Employee Background Checks: A Complete Guide

Verify the truth

It's estimated that up to 40% of resumes contain either "favorably tweaked" or completely false information. So employers may want to make sure they're actually getting what is being promised to them by a candidate.

40% of resumes contain false information.

Imagine touting the skills of a new employee to your team internally after they've accepted your offer, only to hire them and realize it was all bogus? That's not a good look for anybody, especially the hiring manager(s). Background checks can verify if the candidate's education and work history are accurate, among other things.

Protect against liability

In many cases, employers are ultimately responsible for actions taken by their employees, especially during work hours and/or while acting on behalf of the company. So background checks go a long way in protecting the company against liability issues.

18% of all violent crimes occur in the workplace.

For example, if a transportation company hires someone with a poor driving record, the company can be held responsible if the employee gets in an accident. This is why it's recommended that transportation companies - or anyone hiring an employee that's expected to drive on behalf of the company - should check a candidate's driving records before hiring.

Prevent theft or fraud

Believe it or not, employee fraud is on the rise. Fraud can occur in a variety of forms. Anything from "forgetting" to swipe a small transaction to stealing expensive equipment or funneling large amounts of money into personal bank accounts.

33% of all business failures are due to employee theft.

While some states prevent employers from checking into a candidate's criminal history, employers can use background checks to look for any "red flags" that may suggest the employee would be more likely to misbehave or commit theft or fraud.

Social security validation

This nationwide search confirms the Social Security Number the candidate gave you is legitimate and provides summaries of the applicant's name, name variations (such as maiden or previous names), date of birth, current address, and phone number. It is primarily used to identify aliases and counties where applicants reside. This search typically gathers information from a multitude of venues such as credit bureaus, public records (real property) and moving records from mailing houses. 

Criminal records check

The criminal search is a manual, physical examination of a person’s criminal history report from the county seat in any U.S. county. The checks are frequently done on a national, state or county level and typically provide a comprehensive criminal search containing information on felony and/or available misdemeanor offenses. A criminal records check is one of the most important aspects of a background check for any employee, but is most important for positions that involve greater trust or security.

Address history

This can also be accomplished in conjunction with the social security validation. The address history check uncovers all of your candidate's current and previous addresses. This component is primarily done to validate other research and data uncovered from other aspects of the complete background check. Also, knowing the candidate has lived in different counties or states may compel you to conduct criminal background checks in those other jurisdictions.

The United States terror watch list check

Most employee background checks will look to see if the job candidate is on the United States terror watch list. The Government Watch List helps impede terrorists by identifying individuals linked to terrorism or classified on government watch lists, improving compliance with the Patriot Act. 

Sex offender registry check

Knowledge of whether or not a candidate is on a sex offender registry is one of the most sought-after pieces of background history. Sex offender registry checks are used by any organization but can be particularly crucial to organizations that serve sensitive populations. These checks typically search a multi-state sex offender registry that includes hundreds of thousands of offender records nationwide.

Driving records

A motor vehicle report (MVR) provides fast, consistent reporting with direct access to driving records. Each report contains the dates and descriptions of any violations, suspensions, and/or revocations. This will be especially valuable if the person you're hiring is someone who's likely to drive frequently on behalf of the company. On a related note, we interviewed an insurance agent about the employer liability related to employees who drive on behalf of the company.

Credit report

Credit Reports give employers a perspective on a candidate's financial history. This helps employers protect money and merchandise by allowing them to assess financial risk within a matter of minutes. They supply credit history information as well as previous employers and prior addresses (if available). All Employment Credit Reports should comply with the FCRA. Furthermore, employers should understand their own state's laws before requesting credit reports for employment purposes. 

Other records

When obtaining a background check, most third-party service providers allow employers to choose the specific components they want to check on a candidate. What the background check includes usually depends on the industry, the job position and where the employer is located. In addition to what's listed above, here are some other pieces of background industry employers may want to search:

• student transcripts
• military service records
• state licensing records
• professional licensing records
• worker's compensation claim history
• international checks (including employment, education and crime)
• drug screenings
• healthcare sanctions
• bankruptcy history
• tax lien search

1. Establish a consistent, company-wide policy on background checks. 

If your background check measures are inconsistent - if you're only checking some things for some candidates but other things for other candidates - this could create some legal issues as you may be in violation of the Fair Credit Reporting Act (FCRA). The best way to prevent that is to begin with a consistent, company-wide policy on background checks. Make sure you're always checking the same information for all candidates by the position they're applying for. Additionally, it's recommended to include that policy in your employee handbook. You can access a free employee background check policy template in our Employee Background Check Toolkit.

