Understanding the Importance of Employee Background Checks

When hiring employees, it’s important to find out who, exactly, you might be inviting to join the workplace. That’s where a background check comes in. Employee background checks often prove to be a valuable part of the hiring process for companies of all sizes, including startups and small businesses. Background checks can help employers minimize hiring-related risk, as well as build a strong company culture.

What is a Background Check?

If you’re not familiar with a background check, it’s simply a screening tool that can enable employers to make sound hiring decisions. Background checks can provide information regarding various aspects of a person’s history — things like criminal records, employment history, education verification, references, and more.

Running a background check before hiring a candidate (or promoting or otherwise moving an employee) allows an employer to gather key information. They can then use that information to confirm a candidate’s credentials or determine if there’s anything in a candidate’s history that might make them unsuitable for a particular job.

Employers will need to work with a consumer reporting agency to run background checks. But before an employer can run a background check on an applicant or employee, the individual needs to sign a consent form. The company that runs the background check will provide this form to the employer, along with any other required documentation (like state-specific disclosures).

After running a background check, employers will receive a report that shows details of the individual’s history. Employers can use the report to verify information the individual provided on their application or resume. The report also allows employers to see if information in the individual’s history indicates a high level of risk relevant to the position they’re being considered for.

When it comes to background checks (and most things employment-related), compliance is an important consideration for employers. A consumer reporting agency will provide the information employers are seeking, but they will not advise the employer on how and when to utilize the requested information in making hiring decisions. It’s up to the employer to use the information provided in an ethical, non-discriminatory manner and to comply with all relevant laws.

Why are Background Checks Important?

Employers in a few industries are required to run background checks, but most are not. Even so, many choose to include background checks in their hiring process. Why is that? The information gained through a background check helps employers make informed hiring decisions that can protect the company, as well as their employees and customers.

What Can Background Checks Include?

When employers conduct background checks, they can specify what kind of information they want to receive. Typically, employers request the following information: 

• Criminal records search

• Employment history check

• Education verification

For high-level finance jobs and positions where employees have access to other people’s financial data, an individual’s credit history might also be considered. And for some professions, license verification is another component. 

Employers should take care to avoid requesting background information that shouldn’t be considered when making an employment decision. For example, employment background checks should not include, among other information, certain workers compensation claims or civil litigation history.

Are There Employee Background Check Laws?

Background checks can provide important protections for employers, but it’s important to note that there are laws governing how and when they can be used. Again, if you’re going to incorporate background checks into your hiring process, compliance is key.

There are federal laws applicable  to any U.S. employer utilizing background checks, as well as state and local laws and regulations, depending on the location of an employer. A few examples include:

Fair Credit Reporting Act (FCRA) Compliance

The Fair Credit Reporting Act (FCRA) regulates background checks conducted by employers through third-party consumer reporting agencies. Despite the name, it actually applies to all types of background information, not just credit. Important provisions employers should know include:

• Applicant consent is required prior to running an employment-related background check

• Employers must give applicants a statement of their rights under the FCRA

• Employers must send pre-adverse action and adverse action letters if they choose not to hire

Failure to follow FCRA requirements can result in significant fines to an employer, so it’s crucial to read up on the ins and outs of this law. 

Equal Employment Opportunity Compliance

From a compliance standpoint, the entire hiring process must be free from discrimination. This includes the way an employer uses background checks — an employer who uses background checks must do so in a nondiscriminatory manner. What does this look like

Employers should be mindful to:

• Not look at more background information on some candidates than others

• Apply the same background check requirements to all candidates for a job type

• Look at conviction-related hiring decisions individually, rather than making blanket exclusions

  • Consider the relationship between convictions and the work environment and duties

  • Consider factors such as the severity of the conviction and recency of release or adjudication 

• Use credit history only where relevant — avoid using it as an indicator of character 

If an employer uses background report information in a way that could result in discrimination, it could lead to an Equal Employment Opportunity Commission (EEOC) investigation or a lawsuit.

State-Specific Compliance Considerations 

Many states have their own laws and regulations regarding how background checks can be used in the hiring process. For example, in many states, employers can’t ask about criminal history at the time a candidate applies for a job. In some places (like New York), employers can’t ask about criminal history or run a criminal background check until after extending a conditional offer of employment to a candidate.

It's crucial for employers to be familiar with the laws and regulations specific to their jurisdiction. This can help ensure compliance and avoid any potential legal issues. Consulting with legal counsel for additional guidance on the specific requirements and best practices for conducting background checks in your area.

Justworks Can Help

Hiring employees and growing your team is no small feat for a business, but Justworks can help. Justworks PEO offers an all-in-one solution to streamline payroll and benefits. Plus, our PEO provides robust compliance support, integrated HR tools, and access to certified HR Consultants who can advise on your trickier HR questions.

If you’re looking to incorporate background checks into your hiring process, Justworks customers can get special offers from leading background check companies in the Justworks Marketplace. Contact us today to learn more and find out how we can help your business.