This article develops a career‐concerns model to examine the screening function of employee referrals. First, I show that employees' reputational concerns provide them with an incentive to refer high‐ability applicants. This result explains how firms that offer fixed payments, rather than bonuses contingent on the referral's posthire performance, can elicit high‐ability referrals from their employees. Second, I consider the promotion competition as a potential mechanism that creates a conflict of interest between a firm and its employees concerning referral hiring. I show that referrals may still serve a screening function even when the promotion competition distorts employees' referral decisions.