Employment background check: Everything you need to know

You want to hire the best employees for your open positions. Employment background checks help you make smart hiring decisions by verifying candidate information and spotting potential risks. When done right, they protect your business and ensure legal compliance.

A background check confirms whether candidates are truthful and reveals risks that could affect your workplace. This guide covers what background checks include, how to prepare, and how to use them effectively in your hiring process.

Jump to:

• What is an employment background check?
• How to do an employee 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 prepare for an employment background check
• Hiring the right people for your small business

What is an employment background check?

A background check is an investigative process in which a business or a third party, like a consumer reporting agency (CRA), researches a potential employee’s past. Background checks can cover employment history, education, criminal records, credit reports, driving records, license checks, and more.

In the hiring process, a background check 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. 

In-house vs. outsourced background checks

You probably can’t run a comprehensive background check on employees yourself, but that doesn’t mean you can’t look into employee histories. 

Social media can help you evaluate potential employees from a nontechnical 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.

Pre-employment screening vs. background check: What's the difference? 

Pre-employment screening is a broad term that includes any type of check you run before hiring someone. It can consist of skills tests, reference checks, drug screenings, and even personality assessments.

A background check is one part of pre-employment screening. It focuses in on a candidate’s history, like their criminal record, work experience, education, and credit. It helps you confirm that what’s on a resume lines up with reality and alerts you to any red flags that could impact your business.

Think of it this way: A pre-employment screening is the full toolkit, while a background check is just one of the tools.

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 Fair Credit Reporting Act (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. It can exist as a standalone policy or be included 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 certain states require employers to provide candidates with an offer letter before they can start a background check.

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 consumer reporting agency (CRA) or attorney when creating your background check policy.

Step 3: Choose the right provider and 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 and 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 unemployable. 

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.

Reasons to conduct an employee background check

Background checks aren’t required in every industry, but they’re often worth the extra step. Verifying a candidate’s history helps you make more confident hiring decisions, protect your team, and reduce the risk of costly mistakes down the road. 

Whether you’re hiring for a frontline role or a leadership position, a background check can offer peace of mind that you’re bringing the right person on board.

To confirm candidate eligibility and qualifications

Some candidates stretch the truth on their resumes, and others might leave out key details entirely. A background check helps you validate that a candidate’s education, licenses, and work experience are legitimate.

• Education and credential checks confirm whether someone really holds the degree or certification they claim. This step is especially important if you’re hiring for a licensed role, such as a CPA.
• Employment verification checks go a step further by confirming previous job titles, dates of employment, and in some cases, responsibilities. This gives you a clearer picture of the candidate’s actual experience and whether they’re qualified for the role.

Confirming these details early helps you reduce the risk of hiring someone unqualified or not legally allowed to perform the job. It can save you time, money, and potential compliance issues later.

To keep your workplace and employees safe

A safe work environment starts with knowing who you’re hiring. Background checks can reveal past criminal activity or other red flags that may pose a risk to your business, employees, or customers.

While not every past offense is disqualifying, having full context helps you make informed, consistent decisions. This is especially critical for roles involving vulnerable populations, sensitive data, or financial access.

Running background checks shows due diligence—and can help prevent harm, protect your company’s reputation, and build trust across your team.

To verify employment qualifications

Seven in 10 US 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 US must have authorization 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:

Criminal background check

A criminal background check helps you understand whether a candidate has a record that could impact their role. This can include felony or misdemeanor convictions, and in some states, pending charges or dismissed cases.

Some checks also search:

• Sex offender registries
• Global watchlists
• Other criminal databases

Use this information to assess risk, but always follow state and federal hiring laws.

Employment and education history

This part of the background check verifies that a candidate has the experience and education they claim. It reduces the risk of hiring someone who has inflated their qualifications or fabricated details entirely.

