Background Checks for Small Businesses: A Complete Guide

Sarah Hope . February 18, 2024

In today’s competitive job market, small businesses encounter distinctive challenges. Hiring the right employees is vital for their success. However, it is equally important to ensure that potential hires are qualified, trustworthy, and competent. In fact, a survey found that 94% of businesses conduct some form of background check on job applicants. This article will discuss the importance of background checks for small businesses, what shows up on a background check, the laws governing background checks, how to run a background check, recommended background check packages, and the best background check service for small businesses.

Why are Background Checks Important for Small Businesses?

Background checks are essential for small businesses for several reasons:

Mitigate risks of employee theft and fraud.

Background checks reveal an applicant’s criminal record, including previous theft convictions. By screening out candidates with such records, small businesses can mitigate the risk of internal theft. According to the 2022 Report to the Nations from the Association of Certified Fraud Examiners, businesses with a smaller workforce recorded the highest median losses due to internal thefts and fraud. For small businesses, these losses can be especially crippling and may even result in closure.

Ensure candidates are qualified for their jobs.

Background checks help verify whether an applicant has the necessary qualifications and experience for their desired position. Hiring unqualified candidates can result in productivity issues and potential liability for the business.

Avoid substantial expenses caused by hiring the wrong people.

Hiring the wrong people can cause to higher turnover rates and costs associated with training new hires. Conducting background checks can help small businesses make more informed hiring decisions, reducing the likelihood of costly mistakes.

Maintain a safe work environment.

Pre-employment screens provide insight into an applicant’s safety practices and tendencies. Hiring individuals who prioritize safety can play a crucial role in fostering a secure work environment for all staff members.

Reduce liability risks

Background checks can help small businesses reduce the risk of lawsuits related to negligent hiring or retention of incompetent or unsafe employees. By conducting thorough background checks, businesses can demonstrate due diligence in their hiring processes and protect themselves from potential legal challenges.

What Shows up on a Small Business Background Check?

The information that appears on a small business background check depends on the industry and the job’s specific requirements. However, most small businesses typically request the following types of searches:

  • Criminal history: A criminal background check reveals any criminal convictions or pending criminal matters. It provides details such as the offense date, nature of the offense, severity of the offense (felony/misdemeanor), disposition, and sentence information, if available. Expunged convictions may not appear in the report, depending on the laws of the state.
  • Employment verification: Employment verification confirms the accuracy of an applicant’s reported employment history. It includes details such as the employer’s name and address, dates of employment, and job titles or positions held.
  • Education verification: Education verification ensures that applicants accurately report their educational qualifications. It includes information about the school’s name, address, dates of attendance, and any degrees, diplomas, or certificates conferred.
  • Pre-employment drug tests: Many employers require pre-employment drug tests to maintain a safe work environment. These tests detect recent use of substances such as THC (marijuana), cocaine, opiates, amphetamines, and PCP (phencyclidine).
  • Professional license verification: Small businesses may request professional license verification for jobs requiring specific licenses. This verification includes details such as the license type, issuance date, license status, expiration date, and any disciplinary actions against the license.
  • Identity verification: Identity verification ensures that the applicant’s Identity matches the information provided and helps prevent identity fraud.

It is important to note that the specific information obtained from a background check may vary depending on the sources used and the laws governing background checks in the relevant jurisdiction.

Background Check Laws Small Businesses Should Know

Small businesses must conduct background checks while adhering to relevant laws and regulations. Violating background check laws can result in substantial penalties and potential liability. It is essential to be aware of both federal and state background check laws.

Federal Background Check Laws

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act is a consumer privacy law that regulates how consumer reporting agencies (CRAs) collect, retain, and report information. It also specifies what recipients of the information can do with it. Both background check providers and employers who receive background check reports are subject to the provisions of the FCRA.

