December 13, 2019 Employees en_US If you're a new business owner hiring workers, you likely have a lot of questions about background checks. Do you have to run a background check? How ... https://quickbooks.intuit.com/cas/dam/IMAGE/A8MCxmruW/f92ff9f4aace22d0e9d5e4a07e457372.jpg https://quickbooks.intuit.com/r/employees/are-background-checks-worth-the-cost/ How much does a background check cost? A small business owner's guide
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How much does a background check cost? A small business owner's guide

By Chris Scott December 13, 2019

If you’re a new business owner hiring new employees, you likely have a lot of questions about background checks. Do you have to run a background check? How much does a background check cost? Are background checks different for employees and freelancers?

Today, we’re here to answer all your questions regarding background checks. After reading this article, you should have a clear understanding of when you need to conduct a background check and how much you can expect to pay when doing so.

What does a background check consist of?

A background check, also commonly referred to as a background investigation or background screening, is a process that investigates various components of a candidate’s past.

Background checks allow employers to verify a person’s identity with information like Social Security numbers (SSNs), driver’s license numbers, and public records. These screenings can provide employers with:

  • Education verification
  • Employment verification
  • Criminal record history
  • Driving records
  • Credit history

Background checks in the United States have become commonplace. Employers often use them to screen job applicants and make hiring decisions. One study by HR.com found that 96% of employers in the United States conduct at least one type of background check.

What are the benefits of a background check?

There are numerous benefits to running a background search for job applicants and employees. Conducting background checks can hold prospective employees accountable, ensuring that the information they tell you about themselves is accurate. You can rest assured that you’re hiring someone truthful and honest. Running a background check can give you peace of mind and help save you time and money in the long run.

The Cedalius Group, in conjunction with the Wall Street Journal, found that 34% of all application forms contained “outright lies about experience, education, and the ability to perform essential functions on the job.”

Another survey by CareerBuilder found that 58% of human resource employers caught a lie on a resume with candidates lying about everything from their skill set to their employment history. The Association of Certified Fraud Examiners estimates that resume fraud costs employers roughly $600 billion per year.

In addition to finding resume fraud, background checks can help you promote a safe workplace. Background screeners can search a candidate’s criminal history, allowing you to see everything from misdemeanors to sex offender registrations.

In 2017, workplace assaults resulted in 18,400 injuries and 458 fatalities. Another study found that, for teams impacted by harassment, the average cost in lost productivity was $22,500 per person. Background checks are one way to protect your employees from these situations and provide a healthy, productive work environment.

Knowing this information, it’s easy to see why employment background checks are essential. Employers may want to accept what a potential candidate says as truthful, but failure to conduct a background check could cause a host of problems down the road. The cost of a background check pales in comparison to the potential cost of hiring problematic employees and having to fire them later.

Are background checks necessary?

We’ve just painted a picture of why background checks are so important, but are they required? It depends on what type of industry you’re working in.

There is no federal, state, county, or city law that mandates employers conduct background checks on potential employees. However, some industries are required to do background checks on potential hires. Governing bodies within these industries may require background checks. Examples of these types of industries include:

  • Healthcare, including doctors and nurses
  • Education, where all new teachers and educators in public schools are required to pass background checks
  • Law Enforcement, including local police and government agencies like the FBI
  • Financial Services, as laid forth in the Fair Credit Reporting Act (FCRA)

As a small owner, you may not necessarily be required to conduct a background check. If you’re wondering whether you are, consider consulting a trusted attorney or your local secretary of state’s office.

Hiring workers without conducting background checks could put you in a load of trouble. You’ll face stiff penalties and potential jail time, depending on where you operate and the severity of your actions. Make sure you meet industry-specific laws for background checks. It’s better to be diligent and proactive than reactive.

Do background checks vary based on the type of worker you’re hiring?

When it comes to background checks, it doesn’t really matter whether you’re hiring an employee or freelancer. According to HireRight, 86% of companies are now screening freelancers and contractors, up from 45% in 2012.

The study states, “contingent workers typically have the same type of access to company facilities, data, other employees, and customers as full-time employees. For this reason, it’s important to thoroughly screen every worker in the same way, regardless of work status.”

The background screening company that you work with should be able to review any information you provide, regardless of whether you intend to hire the individual as an employee or contractor.

Are there different types of background checks?

Not all background checks are the same, and you have some leeway in determining what you want to screen for. However, as we’ll detail below, the cost of a background check can increase tremendously depending on the services you select.

Before scheduling background checks, you should have an idea of what you need to look for. For instance, if you run a retail store, you may not need more than a Social Security number, address history, and criminal records search for hourly employees. You may want to consider things like credit checks and drug screening for management-level employees.

