What is a candidate reference check and why should you do one?

Sometimes, something as simple as an candidate reference check can save your business $100m. This is something former Yahoo CEO Marissa Mayer experienced first-hand when she hired Henrique de Castro as her COO in 2013.

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Faced with the prospect of rebooting the floundering company, she hired de Castro, an ex-Google employee with an impressive set of credentials. But her critical mistake was not checking his references before bringing him into the fold. If she had, she might have chosen a different candidate.
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“Not well-liked,” read one former peer’s feedback. “Difficult personality,” read another. Just over a year later, de Castro was fired, earning him a $109m payout — and Mayer’s decision became a cautionary tale for business leaders and talent teams everywhere.
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So what might have prevented this from happening? It’s all in how you carry out an effective employee reference check.
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In the next few articles, we’ll explain everything you need to know about the employee reference check process, including what they are, how to do them, and the questions you need to ask. In this first post, we’ll get back to the basics: what is an employee reference check, and how can they benefit your hiring process?

‍What is an employee reference check?

In the simplest terms, an employee reference check is a method of verifying information provided by a candidate during the hiring process, and gaining feedback on them from former peers, colleagues, and managers.
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It’s an essential part of the recruitment process that forms one of a few pre-employment checks employers or talent acquisition specialists may carry out before bringing a new employee onboard. Reference checks can vary per organisation, role, or sector, but they’re not the same as a background check (we’ll get to that bit in a minute).

The purpose of the employee reference check is to collect 360 feedback on a prospective employee. This involves contacting a candidate’s former managers, direct reports, and peers — known as ‘referees’ — to find out more about their strengths, working styles, and areas for development. They might also include finding out more about a candidate’s personal attributes or character to understand how they’ll fit within the existing culture and team.
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Depending on the role or sector, this process may also involve contacting personal connections, or customers.

‍What’s the difference between a reference check and a background check?

As two key methods of pre-employment screening, employee reference checks and background checks may sound quite similar, but each has a different purpose and outcome.
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While employee reference checks provide better and more useful insights on a candidate’s skills, experience and personality, a background check is usually used for employee verification.
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Background checks help employers validate details about a candidate, such as their identity, criminal record, or financial status. They’re usually carried out for safety or compliance reasons, and can vary depending on the role seniority or sector.

For example, candidates applying for roles in the financial services or fintech sectors may be required to provide a credit report. Meanwhile, educators, teachers, or anyone working with young or vulnerable people are required to undergo enhanced criminal record checks.
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Different types of background checks include:
- Identity
- Criminal record
- Financial status
- Educational background
- Global sanctions and watchlist

‍What are the benefits of doing a reference check?

We know that hiring can be a tricky process. But we also know that hiring someone that’s not quite the right fit is up there on the list of things you want to avoid when expanding your team — both for you and the candidate.
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Here are some key benefits to conducting an employee reference check:
- Reduce the risks of mis-hiring
- Identify the best candidate
- Reduce hiring bias
- Support your managers
- Improve employee onboarding
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Let’s take a look in more detail.

Reduce the risks of mis-hiring
Hiring employees can be difficult, but parting ways when things aren’t quite working out is harder. When an employee leaves your organisation, it costs about 1.5 to 2 times their salary to replace them. A recent study found that in the last decade alone, the cost of employee turnover has increased 25%, with the annual costs to the economy in the trillions.
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But that’s not the only potential pitfall of a mis-hire; it can also impact your existing team’s motivation and engagement, which could contribute to lower levels of morale and productivity. Conducting employee reference checks helps minimise this risk by ensuring you have all the information about your candidates before making a decision to hire them.
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Support your managers
Once you’ve hired your newest employee, your next task is to set them up for long-term success at your organisation. But having the right insights to make their first few weeks a success is critical.
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When you conduct an effective reference check, it means you can equip your managers with the information they need to welcome their new team member — such as preferred working styles — and help them build out an effective onboarding plan. Ultimately, this approach not only sets your new joiner up for success, but it also does the same for your manager, too.

Identify the best candidate
Sometimes a good reference check can be a key differentiating factor when it comes to who you hire. Whether you’re stuck between two top candidates, or have a full talent pool to dive into, a 360 reference check will help you get a read on which candidate is the best fit for the needs of the role, as well as the culture of your organisation.

Improve employee onboarding
For employers, having a better understanding of employee needs or ways of working is especially important if you want them to stay long-term. For example, a reference check might reveal that your candidate is more introverted than they appeared in the interview. Knowing this information before their first day means you can adjust their onboarding experience and set them up for long-term success.

Reduce hiring bias
At a rapidly growing company, bias can often creep in at the reference checking stage — especially when talent acquisition teams or hiring managers need to hit hiring targets at speed.

Conducting a reference check — especially using an automated platform like HiPeople — can help reduce these unconscious biases by comparing candidates across key variables such as their experience and skill sets. Transparent reporting can also allow more people to have oversight on hiring decisions.

‍We can help you hire better, faster

‍Stick around for the next part of this series very soon, and follow us on Facebook and LinkedIn to get the inside scoop on when a new article launches. Meanwhile, if you’d like to learn more about how we can help you streamline your hiring process with HiPeople, then book a free demo with a member of our team.