Under the FCRA, if an employer receives a background check report containing negative information about an applicant, they must follow the adverse action process before making an employment decision based on the information in the report. This process involves notifying the applicant, providing them with a copy of the report, and allowing them the opportunity to dispute any inaccuracies.

Title VII of the Civil Rights Act 

Title VII of the Civil Rights Act of 1964 bars employers from discriminating against applicants and employees due to their protected status. The Equal Employment Opportunity Commission (EEOC) upholds this legislation and has provided guidance on the utilization of background check reports in employment determinations.

If a background check report reveals an applicant’s arrest or criminal conviction, the employer must consider the nature of the conviction in relation to the job before making a decision not to hire the applicant. This consideration helps ensure compliance with Title VII and avoids potential discrimination claims.

State Background Check Laws

Many states have their own laws governing background checks, and these laws can vary significantly. Small businesses must seek advice from legal counsel to comprehend the specific laws applicable in their state. Some states and cities have also enacted “ban-the-box” laws, which limit when employers can inquire about an applicant’s criminal history or conduct background checks during the hiring process.

How to Run a Background Check on an Applicant

Small businesses can conduct background checks in two main ways: do-it-yourself (DIY) checks or partnering with a reliable background check provider. Here’s an overview of each approach:

DIY Background Checks

Some small businesses choose to conduct DIY background checks by gathering information from various sources themselves. This may involve contacting state agencies, former employers, and educational institutions to request information. Additionally, businesses may check references provided by the applicant and conduct online searches on social media and search engines.

While DIY background checks may seem cost-effective, they can present several challenges for small businesses:

  • Time-consuming: Gathering all the necessary information for a comprehensive background check can take weeks, which may not be feasible for businesses requiring a swift hiring process.
  • Unreliable data: The information obtained through DIY background checks may be inaccurate, outdated, or incomplete. Relying on such data can lead to misguided hiring decisions.
  • Non-compliance: DIY background checks may not comply with relevant background check laws, potentially exposing the business to legal liability.

Working with a Provider of Small Business Background Check Services

Background Checks for Small Businesses

Partnering with a reputable background check provider offers a more reliable and efficient approach to conducting background checks for small businesses. Here are some advantages of working with a provider:

  • Fast turnaround times: A good background screening partner should offer fast turnaround times, allowing small businesses to onboard new hires quickly. We prioritize prompt report delivery to help our clients hire the right talent in a competitive labor market.
  • Accuracy: A reliable background check provider ensures the accuracy of the information provided. This accuracy helps businesses make informed hiring decisions and protects them from potential liability.
  • Affordability: Background check providers offer flexible pricing options, allowing small businesses to choose only the necessary reports. This ensures businesses do not have to pay for unnecessary checks.
  • Compliance: The best background check providers stay up to date with changes in laws to ensure their reports remain legally compliant. At Vertical Identity, we continuously monitor and adapt to legal changes to provide compliant reports to our clients.
  • Comprehensive services: A reputable background screening company offers a wide range of background checks and additional services tailored to different industries. In addition to standard checks like criminal history and employment verification, Vertical Identity offers DOT-compliant background checks, motor vehicle record checks, and more.
  • USA-based customer support: Having access to USA-based customer support is crucial for small businesses. It ensures that any questions or concerns can be addressed promptly without the need for unnecessary communication hurdles.
  • Data security: Background check providers should prioritize data security to protect the sensitive information of both the business and the applicants. At Vertical Identity, we employ the highest level of encryption technology to safeguard our clients’ information.

Recommended Small Business Background Check Packages

Vertical Identity offers convenient background check packages designed specifically for small businesses. These packages offer varying levels of searches to suit different business needs. Here are some types of searches typically included:

  • Identity verification: This search verifies an applicant’s Identity and helps prevent identity fraud.
  • National criminal records search: A thorough search of national criminal databases provides information on an applicant’s criminal history across multiple jurisdictions.
  • 7-year county criminal records search: This search focuses on an applicant’s criminal history within specific counties. It provides a more detailed examination of local records.
  • National sex offender registry search: This search determines if an applicant is listed as a sex offender in any jurisdiction.
  • Global terrorist watchlist search: This search checks if an applicant appears on any global terrorist watchlist.
  • Employment verification: This search verifies an applicant’s employment history, including past employers, dates of employment, and job titles or positions held.
  • Education verification: This search confirms an applicant’s educational qualifications, including schools attended, dates of attendance, and degrees or certificates conferred.

