Conducting Employee Background Checks – Why Do It and What the Law Allows

Updated: Monday, April 30, 2012 - 18:59
Created: Wednesday, December 7, 2011 - 07:44

Making the right hiring decisions for your company is critical to your business success. But getting it right isn’t easy.

We all know the negative consequences of making the wrong hire – it can lower your team’s morale, hinder productivity, and even impact customer relations. But did you know that the cost of replacing an experienced worker who doesn’t work out can cost 50 percent or more of that individual’s salary, and these costs go up if the employee has specialized skills such as nursing (Source: AARP).

There are many things you can do to ensure you make informed decisions and hire quality employees and one of them is to use background checks.

Reasons to Conduct a Background Check

A pre-employment background check can not only save you money in the long run, it can also protect your business. How? If your employees come into direct contact with your customers (for example, in a care capacity) and cause harm to a customer, your business can be liable if that employee has a criminal record. A background check can also provide insight into an individual’s behavior, character, and integrity.

Which Types of Background Checks Can and Should You Conduct

There are several background checks that you can consider as you build a profile of a future employee. Not all of them, however, are appropriate or even possible for every company. For example, how you may employ the information gleaned during a criminal background check when making hiring decisions varies from state to state. Furthermore, any check on an individual’s credit score or military service requires consent.

To read more about the types of checks you can and cannot conduct, refer to SBA’s Guide to Employee Background Checks.

As a general rule of thumb, it’s worth considering the following background screening: credit checks (see more on why below), drug tests, past employers, criminal background (check with a lawyer first to see what your state permits), and driving records (sometimes necessary if the job demands this skill).  If your employees work with children or in other care positions, it may also be worth checking the sex offender registry.  Some states may require it.

Should You Run a Credit Check on Potential Employees?

Used by 60 percent of employers when making hiring decisions, a credit check (which only shows history, not a score) can be a good indicator not only of an individual’s fiscal aptitude but also overall integrity. If a job description stipulates that an employee will have access to sensitive financial or customer information, many employers rely on a credit check for that extra security.

Despite the popularity of credit checks, the use of this information to judge character is increasingly being considered poor practice and unfair, thanks to difficult economic times which may blot the credit history of an otherwise fiscally responsible individual. Because of this, many states and equal opportunity organizations are challenging the availability of credit information.  In most states, however, it remains a fair and legal practice (Hawaii and Washington ban it).

Here’s what the law allows: according to the Fair Credit Reporting Act, federal law allows using credit information for employment purposes. But there are some caveats:

  1. You must get the job seeker’s written consent.
  2. If you decide not to hire a person based on this information, you are required to let the candidate know the source used for the check. (In truth most employers don’t give a reason for not hiring an individual to avoid this sort of legal wrangling.)

So, should you run a credit check? Your best strategy might be to limit credit checks to positions for which a job seeker’s credit history has relevance, and be sure to gain the applicant’s consent to run this check and an opportunity to explain any red flags.

Stay Within the Law by Working with a Screening Firm

Many private screening firms will offer complete background checks while helping you stay compliant with the law, although you should concentrate only on checks that pertain to the job at hand unless you need to know every little detail about your next employee and have the budget to pay the costs.

Do Your Own Detective Work

While an outsourced screening firm can help you comply with the law and run the checks your business needs, there are still some basic checks that shouldn’t be ignored that you can do yourself:

  • Verify What’s on the Resume – Call colleges and universities to verify the degree earned and ask previous employers to confirm the applicant’s work history (not a reference just a yes/no confirmation of tenure).
  • Use the Web –You’re not looking for dirt on this one, but a quick web search can actually help you round-out the profile of your future hire, their interests, achievements, and even mitigate information that a formal background check has revealed.

Related Resources

Type: Community Blog