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Employee Background Checks: A Complete Guide

Everything employers need to know about running background and employment history checks on their job candidates.

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    Introduction

    Employers may choose to run background checks on current and potential employees for a variety of reasons. Background checks may be mandatory for jobs that require a government security clearance, but that's not the only reason they're conducted. Most private employers that run background checks on potential employees before they hire them do so by choice - as a precautionary measure to protect the company against people who are more likely to steal from the company or commit other crimes at the workplace. This resource page is explains everything employers need to know about background checks.

    What is a background check?

    A background check is a review of a person's criminal, commercial and (sometimes) financial records and employment history. Background checks are common in employment and professional settings. It's estimated that approximately 70% of employers run background checks on employees before hiring them.

    The benefits of employee background checks

    Employers who conduct background screening 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.

    Arrange an employee background check now

    While this resource page is designed to explain all the ins and outs of employee background checks, you'll still need to work with a certified, third-party background check provider to actually run proper background checks on your potential hires. Fortunately, Complete Payroll is just that. So please, browse this page, learn all about how employee background checks work and better prepare yourself to start running them on your potential hires. But when the time comes to actually set up an employee background check, click here to let us help you get started.

    Set up an Employee Background Check with Complete Payroll

    Why employers conduct background checks

    Put simply, employers who conduct background screening greatly reduce the risk of employee theft, fraud and embezzlement. But in reality, there are a variety of reasons why companies choose to run background checks on potential employees.

    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.

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    What should a background check include?

    What should an employee background check include? The short answer is it depends - mostly on the industry, position and where the employer is located, among other factors. Also, employers can typically choose from a variety of types of background history to check. But we've provided a list of the most common and important things employers look for when running background checks on job candidates.

    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 are 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.

    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 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

    How to conduct a background check

    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 against 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.

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    Background Check Authorization Form

    The purpose of this form is to receive consent from your new employee to run a background check.

    Job Offer Letter with Contingencies

    This is a template for an offer of employment that's contingent upon the employer performing a background check.

    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 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 to determine 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 yoruself 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 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.
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    Adverse Action Notification Letter

    This letter is to be provided after conducting a background check and finding potentially exclusionary information on an applicant’s report.

    Summary of Rights under the FCRA

    This is a document you'll want to share to a candidate you are no longer choosing to pursue as a result of their background check.

    Complying with the Fair Credit Reporting Act

    When you run background checks for employment purposes, you must comply with the Fair Credit Reporting Act (FCRA). The Federal Trade Commission (FTC) enforces the FCRA, which is a federal law enacted to promote the accuracy, fairness and privacy of consumer information held by consumer reporting agencies. It's intended to protect consumers from the willful and/or negligent use of wrong information in their credit reports.

    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 credit-worthiness 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.)

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    Obtaining and using background information

    Before you get background information

     What the Equal Employment Opportunity Commission says

    In all cases, make sure that you’re treating everyone equally. It’s illegal to check the background of applicants and employees when that decision is based on a person’s race, national origin, color, sex, religion, disability, genetic information (including family medical history), or age (40 or older). For example, asking only people of a certain race about their financial histories or criminal records is evidence of discrimination.

    Except in rare circumstances, don’t try to get an applicant’s or employee’s genetic information, which includes family medical history. Even if you have that information, don’t use it to make an employment decision. (For more information about this law, see the EEOC’s publications explaining the Genetic Information Nondiscrimination Act, or GINA.) Don’t ask any medical questions before a conditional job offer has been made. If the person has already started the job, don’t ask medical questions unless you have objective evidence that he or she is unable to do the job or poses a safety risk because of a medical condition.

