How to do background checks of employees

You want to hire the best possible employees for your open positions. Background checks may help you make the right decisions. But you must use them appropriately to serve your business objectives and comply with the law. 

• What is a background check?
• Reasons to conduct an employee background check 
• What's included in a background check
• What's not included in a background check
• How background checks are regulated
• How to do an employee background check
• How much does it cost to do a background check?

What is a background check?

A background check is an investigative process in which a third party researches a potential employee’s past. Background checks can cover employment history, education, criminal records, credit reports, driving records, license checks, and more.

A background check in the hiring process serves two functions. First, it allows you to validate whether a job applicant is who they say they are. Second, it allows you to review details about the applicant’s history to determine if they pose any potential risks to your company, employees, and customers. 

Although background checks in hiring have long been controversial, the most recent study from SHRM, conducted in 2018, shows that 92% of employers continue to perform them. 

You probably can’t run a comprehensive background check on employees yourself. But that doesn’t mean you can’t look into employee histories. You might use social media to evaluate potential employees from a non-technical perspective, but this does have pitfalls. Not all employees use social media, and posts can be misleading or misinterpreted. And unless you have guidelines for reviewing social media, you run the risk of discrimination.

Third-party services can ensure that you approach each background check the same and only review what the law finds acceptable. Further, third-party services can perform background checks more efficiently and identify the sources to meet your background check needs.

Reasons to conduct an employee background check

Background checks are not legally required in most industries. But they can provide value.

To keep your workplace and employees safe

Background checks can help ensure a safe workplace for your employees and customers. As an employer, you are responsible for providing a safe work environment for your employees as well as those who might visit your workplace.

To reduce the potential for employee dishonesty

Your employees operate your business every day. You rely on them to perform their duties honestly. If a candidate has a record of repeated dishonest behavior (e.g., theft, fraud, embezzlement), a background check can uncover this history.

A candidate’s past might not disqualify them from a position completely. But a background check might allow you to place them in a closely monitored role or away from sensitive company property.

To verify employment qualifications

Seven in 10 U.S. workers said they've lied on a resume, according to a 2023 survey from ResumeLab. Background checks can help identify false reports and ensure that your hiring managers evaluate candidates with accurate information.

To increase legal compliance

Every employee you hire in the U.S. must be authorized to work in the country. In certain industries (e.g., commercial driving), employees must be certified and in good standing to perform their job duties. Background checks can help identify whether your job applicants are authorized to work in the roles they applied for. Let’s say, for example, a commercial driving applicant has a suspended license. A background check can prevent you from hiring an applicant for a job they can’t legally perform.

Background checks can help to uncover problematic pasts. However, past mistakes aren’t always indicative of future behavior. When reviewing a background check, it’s important to consider a number of factors, including the nature and gravity of the offense, the time that has passed, and the nature of the job that is being sought. Keep this in mind as you consider how deep to dig into your background checks and how you assess the report.

What's included in a background check

It might seem helpful to understand absolutely everything about a candidate during the interview process. However, too much information can be a bad thing. After all, what job applicant—what person—hasn’t made a bad decision at some point? Further, you can only lawfully consider certain background check information based on the position a candidate applied for.

Background checks may include:

• Credit information
• Criminal records
• Educational records
• Employment records
• Military records
• Bankruptcies
• Civil court records
• Driving records
• Tax liens
• Licensing records
• Workers’ compensation records
• UCC filings (e.g., liens and financing statements)

Having access to a variety of records doesn’t mean you should look into all of them in your background checks. The only background check results you can use against a job applicant is information directly related to the position they’ve applied for.

For example, assume you run credit checks as part of your background check process. Credit scores directly relate only to positions that deal with company funds or financial decisions. Accordingly, credit checks are probably unnecessary for positions outside of finance and executive administrators.

What's not included in a background check

In practice, there might be restrictions or limitations as to what information you can get from a background check. 

