By Doug Herbert

How much does it cost a contractor to hire one employee? According to my concrete contractor buddies, Sean Smith from Cleveland, Ohio and Jason Ells from Indianapolis, Indiana, the amount is at least $1,000 per new employee. Based on my experience and calculations, that number is spot on.

Here are just some of the areas where we spend time and expenses when hiring an employee:

• Writing and placing the “Help Wanted” ad
• Reviewing the applications
• Interviewing the applicants
• Having the new hire fill out the new employee paperwork
• Sending the new hire down for a drug test (if your company requires that)
• Having the new hire go through company orientation
• And, finally, training – whether formal training, or just having them pick it up from the men on the job sites

Additionally, if you do any of these tasks yourself, you have to factor in the opportunity cost: If you were not spending your time doing this, you would likely be spending your time doing something more profitable. Examples of more profitable activities include getting a new customer, implementing a new system, or getting a better price on materials. The opportunity costs really make hiring an employee an expensive proposition.

When you add in the costs of people you hire who do not contribute on the job site and only last a few days or a few weeks, the costliness of the undertaking can become downright frightening.

Reduce Hiring Costs with Employee Referrals

One of the best ways to reduce these costs is to set up an employee referral program that encourages your employees to refer their friends and peers to join your company.

Referred employees are more likely to be better employees because birds of a feather flock together. Your good employees likely know other good workers. The people that they refer are usually better workers than a random person answering your “Help Wanted” ad.

Also, the referred person will feel more obligated to come to work every day because their friend will know if they call in sick or miss a day. Or, as we have seen happen, the new employee is more likely to get to work each day due to ride sharing with the one who referred them.

How to Set Up the Program

Set up an employee referral plan at your company for your current employees. When they refer someone to your company that you hire, they get a referral bonus if that new hire stays with you for a certain period of time.

I recommend that the new employee has to be there for 90 days before the referral bonus is paid out. On their 90^th day, the employee that referred them gets the referral bonus.

What will motivate your employees to refer others to join your company? The answer is, simply, money. Sure, some people are motivated by other things like time off, prizes or perks. Money, however, is the universal motivator. Everyone has a use for it. Offer a monetary bonus between $150 and $400 as your referral reward. Consult with your attorney and accountant for the best way to do this.

Concrete contractors will often balk at that dollar amount. They think it is too high, but I believe it is very inexpensive compared to hiring the wrong person. The caliber of men you will get from employee referrals will almost always be better than guys just walking in off the street, applying for a job.

You want more people like your current employees. Your current employees know what the work is like, they know what is required of them, and what the hours are like. The people that they refer are going to be similar to them.

I love this concept because there really is not much risk for the contractor. If the new employee is not a good worker, then either they will quit or you will get rid of them before 90 days.

If they are a good worker and they have been there for 90 days, then they will probably stay for a while, which is what we want. Besides, you have made more on their labor up to this point than whatever the referral bonus is.

Five Common Mistakes

There are five common mistakes I often see contractors making when they implement an employee referral strategy.

The first mistake is making the referral bonus too small. The bonus has to be big enough so your employees persuade others to work at your company. You want your employee to think about what they would do with all of that money. Fifty bucks is not going to motivate someone. It has to be a bigger reward than that.

The second mistake is not creating a good place to work. Employees will not refer their friends if they themselves do not enjoy working there. Be sure you provide a safe, reliable place to work, where your employees feel like they are a valuable part of a team and are appreciated.

The third mistake contractors make with referral bonuses is that they pay some or all of the money when the referred person begins working at the company. For one thing, this is expensive. For another, we are trying to find people who will stay with the company, and will work hard enough not to get fired.

You do not want one of your employees sending you crappy people who do not last more than a week just so he or she can get the bonus. We must always reward the behavior we want repeated. So, pay the bonus to every person who refers someone who lasts more than 90 days.

The fourth mistake I see is that contractors make the referral bonus program too complicated. They set it up so the referrer gets 50 bucks when the person starts, then both people will get 100 bucks after 60 days, then the referrer gets another 50 bucks if the person makes it 120 days. On top of all that, they will make all of those payments dependent on the guy coming in on a Tuesday at 9:00 AM to fill out the job application.

See, that is not going to work. Make your program so simple that everyone understands it. In fact, if you have a young child at home, explain your program to them over dinner and see if they understand it. I explained our program to my nine-year-old son. He instantly understood it and started thinking about who he could refer. If it is too complicated, then people will not do it.

The fifth mistake is not making sure the employees know about the program, or not reminding them about it. You may know about the program, but do your employees remember it? You have to constantly remind them so when one of their buddies is looking for a new job, they can convince them to come to your company.

We remind our employees about the program during our weekly safety meetings. We also have a paper advertising the program right next to where their time cards are kept. They see that paper every morning.

Kirby Justesen of Salt Lake City, Utah reminds his employees of his referral program by posting it on the two doors leading into his shop and office. His laborers use both of those doors every day, so they are constantly reminded of the program.

If you currently have a referral bonus program and it is not working for you, or you tried it in the past and did not have success with it, then it is probably because of one of these five reasons.

The most likely reason is the amount is too low. To see if that is the problem, double or triple the bonus amount. Get it up to $300 or $500. Do not be cheap about this! Think about how much money you will make by completing more jobs with more people.

There is one other thing to consider – and this is a big one. Studies show that when employees say they are happy at work, it is mainly because of the friendships they have at their work. This reason is often cited for why they stay at a company. If your employees have friendships at work, then this will help brace your company for the turnover tidal wave as more and more millennials jump from one company to another after very short stints at any one place. This referral program will help reduce your turnover.

So, let this be the year you finally create an employee referral program at your company. Offer a big referral bonus, and continually tell people how they can make money by referring others to your company. You will be very happy with the results.