Examine Backgrounds Before You Hire

Posted on Thursday, February 14, 2019

Back before society became so mobile, checking the backgrounds of potential employees was pretty much a matter of asking around the neighborhood: Were the applicants honest? Reliable? Hardworking?

Keep in Mind

If your business uses the background information from an applicant or an employee to make an employment decision, the Federal Trade Commission warns that:

You must comply with federal laws that protect applicants and employees from discrimination. That includes discrimination based on race, color, national origin, sex, religion, disability, genetic information (including family medical history), and age (40 or older). These laws are enforced by the Equal Employment Opportunity Commission.
When you run background checks through a company in the business of compiling background information, you must comply with the Fair Credit Reporting Act (FCRA). The Federal Trade Commission enforces the FCRA.
You should review the laws of your state and municipality regarding background reports or information because some states and municipalities regulate the use of that information for employment purposes.

Things have gotten considerably more complex. Today, virtually every company is vulnerable to hiring problem employees — not only those who are dishonest, but those who create untrue educational backgrounds and those who have spent time in jail for everything from fraud to rape.

Although certain institutions, such as schools, hospitals and HMOs, are required by law to conduct background checks on employees, some employers are hiring outside Consumer Reporting Agencies (CRAs) or private investigators to make certain that applicants are telling the truth.

For instance, companies that send employees to customers' homes want to be sure they will not physically assault the homeowners. And firms want to be certain that a new bookkeeper hasn't been convicted of embezzling tens of thousands of dollars.

Conducting background checks can help reduce your legal exposure if a problem should occur. They carry considerable weight in demonstrating that your business did its part to try to establish that employees are trustworthy and that your company wasn't negligent. Lawsuits resulting from a lack of due diligence can potentially cost a company thousands, if not millions, of dollars in litigation and damages.

Many employers used to have human resources personnel check potential employees' backgrounds, but as companies have downsized, this work is increasingly being farmed out to CRAs and private investigators. Costs vary so make sure you understand what the fee covers and what you are getting for the service.

CRAs or licensed private investigators can verify an employee's academic credentials — an area that's frequently subject to out-and-out fabrications as well as exaggeration. Here are some other items they may examine:

Previous employers and professional licensing;

Department of motor vehicle records, which often turn up drunk driving convictions;

Gaps in resumes; and

Indications that a person is living beyond his or her means or has significant debt, particularly if an individual is going to be handling money. (However, several states don't allow credit checks to be used in employment decisions.)

Third parties who conduct background checks also do criminal record checks, which can be more complex than you might expect. There are national criminal clearinghouses, but the information is only available to law enforcement officials. So outside investigators may have to gather their information through court records — and there are many courts in this country.

There are times when it's impossible to ascertain someone's background. Some reasons: Social Security numbers can be faked, records can be lost, names can be changed and so forth. However, if those that conduct background checks have doubts about the information gathered, they should notify an employer of their concerns.

Important: Have the results of a background check in hand before you hire someone. In one case, an employer hired an individual and then requested a background check. The criminal background check was conducted only to discover that this individual had embezzled — just a few months prior to being hired — $25,000 from her previous employer. It's better not to find out about surprises after an employee is on the payroll.

On the other hand, background checks often turn up positive news. You may find out that a potential employee has an excellent reputation — the type of person your competitors would love to hire — and you can sleep better knowing you made the right decision.

Posted in Tax Topics For Individuals, Tax And Accounting Topics For Business

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.