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What Employers Need to Know About Background Checks

When it comes to your business, you can’t afford hiring mistakes. And since 30% of small business failure is the result of employee theft, that hiring mistake can mean the difference between success – and failure. And since every business needs to cut cost, and one your biggest expenses is locating, interviewing, and training new talent, every hire needs to be a thoughtful and careful consideration. In light of this, background checks become a critical component to the hiring process.

As a cost-effective and efficient way to “weed” out candidates that are a poor fit for your company, background checks not only cut down on bad hiring decisions, but also proactively protect your company. In this guide, we’re going to talk you through why you should be running background checks on your candidates in greater detail, how to do so, and things to keep in mind when you get the results. Here’s what you as an employer need to know about background checks.

Why you should run background checks

If you own or operate in a large business, you’ve probably already run (and been the subject of) a background check. But many small-to-medium size business simply don’t, typically for one of two reasons. First, in smaller companies, given their nature and proximity between employees and employer, there can be a false sense of security and trust. And secondly, many business owners simply don’t recognize the potential for legal liabilities in relation to prescreening candidates and running background checks.

Background checks look at a lot of information about job applicants, and often include:

  • Verification of address
  • Verification of employment history
  • Education history, including any degrees
  • Professional license verification (i.e. a state healthcare license)
  • Reference verification
  • County and/or Federal criminal history
  • County and/or Federal civil history
  • Sexual offender status
  • Drug testing results
  • Health fraud/abuse
  • Driving history
  • Credit checks
  • Social media screening

Much of this information can be found with little difficulty through internal resources, but a qualified background checking service provider can make things even simpler. As a point to note, however: depending on the relevance to the job the candidate is being screen for, you might not want to pursue all of these pieces of information.

That said, there are several major reasons you should run a background check on all potential candidates:

Legal liability

The term “negligent hiring” is a legal term that describes the liability of an employer for any incidents caused by an employee where the employer knew – or should have known – that the employer had a previous history. For an extreme example, if you run a daycare and unknowingly hired a convicted sex offender, you would be liable for any incidents – and thus guilty of negligent hiring. Essentially, ignorance is not a “get out of jail free” card. You need to know if a candidate could open you up to legal risk.

Integrity

A report from CareerBuilder found that 58% of resumes contain misleading or incorrect information. So when you hire a candidate without doing a background check, you’re trusting them blindly – and the numbers don’t add up to that being a good choice. Some of this false information can include falsified education details, inaccurate job titles or seniority levels, and dates of employment. And when you hire someone who has false credentials, that can affect the morale of your existing employees, too – in a negative way.

Theft

An estimated 5% of revenues from businesses is lost to employee fraud each year, so if you’re worried about employees stealing cash or inventory – you have a right to be. And in smaller companies (<100 employees), the median for loss is even worse – 28% higher, to be specific. And if your don’t deal in money or physical inventory, you’re still at risk. Smaller businesses have fewer resources at their disposal to employ strict security protocols to halt cybercrime. Employees with access to sensitive data have stolen and even sold client and employee information taken from company computers and networks.

Workplace safety

Despite employer obligations to provide a safe workplace, violent incidents are still fairly widespread. These incidents of violence at work cause emotional and physical harm to your employees, damage equipment, and ultimately cost you in both good employees and money. Implementing a background check, however, can turn up history of violent incidents and other indicators for the potential to harm your workplace culture.

Ultimately, a background check is like an inexpensive insurance policy – and a basic one is as cheap as $30.

How to run a background check

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Now that you understand how important a background check is and what it can help you avoid, how do you get one? While you may be able to collect some or much of the information from internal sources or otherwise, a reputable background check provider can coalesce everything into one readable report. But in either case – on your own or with a provider – there are a few things you need to do before you get started:

Review the FCRA beforehand

Job applicants have legal rights, which the FTC and EEOC enforce to protect in the U.S. One such law, put in place by the FTC, regulates background checks and is called the Fair Credit Reporting Act (FCRA). If you are going to use a 3rd-party vendor that obtains and compiles background information, the FCRA applies to you. It regulates the use of consumer credit reports and investigative consumer reports. Under this law, you need properly disclose and obtain written permission to run this kind of inquiry before you request the report.

Disclaimer

Employment laws vary by state and country. The laws and organizations mentioned here (FTC, EEOC, FCRA) apply to the United States. If you live in another country, there may be similar or other laws. So while this information has been researched extensively, it is not guaranteed for complete accuracy and legality to your specific location. Use your local resources and seek legal assistance to ensure your decisions are correct.

Notify and get permission

If you intent to use a 3rd-party vendor, you need to inform the candidate that you’re going to be running a background check and get written permission to do so from them prior to running it. This notification and request need to be in writing and in a stand-alone format separate from the job application itself. The important thing is to be clear about what you will be requesting and that by signing the document, the candidate is authorizing you to obtain a background check on them.

Once you’ve obtained this written permission from the applicant, you need to certify to the vendor that:

  • You obtained written permission;
  • Complied with all FCRA requirements; and
  • Won’t discriminate or otherwise misuse the information in violation of state and federal laws.

