What to Know About Background Checks for Small Businesses
Learn how to set your small business up for successful background screening. Explore the benefits of background checks for small businesses.
How do small businesses benefit from background checks?
Background checks help small businesses reduce hiring risks, improve workplace safety, and inform employment decisions, which can result in:
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Less time and financial costs associated with refilling roles
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Increased employee morale and employer reputation
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Added customer, community, and partner confidence
Why do small businesses need background checks?
Small businesses need background checks to ensure candidates meet role qualifications and don’t pose a risk to customers, employees, and the business. Unlike larger organizations, small businesses have a much narrower margin for error in the event of theft, fraud, or other hardship that could be caused by a risky hire.
For more on why small businesses need background checks, read Considerations for Small Businesses Seeking Background Checks >
What types of background checks are most common for small employers?
The types of background checks most commonly used by small employers include:
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Criminal history searches from county, national, and federal sources
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National Sex Offender Public Registry (NSOPR) check
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Global watchlist search
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Employment verification
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Drug testing
- Motor vehicle records
While these checks are common with small businesses, there is no “one size fits all” approach. A la carte solutions work for some, while designated packages help others remain agile and meet their screening needs without breaking the bank.
What do background checks include?
Background checks offer different information based on the source and scope of the data.Criminal history searches can reveal case information, charges, disposition dates, and more. Learn more about this common search type in What to Know About Criminal Record Checks >
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Verifications of academic and employment histories can provide confirmation of attendance, resume accuracy, and reliability.
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Drug tests screen for substances like amphetamines, opiates, and more.
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Motor vehicle reports offer information on a driver’s history, the class and status of their license, and possible violations and incidents.
Do I need background checks for every employee?
Small businesses may need background checks for every employee, depending on their industry. Highly regulated industries like healthcare, education, transportation, and financial services often require background screening. Even when they aren’t required, background checks help employers make informed employment decisions.
What laws govern background checks for small businesses?
Background checks for small businesses are governed primarily by the Federal Trade Commission (FTC), Equal Employment Opportunity Commission (EEOC), local laws, and industry regulations. The FTC restricts how consumer information is collected and for what purposes it can be used through the Fair Credit Reporting Act (FCRA). The EEOC then prohibits discrimination based on descriptors found in the collected information. Finally, local and industry guidelines cover specifics only found in those locations or trades.
What’s required under the Fair Credit Reporting Act?
The Fair Credit Reporting Act requires employers to follow several procedures when using third-party background reports:
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Employers must obtain written consent from applicants to conduct background screening on them.
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Organizations need to provide disclosures about the investigation and adverse action proceedings.
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Businesses are required to follow adverse action protocols when denying employment or promotion based on the results of a background check.
Additionally, the FCRA allows consumers to dispute the results of their background check report. In such cases, the Consumer Reporting Agency (CRA) must perform a reinvestigation and provide an updated report to both the consumer and employer.
Do state and local laws affect small business screening policies?
There are state and local laws that affect small business screening policies by regulating when employers can ask candidates about criminal history. Restrictions like these are referred to as “Fair Chance” or “Ban the Box” hiring laws and they can vary greatly between areas. A good comparison is Colorado’s state regulations versus the city of Los Angeles’s local laws:
Colorado state regulations
Colorado allows criminal history inquiries after applicants apply. No prior notice or individual assessment is required.
Los Angeles local laws
The city of Los Angeles, CA, requires a conditional offer of employment to initiate a criminal history inquiry. A notice is required before the investigation can begin, and individualized assessments need to be conducted and provided.
For a full breakdown of state and local practices, visit our Ban the Box Guide >
What are adverse action requirements for small employers?
Adverse action requirements require small employers to provide pre-adverse action and final adverse action notices when disqualifying applicants based on the results of their background check. Between the notices, the candidate must be provided with time to dispute the findings.
While broadly regulated by the FCRA, adverse action requirements can also vary by location, as with fair chance hiring laws. If you’d like to quickly find out what statewide or local regulations are in place in your area, check out our Adverse Action Guide >
How do small businesses set up a compliant screening program?
Small businesses can set up a compliant screening program by working with a reputable background check provider. The right partner will help you comply with federal, state, and industry regulations while providing resources to meet your background screening goals. The Society for Human Resource Management (SHRM) recommends making a checklist of standards to determine if a provider will deliver reliable reports.
SHRM suggests basing your decision on accreditation, original-source record confirmation, record matching standards, the availability of customization, compliance expertise, and litigation history. While this is a great list to get started, it’s equally important to pay attention to turnaround time, data accuracy, and integration capabilities to get the most out of your partner.
What is the step-by-step background check process?
The step-by-step background check process often follows a pattern:
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The employer gathers candidate information and provides it to the screening provider.
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The screening provider searches courthouses, databases, agencies, and other sources for records that match the candidate’s information.
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Before returning the report, it’s proofed for accuracy. Troubleshooting or additional information collection may be required at this stage.
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Once proofed, the report is provided to the employer.
How much do background checks cost for small businesses?
The cost of a background check for small businesses often varies based on several factors. Here are a few examples:
Scope of search
Additions like multiple names and locations on a criminal history search or supplemental verifications, drug testing, credit reports, or other products and services increase the costs of your solution.
Jurisdictions involved
Some areas include passthrough fees. These are charges imposed by state agencies, courts, or local law enforcement to access criminal history information.
To assist small businesses, Verified Credentials offers standardized packages in addition to our a la carte services to reduce the costs of effective screening. Visit our small business solution page to learn more >
How long does a background check take for small businesses?
Background checks for small businesses are often complete within one or two business days. However, the exact turnaround time for full reports depends on the types and complexity of the searches required.
What are the risks of not conducting background checks?
The risks of not conducting background checks can be heavy for a small business. Foregoing this important step in the candidate selection process can lead to:
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Workplace safety concerns due to unvetted and possibly dangerous hires
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Legal liabilities like negligent hiring lawsuits and associated lawyer fees, settlements, and potential fines if an unscreened employee causes an incident
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Financial losses from wasted training time and an increased chance of fraud, embezzlement, and theft
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Damage to the company’s reputation from negative publicity if an incident occurs
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Reduced quality of hire by not knowing if individuals are qualified for their role
What mistakes do small businesses often make with background checks?
Common mistakes small businesses make with background checks include:
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Non-compliance with industry or jurisdictional regulations
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Inadequate disclosure of the background screening process
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Not receiving authorization from candidates
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Using non-job-related criteria in hiring decisions
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Having inconsistent screening practices
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Failing to follow the FCRA-defined adverse action process
If an organization is found guilty of any of these mistakes, it risks litigation from the applicant. Furthermore, hefty fines may be issued by one or more regulatory bodies like the Consumer Financial Protection Bureau (CFPB), Equal Employment Opportunity Commission (EEOC), Federal Trade Commission (FTC), or other regulating body depending on the severity of the violation.
How can small businesses ensure consistent hiring decisions?
Small businesses can support consistent hiring decisions by standardizing screening policies and evaluating candidates against clearly defined job-related criteria. Standardized policies define the searches required for different job types or roles. Clearly defined job-related criteria outline the minimum requirements candidates must meet when those searches are conducted. These tried-and-true methods not only streamline hiring decisions but also help to avoid bias based on race, color, nationality, sex, or religion.