Some of the types of background checks available to employers include:

  • Criminal background checks, which scan for significant illegal activity or felony convictions
  • E-Verify background checks, a free identity verification service offered by the United States government in conjunction with the Department of Homeland Security and the Social Security Administration
  • Office of the Inspector General (OIG) background checks, which are health-care related criminal searches for those applying to jobs in healthcare programs funded by the federal government
  • Credit background checks, which review credit reports, civil judgments, payment history, bankruptcies, debts, and other credit card issues — you may want to run these before granting an employee access to your company’s financials
  • Drug testing, which can detect the use of recreational drugs
  • Professional license background checks, which ensure the applicant has a valid license — this could be relevant for those who need to verify that workers, such as doctors or teachers, have proper certification

How much you’re willing to pay and the information you need to make a hiring decision will determine which of the above you should use for your small business.

How much does a background check cost?

Costs vary based on the types of background checks you run and other factors, but basic criminal background checks could run anywhere from $20 to $100 per hire. If you conduct the test in multiple states or opt for more thorough testing, your costs will escalate from there. Credit history checks tend to cost $25 to $35 per hire.

Before making your investment, you and your fellow owners should conduct a risk assessment. If you have a business that works with children, it’d be considerably riskier for you to cut corners on a background check. Take time to figure out what’s going to work best for your company and put you in the best position possible to keep your workplace safe.

If you don’t want to hire a background check service, you could potentially run them yourself. The government’s e-Verify system, for instance, is free to use. Consider some of the following tips that could help if you’re thinking about running your own background checks.

Rely on trustworthy sources when seeking job candidates

If you’re going to take the DIY approach, you should focus on seeking candidates from reliable sources that you know you can trust. Examples include colleagues, friends, and current employees. Broader, more anonymous sources — think websites like Craigslist — may help you cast a wider net, but they can also increase your exposure to risk.

Consider working with a nonprofit workforce-development firm

Beyond your own professional and personal networks, nonprofit workforce-development firms offer a no- or low-cost source of prescreened job candidates. Organizations like EDSI usually help job seekers who have been out of the workforce for an extended period, such as people with criminal backgrounds.

The Society for Human Resource Management found that more than 70 million Americans have a criminal record and that U.S. employers are more willing than ever to hire someone with a record. Depending on the severity of the criminal record, the role you’re hiring for, and your willingness to give someone a second chance, a person who has made positive improvements to their life could potentially be a good fit for your company.

Work-force development firms typically do a lot of the heavy lifting in terms of background checks. Because they’ve already done the legwork, all you need to do is focus on finding the right candidate for the job. You can see which background checks and screeners the potential hires have passed, simplifying your job search and minimizing your costs.

Do your own research

A bit of sleuthing can go a long way. You’ll need to put in some legwork, but you’ll save yourself money in the process. Fortunately, the internet makes it easier than ever to screen candidates.

Public court records are available and accessible online. Start by plugging the candidate’s name into your state database, and you’ll see everything from speeding tickets and misdemeanors to felony charges. You can also search through your local sex offender registry.

Furthermore, many people now have some form of social media platform. A quick internet search can yield the candidate’s Facebook, Instagram, and Twitter profiles. If these profiles are public, you are free to scan their pictures and posts, which could give you a more accurate look at the person’s character.

You should be a bit careful when doing this, as these photos and posts likely don’t have any context. Jumping to the wrong conclusion could put you in hot water legally. While you shouldn’t make a final determination based on these posts, you can use them to “red flag” candidates who may not be a good fit.

You can also use social media to verify information the candidate provided. For instance, you can use the person’s LinkedIn profile to ensure it matches what is on the candidate’s resume.

Lastly, consider asking candidates for 3-4 professional references. Instead of simply using this as a formality, follow up with the candidate’s references to learn more about the person you’re considering hiring. The traditional reference check doesn’t cost you anything other than time and effort.

Be consistent in the procedures you follow

No matter which approach you take, set clear policies for what kinds of references or background checks your company does — and make them known to job candidates upfront. Your company should maintain clear guidelines regarding the scope of its checks.

Find the policy that works best for your firm. For instance, you may be more concerned about the driving record of one of your truck drivers than you would for someone handling money. And vice versa, the credit history of a driver may not matter, but it could be important for office employees.

Tell applicants which websites you review and what other kinds of checks you perform on all new hires. Your goal in running a background check should be to verify information and ensure the person is a legitimate candidate, not necessarily to catch someone doing something wrong. You should approach this process from a place of trust and good intentions.

Are background checks right for your small business?

As a small business owner, your budget may be tight, and you likely wonder whether background checks are worth it. Ultimately, there is no black-and-white answer to this. There are no universal laws mandating background checks, but they could be a worthwhile investment to help keep your business out of hot water in the long run.

If you have the time and resources, consider running your own background checks on primary employees. Then pay for more extensive screenings for those who are going to have access to more sensitive information.

Background checks shouldn’t necessarily be something that breaks the bank. But they could also be a worthwhile investment that saves you money in the long run. Figure out what works best for your company, and don’t be afraid to consult an attorney for additional guidance.

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Chris Scott is a digital marketing consultant and freelance writer. He enjoys writing about personal finance and saving. He graduated from the University of Maryland with a degree in Finance and currently resides in Boston, MA. Read more