    What the FCRA and Federal Trade Commission says

    If you get background information (for example, a credit or criminal background report) from a company in the business of compiling background information, there are additional procedures the FCRA requires beforehand:

    • Tell the applicant or employee you might use the information for decisions about his or her employment. This notice must be in writing and in a stand-alone format. The notice can’t be in an employment application. You can include some minor additional information in the notice (like 3 a brief description of the nature of consumer reports), but only if it doesn’t confuse or detract from the notice.
    • If you are asking a company to provide an “investigative report” – a report based on personal interviews concerning a person’s character, general reputation, personal characteristics, and lifestyle – you must also tell the applicant or employee of his or her right to a description of the nature and scope of the investigation.
    • Get the applicant’s or employee’s written permission to do the background check. This can be part of the document you use to notify the person that you will get the report. If you want the authorization to allow you to get background reports throughout the person’s employment, make sure you say so clearly and conspicuously.
    • Certify to the company from which you are getting the report that you:
      • notified the applicant and got their permission to get a background report;
      • complied with all of the FCRA requirements; and
      • won’t discriminate against the applicant or employee, or otherwise misuse the information in violation of federal or state equal opportunity laws or regulations

    Using Background Information

    What the Equal Employment Opportunity Commission says

    Any background information you receive from any source must not be used to discriminate in violation of federal law. This means that you should:

    • Apply the same standards to everyone, regardless of their race, national origin, color, sex, religion, disability, genetic information (including family medical history), or age (40 or older). For example, if you don’t reject applicants of one ethnicity with certain financial histories or criminal records, you can’t reject applicants of other ethnicities because they have the same or similar financial histories or criminal records.
    • Take special care when basing employment decisions on background problems that may be more common among people of a certain race, color, national origin, sex, or religion; among people who have a disability; or among people age 40 or older. For example, employers should not use a policy or practice that excludes people with certain criminal records if the policy or practice significantly disadvantages individuals of a particular race, national origin, or another protected characteristic, and does not accurately predict who will be a responsible, reliable, or safe employee. In legal terms, the policy or practice has a “disparate impact” and is not “job related and consistent with business necessity.”
    • Be prepared to make exceptions for problems revealed during a background check that were caused by a disability. For example, if you are inclined not to hire a person because of a problem caused by a disability, you should allow the person to demonstrate his or her ability to do the job – despite the negative background information – unless doing so would cause significant financial or operational difficulty.

    What the FCRA and Federal Trade Commission says

    When taking an adverse action (for example, not hiring an applicant or firing an employee) based on background information obtained through a company in the business of 5 compiling background information, the FCRA has additional requirements:

    • Before you take an adverse employment action, you must give the applicant or employee:
      • a notice that includes a copy of the consumer report you relied on to make your decision; and
      • a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act,” which you should have received from the company that sold you the report.

    By giving the person the notice in advance, the person has an opportunity to review the report and explain any negative information.

    • After you take an adverse employment action, you must tell the applicant or employee (orally, in writing, or electronically):
      • that he or she was rejected because of information in the report;
      • the name, address, and phone number of the company that sold the report;
      • that the company selling the report didn’t make the hiring decision, and can’t give specific reasons for it; and
      • that he or she has a right to dispute the accuracy or completeness of the report, and to get an additional free report from the reporting company within 60 days.

    Disposing of Background Information

    What the Equal Employment Opportunity Commission says

    Any personnel or employment records you make or keep (including all application forms, regardless of whether the applicant was hired, and other records related to hiring) must be preserved for one year after the records were made, or after a personnel action was taken, whichever comes later. (The EEOC extends this requirement to two years for educational institutions and for state and local governments. The Department of Labor also extends this requirement to two years for federal contractors that have at least 150 employees and a government contract of at least $150,000.) If the applicant or employee files a charge of discrimination, you must maintain the records until the case is concluded.

    What the FCRA and Federal Trade Commission says

    Once you’ve satisfied all applicable recordkeeping requirements, you may dispose of any background reports you received. However, the law requires that you dispose of the reports – and any information gathered from them – securely. That can include burning, pulverizing, or shredding paper documents and disposing of electronic information so that it can’t be read or reconstructed. 

    Set up an Employee Background Check with Complete Payroll

    New York State background check laws

    Credit and investigative checks

    Employers in New York may not obtain a credit or investigative report 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 a 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 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

    Retracting an offer after a background check

    We recently made an offer of employment to an applicant. After receiving the results of a background check, however, we would like to retract the offer. What steps do we need to take?

    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 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.

    Arrange an employee background check now

    Complete Payroll offers quick, affordable and reliable employee background checks.

    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.

    Set up an Employee Background Check with Complete Payroll

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