, a referral program is definitely something worth considering, as long as there are some parameters put in place to determine what qualifies as a valid referral and when the fee will be paid.
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