The definitive guide to pre-employment background checks for small businesses. Who does background checks? How do they work and what are the pitfalls? Everything you need to know – and everything you didn’t know you needed to know – about background checks is here for you.
The United States has one of the most mobile workforces in the world. While Germans stay in the same job for a decade on average and Britons and Canadians’ typical tenure is eight years, the average American switches jobs every four years.
This kind of mobility, which often sees employees move across state and county lines, puts an added burden on the recruitment process. A lucrative industry has emerged to provide background reports on this workforce but it can be hard to navigate, especially for busy small business owners who don’t have a dedicated human resources team to rely on.
1. Who conducts employment background checks and why?
If you’re an employer and you want peace of mind over a potential new hire then you can choose to run a background check. This is normally done when you’re at the point of making an offer but some organizations opt to run checks on several shortlisted candidates as a means of choosing between them. There are a number of roles that require mandatory checks in the United States, from almost all types of school employee and peace officers, to racetrack employees and driving instructors. These regulations differ from state to state. For example, anyone applying for a position in any of the following facilities or organizations in North Carolina needs to undergo a criminal record check:
- Nursing homes
- Mental health facilities
- Home care agencies
- Day care facilities
- Child Placement agencies
- Substance abuse facilities
- Any for-profit or non-profit institution that provides care to children, the sick, disabled or senior citizens.
And here’s a useful breakdown for Minnesota.
One of the main reasons that businesses both large and small go to the effort and expense of running screens — apart from mitigating the risk of workplace violence or employee theft — is to avoid liability. A roughly $50 investment could save an employer from hundreds of thousands of dollars in damages from a negligent hiring lawsuit. This is the primary reason that some seven out of ten employers said they conducted at least a criminal check on all job candidates, according to a 2012 survey by the Society for Human Resources Management.
2. What kinds of employment background checks are there?
The most common forms of pre-employment screening are criminal records checks and credit reports. Other forms include driving records, as well as verification of education, identity and previous addresses. Searches can include the sex offender registry, credential verification, reference checks and in some instance searches under the Patriot Act (terrorism watch list). In addition, there are drug tests and even lie detector tests — although these are prohibited in all but a few instances.
3. How do employment background checks work?
Background checks, performed for employment purposes, are generally conducted by Credit Ratings Agencies, and are regulated by the Fair Credit Reporting Act (FCRA) as well as state and local laws. There is no one, all-knowing database which gets searched. There are county court and federal records, financial records, credit histories and a host of other data sources. These FCRA-compliant data providers, who have access to millions of records, work with reputable agencies to compile reports.
4. What are the legal steps involved in a background check?
There are four main steps that you have to follow to stay on the right side of the law.
- Disclosure: Candidates must understand that you are conducting a pre-employment screening as a pre-condition of an offer.
- Consent: You need to obtain the candidate’s consent, typically in written form, as well as making sure they receive full notification of the agency conducting the check and their rights under the FCRA. The candidate must also provide sufficient personal details for the check to get underway.
- Investigation: The report is compiled once the candidate has provided sufficient personal details for the check to get underway.
- Review: you will receive the report which will typically be marked “clear” (go ahead and employ) or “consider” (something of concern has been found) depending on the agency you’ve appointed.
5. How much do background checks cost?
This is the tricky part. Many agencies appear to charge a flat rate for packages of checks. But the cost of a background check is inherently uncertain as you don’t know what you’ll find. The best illustration of this is access to county court records.
Some county courts charge a fixed fee for retrieval of criminal records. If a candidate is or has been resident in one or more counties, there will be charges related to access for each county database. In almost all counties the charges hover around $4. New York is the exception with a host of its counties charging $65. Checkr, the agency providing background checks via Workable offers a full list of county court fees.
Some agencies absorb part of these costs but others will pass this on to employers who will find themselves with a bigger than expected bill. Read the terms and conditions carefully before going ahead.
6. What if the pre-employment check reveals something negative?
If your checks come back clear then your next steps are obvious. If it turns up an information that might lead you to reject employment to the person you’ve had checked out, there are a number of legal steps to consider. The name given to the legal process of denying employment based on the results of a background check is “adverse action”. When you decide to take this action, you are legally obliged to inform the candidate of your intent. They in turn have 7 days to dispute the results of the report.
7. What rights does a candidate have during the background check process?
They have the right to dispute the report, which obliges your screening agents to repeat the investigation, paying special attention to the point or points that led to adverse action. This could mean anything from verifying a mistaken identity, to disputing a county court conviction or seeking clarification on professional or educational qualifications. With most agencies this process can be repeated twice if the candidate is intent on disputing an adverse result. As long as the proper steps are taken to inform the candidate and the dispute rules are followed, you can disqualify them safe in the knowledge that you’re FCRA compliant.
8. Should a candidate be disqualified if something negative is found?
Background checks should be used to inform your hiring decision, not to make that decision for you. Every company develops their own hiring policies, and different roles are governed by their own sets of regulations. It is important that decisions are made based on the position for which you are hiring. Remember when you commission a background check, in most cases, you’re buying a guide and not the final decision.
See our Employee Background Check Policy Sample for a starting point in developing your company policies.
Frequently asked questions
- What are employment background checks?
- Employment background checks are investigations conducted by employers to verify the information provided by potential hires. They can include checks on criminal records, credit reports, driving records, education, identity, previous addresses, and even drug tests.
- Why are employment background checks important?
- Background checks are crucial for mitigating the risk of workplace violence or employee theft and avoiding liability. They provide employers with peace of mind over potential hires and can save an employer from significant damages from a negligent hiring lawsuit.
- What are the legal steps involved in a background check?
- The legal steps involved in a background check include disclosure, consent, investigation, and review. Employers must inform candidates about the check, obtain their consent, conduct the investigation, and review the report.
- What happens if a background check reveals something negative?
- If a background check reveals something negative, employers must inform the candidate of their intent to reject employment, giving the candidate 7 days to dispute the results of the report. This process is known as "adverse action".
- What rights does a candidate have during the background check process?
- Candidates have the right to dispute the report. If they do, the screening agents are obliged to repeat the investigation, paying special attention to the disputed points. The process can be repeated twice if the candidate continues to dispute an adverse result.