You can’t make adverse decisions based on protected characteristics. When running background checks, avoid searching for protected characteristics such as:

• Medical histories
• Disabilities
• Genetics
• Age
• Race
• National origin
• Color
• Sex
• Religion

How background checks are regulated

It's almost impossible to conduct a comprehensive background check yourself. For starters, most businesses don’t have access to criminal records databases and credit histories. These are two of the most common sources for background checks. Most business owners rely on third-party service providers to conduct background checks.

Consumer reporting agencies (CRAs) conduct background checks according to Fair Credit Reporting Act (FCRA) regulations. It covers much more than credit reports; FCRA is also the primary federal law governing background checks. FCRA rules apply to any consumer report. Background checks are consumer reports, so FCRA regulations apply to your background check policies and procedures.

There’s no shortage of CRAs to help you conduct background checks. The Consumer Financial Protection Bureau maintains a list of CRAs, including employment screening companies. 

The CRA you select for your background check will depend on the information you want to learn. If you are only interested in an applicant’s credit history, a credit bureau is all you need. If you want to review criminal records, media mentions, or character references, you need a CRA with a more expansive set of services.

How to do an employee background check

There’s a lot to consider when wading through background check strategies and service providers. But if you break your approach into five steps, you’ll have a good roadmap.

Step 1: Create a background check policy

A background check policy is essential for complying with state and federal laws. A policy can ensure that your company requests background checks and uses the results in accordance with the FCRA and various anti-discrimination laws. A policy can also direct managers and human resources specialists to give proper notice to job applicants and use background checks consistently.

The policy should include a sample authorization form that candidates must fill out to consent to a background check. The policy can exist as a standalone policy, or you can include it in your employee handbook.

Step 2: Collect candidate information

When collecting candidate information, gather what’s necessary for the background check service provider. Typically, that includes basic contact information such as name, address, and phone number. It may also include other data to verify a candidate’s identity, such as their Social Security number and date of birth. Avoid gathering any information that could lead to discrimination (i.e., race, color, religion, sex, gender, national origin, disability).

Note that there are certain states that require employers to provide candidates with an offer letter before a background check can be started. Additionally, certain states have passed “ban the box” legislation, which prohibits employers from asking about a candidate’s criminal history during the interviewing process. Knowing this, it’s important to partner or consult with a CRA or attorney before initiating a background check.

Step 3: Run a background check

You have a few options for background check service providers. 

First, make sure your provider promotes its compliance with the FCRA. It’s important that the provider advertises compliance with your state's laws, too. 

Second, pick a provider whose services can meet your background check needs. For example, you might want criminal background checks for all of your employees as well as credit reports for candidates applying for finance-related positions.

Next, use a provider that meets your delivery expectations. If you need reports turned around in 48 hours, you might have fewer options. If you prefer results through an online portal, that can impact your decision. 

Finally, cost is always important. There’s no standard rate in the background check industry. Shop for a balance of service and cost to find a provider that meets your needs.

Step 4: Allow candidates to explain the findings

In the digital age, more information about candidates is readily available. You might find more potential red flags when running these checks. These red flags don’t necessarily mean a candidate is unhireable. 

Under the FCRA, you must give the applicant a copy of the report, the CRA’s contact information, and an opportunity to dispute the report.

Unless the problematic background is directly related to the job someone applied for, you might not be able to deny them employment. Remember that everybody makes mistakes. It's important that you hear candidates out. Let them explain their history before you make a decision based on something a background report identified.

Step 5: Make a lawful hiring decision

When you make a hiring decision based on background check results, you’re answering one question: Does this person’s background disqualify them from working for my company? 

Then consider the legal implications of your answer. Rejecting a job applicant based on background check findings is an “adverse” action under the law. If you take an adverse action based on a background check, that action must be lawful.

To comply with the law, the action must not be discriminatory. And the background-related issue must directly relate to the position the candidate applied for. 

Background checks are one of the most widely adopted business tools in the modern hiring process. Understand your options, choose a strategy, create a policy, and start using background checks to hire the best candidates.