What Is the Best Background Check Service for a Small Business?

Choosing the best background check service for a small business involves considering several key factors. Here are some characteristics to look for in a background check provider:

Fast Turnaround Times

In today’s fast-paced business environment, it is vital to work with a background screening partner that provides quick turnaround times. A provider like Vertical Identity understands the urgency of hiring and delivers reports promptly, helping small businesses secure top talent in a competitive labor market.

Accuracy

The best background check providers prioritize accuracy, ensuring that the information provided is reliable and up to date. Accurate reports enable small businesses to make confident hiring decisions and protect themselves from potential liability.

Affordability

Small businesses often have budget constraints, making affordability an important consideration. Vertical Identity offers flexible pricing options, allowing businesses to select only the necessary reports and avoid unnecessary expenses.

Compliance

Background check laws and regulations are constantly evolving. The best background check service providers stay up to date with these changes to make sure their reports comply with all legal requirements. Vertical Identity remains current with any changes, providing legally compliant reports to its clients.

Comprehensive Services

A reliable background check provider should offer a comprehensive range of services. In addition to standard checks like criminal history and employment verification, Vertical Identity provides various other services tailored to different industries, such as drug screening and motor vehicle record checks.

USA-Based Customer Support

Having access to USA-based customer support is essential for small businesses. It ensures that any queries or concerns can be addressed promptly and efficiently without unnecessary communication barriers.

Data Security

Data security is a critical aspect of background checks. Businesses need to choose a provider that prioritizes data security to protect the sensitive information of both the business and the applicants. Vertical Identity utilizes the highest level of encryption technology to safeguard client information.

How to Develop a Background Check Policy for Your Small Business

Creating a background check policy is crucial for small businesses that intend to conduct background checks on their applicants. A well-defined policy ensures consistency and fairness throughout the hiring process. Here are some steps to develop a background check policy:

Make Your Policy Apply Company-Wide

Ensure that your background check policy applies to all positions within your company. Consistency is key to avoiding potential legal issues, as applying different standards to different positions may lead to claims of discrimination.

Ensure Your Policy Complies With All Relevant Laws

Review the background check laws applicable to your state and ensure that your policy aligns with them. Periodically review and update the policy to reflect any legal changes.

List the Types of Background Checks and Who Will Undergo Them

Specify the types of background checks you will conduct on applicants and/or current employees. Ensure that the checks you include are legally authorized in your state. Additionally, clearly state when these checks will be conducted in the hiring process and who will undergo them.

Include the Responsibilities of Hiring Managers

Clearly outline the responsibilities of your hiring managers in regard to background checks. This includes disclosing the intent to conduct background checks and obtaining written consent from applicants or employees before conducting them.

Provide Copies to Everyone

Distribute copies of the background check policy to all relevant individuals within your business, including hiring managers and human resources personnel. This ensures everyone understands the policy and follows it consistently.

By developing a well-defined background check policy, small businesses can maintain consistency, fairness, and compliance throughout their hiring processes.

Vertical Identity Is Your Trusted Partner for Small Business Background Checks

Conducting background checks is essential for protecting small businesses from potential harm, losses, and reputational damage. Background checks not only help businesses make informed hiring decisions but also contribute to maintaining a safe work environment for employees and customers.

Vertical Identity is a trusted provider of comprehensive background check services for small businesses across all states. With their expertise and commitment to compliance, Vertical Identity offers fast and accurate reports to help small businesses hire the right talent efficiently.

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