2. Check your state laws.

Different states have different laws about employee background checks. For example, many states have limitations on the use of arrest and conviction records, such as not allowing private employers to use arrest records that did not lead to a conviction as a factor in determining any condition of employment. It's recommended to speak with an attorney to make sure your background check doesn't violate not only the FCRA but any state laws as well.

3. Inform the candidate of the background check.

The FCRA  required employees to tell applicants that they intend to do a background check - and the results of that check may influence the company's hiring decision. You must write this information down on its own page and give it to the candidate. The page must be a page separate from any other application materials. It also needs to disclose to the candidate if the employer plans to continue to check up on the results throughout their employment with the company. Furthermore, the candidate must give you written permission to run a background check on them. Our Employee Background Check Toolkit also includes a free background check authorization form, which can be used for this exact purpose - to obtain the candidate's consent to let you run a background check on them.

4. Find an accredited Consumer Reporting Agency (CRA).

The Fair Credit Reporting Act regulates who can access a person’s consumer report and the collection of that information. Only someone with a valid reason (like for employment purposes) may access a person’s credit reports. A CRA is a company that pays for access to various databases in order to collect information for background reports. For example, Complete Payroll partners with an accredited provider, National Crime Search. You can also browse the National Association of Professional Background Screener's membership directory for other providers.

5. Request a background check

Work with your accredited CRA to order the right background check package for the candidate (but again, make sure it's consistent with the checks you run on all candidates either company-wide for all candidates for that given position). A consumer report will contain information about criminal records, as well as employment and credit history. The background check will not reveal civil lawsuits, civil judgments, arrests, accounts out for collection, or paid tax liens if they happened over 7 years ago. You are also unlikely to learn about bankruptcies if they occurred more than 10 years ago. However, browse the previous section on what employee background checks should include determining the components right for you.

6. Give candidates a chance to respond to their check.

Sometimes the information employers obtain through a background check can be slightly misconstrued or even completely wrong. If something is revealed through the check that might dissuade you from extending an offer, it's recommended to contact the candidate to give them an opportunity to offer an explanation. Most employers wouldn't want to improperly exclude a candidate that could have been a great hire.

7. Make a decision.

If a background check comes back clean, congratulations! You've just found yourself your newest employee. However, if it contains information that dissuades you from hiring a person, then, according to the FCRA,  you must inform the person of this fact.  You must send an adverse action letter which must accomplish the following:

• Inform the candidate there is negative information in the report.
• Disclose the agency you used to prepare the report.
• Give them a copy of the “Summary of Your Rights under FCRA" which your CRA should have given you, but you can also access it below.
• Allow the applicant an opportunity to challenge the report. This can be in the form of a letter outlining why the information obtained from the background check is incorrect.

According to the FCRA, employers using consumer reports (employment background checks are seen as consumer reports in the eyes of the law) to screen job must adhere to the following procedures:

• Get the candidate's written permission (to run a background check on them).
• Tell them how you want to use their credit report.
• Not misuse their information.
• Give the candidate a copy of their credit report if you decide not to hire the candidate (or to terminate a current employee).
• Give them an opportunity to dispute the information contained within the credit report before making a final adverse action decision.

We have explained the (potential or current) employee's rights under the Fair Credit Reporting Act in more detail below.

Candidates must be told if information in their file has been used against them.

Anyone who uses a credit report or another type of consumer report to deny a candidate's application for credit, insurance, or employment – or to take another adverse action against them– must tell them, and must give them the name, address, and phone number of the agency that provided the information.

They have the right to know what is in their file.

Candidates may request and obtain all the information about them in the files of a consumer reporting agency. They will be required to provide proper identification, which may include their Social Security number. In many cases, the disclosure will be free. A candidate may be entitled to a free disclosure if:

• a person (employer) has taken adverse action against them because of information in your credit report;
• they are the victim of identify theft and place a fraud alert in their file;
• their file contains inaccurate information as a result of fraud;
• they are on public assistance;
• they are unemployed but expect to apply for employment within 60 days.

They have the right to ask for a credit score.

Credit scores are numerical summaries of creditworthiness based on information from credit bureaus. Candidates may request a credit score from consumer reporting agencies that create scores or distribute scores used in residential real property loans, but they will have to pay for it. 

They have the right to dispute incomplete or inaccurate information.

If a candidate identifies information in their file that they believe is incomplete or inaccurate, and report it to the consumer reporting agency, the agency must investigate unless their dispute is frivolous.

Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information.

Inaccurate, incomplete, or unverifiable information must be removed or corrected, usually within 30 days. However, a consumer reporting agency may continue to report information it has verified as accurate.

Consumer reporting agencies may not report outdated negative information.

In most cases, a consumer reporting agency may not report negative information that is more than seven years old or bankruptcies that are more than 10 years old.

A candidate's access to their file is limited.

A consumer reporting agency may provide information about the candidate only to people with a valid need -- usually to consider an application with a creditor, insurer, employer, landlord, or other business. The FCRA specifies those with a valid need for access.