You may see:

• Job titles and dates of employment
• Degrees or certifications earned
• Dates of attendance at institutions
• Reasons for leaving or rehire eligibility

Confirming these details helps you hire more confidently and avoid costly missteps.

Driving records (MVRs)

If the role involves operating a vehicle, a driving record check is a must. It shows whether a candidate’s license is valid and if they’ve had any serious violations.

You’ll also see:

• License class (e.g., commercial)
• Suspensions or revocations
• DUIs or reckless driving charges

This protects your business and ensures your drivers meet safety standards.

Credit reports

Credit checks are mostly useful for roles that involve managing money, like finance or executive positions. They offer insight into a candidate’s financial responsibility.

These reports may include:

• Bankruptcies
• Accounts in collections
• Late payment history
• Tax liens or civil judgments

Always get written consent and follow FCRA guidelines before reviewing credit info.

Professional licenses and certifications

Some roles legally require active licenses—think healthcare, law, education, or the trades. A background check can confirm these credentials and ensure that they’re in good standing.

Failing to verify this information could result in compliance issues or legal risks. Always double-check that licenses are current, valid, and appropriate for the role you’re hiring for.

Drug and alcohol testing considerations

For safety-sensitive roles, drug and alcohol testing may be a legal requirement. Even if not required, you might choose to test candidates as part of a drug-free workplace policy.

Be sure to comply with state laws, especially regarding medical marijuana use. Drug testing helps reduce workplace accidents and supports a safe environment for all employees.

Civil searches and other records

Civil records can reveal past legal disputes that aren’t criminal but may still be relevant. These might include lawsuits, contract breaches, or small claims judgments.

You may see:

• Restraining orders
• Foreclosures
• Breaches of contract
• Civil judgments or liens

Use this information thoughtfully and apply your screening criteria consistently.

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, which are two of the most common sources for background checks. Most business owners rely on third-party service providers to conduct background checks.

The Fair Credit Reporting Act (FCRA) covers much more than credit reports; it's also the primary federal law governing background checks. Since FCRA rules also apply to background checks, be sure to apply them to your 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 employees can prepare for a background check

Preparing for a background check helps ensure the process goes smoothly and reduces surprises for both you and your employer. Taking a few simple steps ahead of time can improve your chances of a successful hire.

Review your social media profiles

Employers often check social media to get a sense of your professionalism and fit with their company culture. Posts or photos that seem inappropriate could raise red flags—even if they don’t relate directly to your job skills.

Maintain accurate records of employment and education

Accurate dates of employment, job titles, and educational credentials make verification easier and prevent flags during background checks. Inconsistencies could cause delays or doubts about your qualifications.

Keep documents like pay stubs, offer letters, diplomas, or transcripts handy. This will help you quickly clarify any questions employers might have.

Obtain copies of your own records

Running a background check on yourself before applying gives you a clear picture of what employers will see. You can identify and address any errors or unexpected information early.

Knowing your records also helps you prepare honest explanations if any issues come up during the hiring process.

Be honest during the job application process

Honesty matters. Even small discrepancies between your resume or application and your background check can lead to disqualification. It’s better to be upfront about gaps in employment or education than to risk losing the job later.

Inform your professional references

Let your references know ahead of time that they may be contacted. Reference checks verify your work history, character, and skills, so having prepared, supportive references can strengthen your application.

Choose people who know your work well and can speak positively about your abilities and attitude. This makes the reference check a smoother, more effective step.

That covers just about everything a candidate can do to prepare for a background check. These steps make it smoother for small business owners, too, with fewer surprises. 

Hiring the right people for your small business

Employment background checks are a powerful tool to help you hire with confidence. By understanding what’s involved, preparing properly, and following legal guidelines, you protect your business and build a trustworthy workforce. 

Background checks are not just about screening—they’re about making smarter decisions that support your company’s long-term success. They simplify employee onboarding and compliance, letting you focus on growing your business.

To streamline hiring and payroll management, consider integrating payroll software like QuickBooks.

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