Bad hiring decisions can make or break many small businesses.  According to a recent CareerBuilder survey, approximately 25% of responding employers stated that each bad hire costs them $50,000.  Smaller employers cannot absorb these costs as easily as large corporations; therefore, background checks should be a mandatory part of the hiring process for smaller companies.

But what is a background check?  In our industry, it is a common term used to describe any one or a combination of reports collected about individuals for employment purposes.

The Federal Trade Commission (FTC) – through the Fair Credit Reporting Act (FCRA) – establishes and enforces the national standard for employers who want to find out more about an applicant or current employee.  The FCRA is not just a credit reporting law, as many people think; it covers much more.

Specifically, it covers the collection of data (either oral or written) that analyzes a person’s “credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. “ (15USC§1681a(d)(1)) that is prepared by a 3rd party reporting agency.

According to the FCRA, this data collection can include:

  • Credit History
  • Criminal Records Check
  • Driving Records
  • Past employment check
  • Education history check
  • Reference check*
  • Professional license check
  • Workers’ compensation check
  • Medical history check, but only if it is relevant to the job.

*NOTE: If the reference check only includes factual information such as date of employment, salary, and job title, it is not covered under the FCRA.  However, if the conversation goes beyond a simple checking of the facts, this will be classified under FCRA as an “investigative consumer report”.  Once this classification is reached, additional disclosures are needed to the applicant/employee.  More information on when a reference check is covered under FCRA can be found on the FTC’s website. 

The FCRA does not require an employer to conduct a background check.  It simply is designed to set the standards (for accurate information dissemination) if an employer decides to conduct one.

So, here are some tips for small business owners in managing the background check process more effectively.  These include:

  1. Educate yourself.  Acquire at least a working knowledge of the many laws that impact being an employer.  Snelling can help you with this.  We have over 60 years of experience in workforce planning and management.  If you need help or are looking for a staffing partner, visit our Client Resource Hub for more information or find your local office, where our talented staffing managers can help you.
  2. Join local business groups.  These are wonderful places to share information with other small business owners.
  3. Make sure your 3rd party reporting agency follows FCRA guidelines and applicable state laws.  The FCRA requires that you:
    1. Get written permission from the person for the background check on a separate document (must be presented to the candidate on a separate form from the physical employment application form)
    2. Get special permission if medical information is requested.
    3. Give notice that the person has the right to ask about nature/scope of the report or if the report will include interviews with others.
    4. Give notice and a copy of the report before an adverse employment decision is made.
    5. Give notice of rights and procedures to dispute inaccurate or incomplete information.

Background checks are of paramount importance, especially for small business owners.  Take the time to not only conduct the necessary checks, but to educate yourself on the issues and employer responsibilities surrounding them.  It will streamline your process, reduce your frustration level and save you money in the long-run.

NOTE:   A full-color, downloadable PDF is available.