Are Background Checks Worth the Cost?

Conventional wisdom says employers should run background checks on all potential new hires. The thinking: If you don’t do your due diligence, you could wind up with a problem employee — or worse.

Yet background checks can be problematic for small businesses, notes Cranky Concierge owner and Intuit Small Business Blog columnist Brett Snyder. For starters, there’s a complex menu of background checks from which to choose, and purchasing one can quickly become expensive.

Are background checks absolutely necessary? It depends on the job position, the company, and the broader industry, says HR pro Victorio Milian. But in many cases the answer is: No, they’re not. “You just want to make sure that they’re not an ax-murderer and they are who they say they are,” Milian says.

For example, for hourly workers in the retail and restaurant industries, a basic social security and criminal record check often suffice. At the management level, you might consider additional screening, such as a credit check or drug testing. If you’re using a recruiting firm to find candidates, it will likely offer an add-on service for reference or background checks.

But again, these things cost money — and depending on your hiring plans, background checks can put a major dent in your budget. Costs vary based on the types of checks you run and other factors, but basic criminal background checks could run anywhere between $20 to $100 per hire, Milian says. He adds that your costs can quickly rise if you’re running checks in multiple states or performing more thorough screens. Before you make the investment, Milian advises doing a careful risk assessment. Businesses that work with children, for example, would be ill-advised to cut corners on background checks for potential employees.

“It’s really up to the individual businesses to figure out what works best for them,” Milian says.

If your company lacks clear-cut reasons and ample resources for running formal background checks, Milian offers some ideas and suggestions for conducting them yourself:

1. Rely on trustworthy sources when seeking job candidates. If you’re going to take the DIY approach, Milian strongly recommends seeking candidates from reliable sources such as colleagues, friends, and current employees. Broader, more anonymous sources — think websites like Craigslist — can help you cast a wider net, but they can also increase your exposure to risk.

2. Consider working with a nonprofit workforce-development firm. Beyond your own professional and personal networks, nonprofit workforce-development firms offer a no- or low-cost source of prescreened job candidates. These organizations, such as EDSI, usually help jobseekers who have been out of the workforce for an extended period of time (such as people with criminal backgrounds) and typically do a lot of the heavy lifting in terms of background checks in advance.

“They’ve already done that legwork for you,” Milian says, so you can just focus on finding the right person for the job. For example, one of Milian’s clients chooses not to run criminal background checks — which would cost the business around $75 per hire — on hourly employees. By working with the nonprofit Osborne Association, Milian helps the restaurant find staffers who’ve already successfully passed through a variety of screenings.

3. Ask for references and check them. The traditional reference check doesn’t cost you anything other than time and effort. Ask candidates for three or four professional references — and check them before making a job offer. (Also check out our previous post on reference-check questions.)

4. Be consistent in the procedures you follow. No matter what approach you take, set clear policies for what kinds of reference or background checks you do — and make them known to job candidates up front. “Always have clear guidelines about the scope of your checks,” Milian recommends.

For instance, tell applicants which websites you review (such as LinkedIn) and what other kinds of checks you perform on all new hires. “You want to come from a place of trust. You’re not there to dig up dirt; you’re there to find out who this person is as a viable candidate.”

5. Don’t rely on personal social media profiles. While LinkedIn and other professional networks can certainly be valuable in recruiting and hiring people, the broader spectrum of personal networks — Facebook, Twitter, Pinterest, and so on — are less useful, unless the person’s job will require them to use social media for business purposes.

“You have to have really strong reasons to justify going [into] somebody’s personal social profiles,” Milian says. “There’s no context. If you jump to the wrong conclusion, that’s a lawsuit waiting to happen.”

Milian does advise comparing a person’s resume with their LinkedIn profile to look for discrepancies, particularly when hiring managers or other senior employees.

Other Considerations

Although it used to be standard practice in the retail industry, Milian also recommends skipping credit checks for entry-level or hourly employees, unless there’s a specific business reason to conduct them. “That’s an extra $25 to $35 you’re spending per employee,” Milian notes, adding that some businesses have dropped credit checks because they no longer make sense. “They can’t justify that anymore.”

Milian predicts that more and more businesses will begin to reconsider the cost and value of criminal background checks over time, too. Local and state regulations will play a factor. In his home base of New York City, for example, the state labor agency issued Article 23-A [PDF], a set of statutes governing new guidance on how employers treat prior criminal offenses. Because criminal checks cost roughly $75 per hire in New York, Milian says, more and more small businesses are skipping them altogether.

“That’s a huge cost,” he says. “A lot of companies have said: ‘You know what, forget it. I’m going to manage that risk and not going to do [background checks] for certain [jobs].’”

About Kevin Casey

Kevin Casey is a regular contributor here, at InformationWeek and elsewhere. Find him on Twitter @kevinrcasey.
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2 comments
lawyer
lawyer

Pretty good post.