Pick a trustworthy vendor

Because of the potential for legal liability, both to your company and your customers, choose a background checking company that you trust. Working with a reputable, experienced company can ensure the screening process is thorough, accurate, and complete. To select one, do your research. Vendors come in many forms and are often built with services in mind for specific needs. Make sure they have a toll-free number that is answered by a real person. Check them out on Google to see if they have any public reviews. Also – avoid instant databases, which are simply that: databases. If you use one of these, you can land your company in a bad place, as most do not check on the accuracy of their information.

Finally, make sure the company that you choose is setup to comply with FCRA law and can be used for hiring purposes; some are only intended (and legally usable) for personal individuals, rather than companies.

Supplement the professional check

Just because you contracted the background screening out to a professional company doesn’t mean you shouldn’t do some research yourself. While a Google search isn’t a trustworthy place to look for information, it doesn’t mean it’s without any worth. Running a Google search as a supplement to the official background check can give you insight into who the candidate is as a person: what kind of things they post on social media, what they blog about, what they write on their profiles, etc.

You may find that an applicant is passionate about their area of expertise or has other skills that can be valuable to you.

A note on background check companies

As a side note, take care with background checkers. Many will encourage you to buy every piece of information available on an applicant – charging you extra fees for each additional tier to do so. If you do need to know everything about a candidate – then O.K. Continue on. But often, you may find you don’t need to know every single detail. If the candidate is a remote worker applying to build part of your website, you probably only need a reference check, criminal report, and technical certification – anything else is probably unnecessary. Take into account the requirements of the job.

What to do with what you find

Once your background check on a job candidate has returned, what do you do with all of it? Two of the biggest challenges to you as an employer can be knowing how to weigh the information you receive, and making sure that your process and decision adheres to state and Federal laws. For example, many states restrict the time period for past history that can be considered in a background check. Most background check providers will provide information for the previous 7 years. Again, check with a knowledgeable provider, attorney, or other state authority to ensure compliance.

That said, use these tips when you review the results of a background check:

  • Look for patterns – With a thorough background check, you get more details than just a criminal history. For example, looking at the dates of a candidate’s previous employments can not only confirm job experience, but also give you other information. If they change employers every 6 months or 2 years, and you’re looking for someone to hang around for the long-term, that can help you make a decision on whether they’re the right fit. Likewise, other details may turn up that show how an applicant strives for success, or consistently encounters (or creates) difficulties. These kinds of things can give you a good impression of how well the candidate performs his or her job.
  • Consider more than the criminal check – If a candidate is applying for a job involving handling money, and your background check turns up a criminal history of cash theft, that’s a good reason to not hire them. If, on the other hand, they received an OWI on personal time, and the job has nothing to do with driving or operating machinery, this may not have as much relevance. Of course, it may reflect poorly on their judgement skills, but if the rest of their records show no other red flags, then choosing not to hire them on the ground of their criminal record in this case may constitute discrimination.The important thing here is to see how an applicant’s criminal record fits into the big picture of how it relates to the job position and the rest of their history. Don’t adopt blanket policies on criminal history, like “we don’t hire felons” or “we don’t hire those with criminal records” – you will be in violation of the EEOC.
  • Filter carefully – Going hand-in-hand with the previous tip, filter the information your find carefully. That criminal history alone should never automatically eliminate a candidate from consideration. In the same vein, automatically eliminating an applicant based on race, national origin, sex, religion, disability, etc. is discriminatory. You need to apply the same standards to everyone, regardless of any of these things. You accept an applicant with a poor financial history on one day, you can’t reject an applicant of another ethnicity with the same financial history the next. Document every step in as much detail as possible have someone reviewing to ensure you’re not unwittingly discriminating. Review the EEOC for more detailed information about the intricacies of what constitutes discrimination.
  • Keep an eye on the details – If you’re paying attention, you also may find a personality trait or response to a situation that could be a strong asset on your team – even if it’s not addressed in their resume. Use all the information you’re provided by the background check to your advantage. You’re going through the effort of obtaining it, so don’t just look for areas of concern – mine the information for strengths.

If you’re going to reject…

If you’re considering rejecting an applicant based on the results of their background check, the FCRA does have some specific requirements. Before taking an adverse employment action, you must:

  • Inform the applicant that he or she was rejected due to the background check, either orally, written, or electronically, with a copy of the report included;
  • The name, address, and phone number of the company you used;
  • That the vendor used did not make the decision;
  • Provide the applicant with a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act,” which should have been provided to you by the vendor you used;
  • That the candidate can get an additional free copy of the report from the company within 60 days; and finally
  • That they have the right to dispute the accuracy or completeness of the background check.

While these requirements satisfy the legal aspects, they also provide the candidate the chance to explain any discrepancies. Because of that, if you have concerns, it can be worth discussing them with the applicant prior to taking adverse action. Before going through the official channel of rejecting them, the applicant gets a chance to dispute the information, and you get to hear his or her side of the story. Again, you’ve already put in the effort to obtain and read the report – so why not use it to your advantage?

Wrapping up

A good, strong, successful business is built on reliable people who fulfill their duties well. Running a background check during the hiring process – or at any other point – is an excellent screening tool to help find the individuals that will provide the best fit for your company. But whether the information you receive suggests positive or negative signs about the candidate’s potential, they’re still real individuals and the results can seriously impact their lives. Add background checking to your arsenal and gain another tool to take your team and your business to the next level.

Have you ever used a background checking site to screen new or old hires? Were you surprised? What tools did you use? Let us know your experience in the comments section below.

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