You must receive consent from the candidate to access their report.

A consumer reporting agency may not give out information about a candidate to you (the employer), or a potential employer, without their written consent given to the employer. (Written consent generally is not required in the trucking industry.)

Credit and investigative checks

Employers in New York may not obtain credit or investigative reports on an applicant or employee unless they inform them that they will request it for employment purposes and the employee agrees in writing. This notice must be written with other disclosures required under New York’s fair credit reporting act. Employers must also tell an applicant or employee before they take an adverse employment action even in part because of credit or investigative report.

Employers in New York City may not obtain an applicant’s or employee’s credit report unless a specific exception applies.

Note: The Fair Credit Reporting Act almost certainly applies to employers obtaining credit checks. Additional information is available here.

Arrest and conviction checks

Employers in New York state are prohibited from asking applicants about arrests or charges that did not result in a conviction. Employers with 10 or more employees are also prohibited from asking about conviction records unless the conviction relates directly to the job, or hiring an applicant with such a record would be an unreasonable risk to property, personal safety, or public safety. 

All employers in the state of New York must post a copy of Article 23-A of the New York Correction Law relating to the employment of people with prior criminal convictions.

New York City

The New York City Council passed a "Ban the Box" ordinance that went into effect in 2015. The ordinance prohibits employers from inquiring into an applicant’s criminal history prior to a conditional offer of employment. The ordinance also bans job ads that indicate that applicants will be eliminated from consideration or hiring if they have a criminal history. If a New York City employer chooses to run a background check following a conditional offer of employment, they must do the following:

1. Provide the applicant with a copy of the background check(s);
2. Conduct the analysis required by New York state law;
3. Provide the applicant with a written copy of their analysis;
4. Provide the applicant with three days to respond, while holding the job open.

Given the specific legal requirements of using criminal histories in hiring decisions, particularly in New York City, employers may want to consult with an attorney before instituting this practice.

Mandatory background checks

New York requires that employers conduct background checks on the following types of employees:

• School personnel
• Those who install, service, or maintain security or fire alarms
• Those working for an entity registered with the federal securities exchange commission or department of law
• Those working for a clearing corporation that is affiliated with an entity registered with the federal securities exchange commission
• Private detectives
• Bail enforcement personnel
• Childcare center personnel, including volunteers who may have regular and substantial contact with children

If you are using a third-party report or background check, you should have followed the procedures of the Fair Credit Reporting Act (FCRA) in obtaining the background check. Under FCRA you are required to give written notice and get authorization before you solicit the information from the third-party vendor. Most HR professionals also recommend having a job offer letter that includes language indicating that the job offer is a conditional offer and may be retracted based on the results of a background check. If you are not currently using such a letter, you may want to consider doing so in the future. 

In order to rescind the offer, pursuant to FCRA you will need to provide the applicant with an adverse action notification (which is a description of the person’s rights under the FCRA and contact information on the organization that provided the report). Your background screening provider will likely have a notification form to send to applicants when an adverse decision is made. This will allow the applicant to see the information being reported and give him or her a chance to correct inaccurate information with the reporting company.   

Before you make the final decision to rescind the candidate's offer, however, it is important to know your state's laws on the use of arrest and conviction records in making employment decisions. Many states, for example, have limitations on the use of those records, such as not allowing private employers to use arrest records that did not lead to a conviction as a factor in determining any condition of employment.   

Even in states that allow the use of arrest or conviction records for employment purposes, private employers considering using arrest or conviction records should do so with caution. An arrest might never result in a criminal guilty plea or conviction, and it is always possible that a person has been arrested for something he or she did not do. Moreover, the federal Equal Employment Opportunity Commission (EEOC) has stated that the use of conviction records might be discriminatory given that minorities are often more likely to have such a record. The EEOC cautions that employers should 1) only inquire about felony convictions, 2) state that a criminal record does not automatically bar employment, and 3) ensure that there is a legitimate business reason for requesting such information.

 

Employers who use background checks greatly reduce the risk of employee theft, fraud and embezzlement.

Background screening may reveal past criminal behavior and save your company thousands of dollars by helping you prevent a bad hire. Additionally, it is important that you protect your employees and clients from sex and violent offenders. Background screening sends a message to your employees, vendors, and clients that you are serious about safety.

Partner with Complete Payroll to run a variety of background check and employment history screenings on job candidates:

• Immediate - Most background checks can be set up right away and deliver results within a day or 2.
• Accredited - We are accredited by the National Associated of Professional Background Screeners.
• Affordable - You'll be surprised how affordable it is to run background checks on potential hires. Especially when you consider it against the cost of making a bad hire.

Click here to learn more about our employee background check services and to set up your next employee background check.