Since just one bad employee can sink a small business, burgeoning entrepreneurs should make background checks an essential part of their hiring process. However, certain aspects of federal and state employment law preclude employers from using certain information in their hiring decisions. Here’s a look at the benefits and drawbacks of performing a background check.


Always a gamble to not perform a background check

As this ERE Media post explains, criminal background checks can provide you with crucial information on your potential hires. For example, you wouldn’t want to take on a new delivery person with a checkered driving history. Similarly, if you operate a home health care company, not performing an extensive criminal background check on a new hire could leave you open to liability. You simply can’t afford to hire someone without knowing whether or not they have a rap sheet.


Ask permission first

The Federal Trade Commission has made it very clear that if you want to perform a criminal background check on an applicant, you must obtain that person’s written consent beforehand. You must also disclose the fact that information uncovered in the background check might factor into your final hiring decision. Also, you should know that any perspective hire has the right to decline a criminal background check, and you have the right to use the applicant’s background check refusal as a contributing factor to not making an employment offer.


A poor credit history can be telling

According to the U.S. Small Business Administration, credit checks are used in 60 percent of hiring decisions. Knowing that a perspective employee has a long list of unpaid cell phone bills or a history of car repossessions should have a big impact on whether or not you make an offer of employment. If your company handles large sums of cash or sensitive personal data, a habitual debtor may not be the right fit. As with a criminal background check, you must obtain an applicant’s permission before running a credit check. Additionally, you must disclose the name of the company you used to perform the check if it plays into your hiring decision.


Employment law makes background checks tricky

Unintentionally breaking one of our nation’s many federal, state and local employment laws might bankrupt your company if you aren’t careful. While most employers know that race, sex, religion, age, disability, color or national origin based discrimination is federally prohibited, things are murkier at the state and local level. Washington and Hawaii have added credit history to the prohibited list. In certain cases, asking an applicant to take a drug test may result in you getting slapped with a privacy violation lawsuit. As such, it’s recommended that you enlist the services of a skilled employment lawyer when conducting background checks. They’ll help minimize your potential liabilities by ensuring that your hiring process is compliant with all applicable employment laws, no matter how obscure or vague.
This article was written by Mario McKellop of for CBS Small Business Pulse.


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