Effective Background Checks: 5 Factors to Consider

Professional background screening is a growing industry. And concerns about employee quality apply even more to entrepreneurs running lean organizations. So if you're thinking about carrying out checks, here's what you need to know.

1. Do checks -- and check up on them.

You should definitely conduct background checks. You can use background checks to screen employees for promotion or reassignment as well as checking potential employees. Remember that you might be held legally responsible for your employees' actions -- and even if that's not the case, you'll still suffer the negative publicity. Yet 33 percent of companies don't perform even basic checks.

Checking up on personnel who supposedly arrive pre-checked is also important. When entrepreneur Beth Shaw hired a temporary bookkeeper to cover a maternity leave, she went to a well-known, international staffing agency. The temp in question had an 18-month resume gap, and no background check had actually been carried out. According to the New York Times, the agency told Shaw that a check would be carried out "only if the resume raised red flags."

2. What can you find out?

What you can find out depends on your specific regulatory environment. Laws change from state to state. Most states permit you to verify employment and education history. Depending on state law you might also get access to military service records, driving records, copies of bankruptcy filings, drug tests and publicly available social media posts. If you contract any part of the checking process out, you'll need to notify applicants in writing that there will be background checks, and obtain specific written authorization from the individual you're checking on. In the U.S., you won't get medical records or family medical history, though you are allowed to ask the candidate or employee about these.

Access to credit and financial information is strongly dependent on the state laws (California, Colorado and New York City, to name just three, limit credit records checking) and the business case for viewing credit records. You have a good chance of seeing at least some if your business is in finance.

3. Expunged records

Several states have made it easier for people to have their records expunged, concealing their contact with the criminal justice system. This cuts both ways. Many records that are officially expunged remain in the databases of background check companies. Since they officially don't exist, though, you won't be able to legally use these expunged records as grounds for adverse action.

In some cities and states -- Hawaii and New Jersey, for instance -- regulations forbid asking about criminal convictions in relation to job applications, again with some wriggle room depending on your business and location.

4. Data holding

After you get the data from a background check agency -- or if you choose, generate it yourself -- you'll have to hang on to it for a minimum of one year or until any charges of discrimination have been resolved. Depending on where you are, some jurisdictions may require further retention time, and the data has to be held securely. Federal law also requires that when applications and checks are disposed of, it's in such a manner that they can't be read or retrieved.

5. What if you find something?

So after carrying out a careful, compliant background check, what do you do if you find something?

First, you need to notify the candidate in writing that your check has turned up a red flag, and send them a copy of the third-party report. You're then obliged to give them some time to correct the record or offer a satisfactory explanation. By precedent this is a minimum five days, though if you think the candidate might really have a good explanation you can offer a longer period.

If you decide not to proceed with the person's candidacy because of what you found in the report, you'll need to send them an adverse action letter, in which you explain that the decision not to hire them was based on something in your background check, and give them contact details for the company that generated the check. If the rejection is based on criminal convictions, be aware that not all jurisdictions accept that as a reason. For instance, in New York State, you'll need to show how there's 'a direct relationship between one or more of the previous criminal offenses and the specific employment sought or the risk of harm to the public, property or an individual.

Remember, check the law. Make sure your state OKs the checks you want. Don't discriminate. If you ask a question about one candidate ask it about all of them. And finally, be prepared for data storage and potential charges of discrimination.