Employee Background Check
A review of a individual's past records
Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets.
What is an Employee Background Check?
An employee background check refers to a review of a person’s past record to compile their criminal, financial, and commercial records. Background checks are common when organizations are hiring employees for a position of trust and want the assurance that they are hiring the right people for the job.
For example, when hiring an accountant, an organization will conduct background checks to discover whether a candidate has been involved in financial misappropriation or has a criminal record related to any previous employment.
CFI has a Career Map to help you visualize possible career paths in Finance and Investment Banking.
Purpose of Employee Background Checks
There are several reasons why organizations conduct a background check on potential candidates for a job vacancy. They include the following:
#1 Confirm information included in the resume or employment application
An employer may conduct background checks on potential candidates for employment to verify that the information provided in their employment application or resume accurately represents who they are. The employer will verify if indeed the candidate worked at the organizations mentioned, the college they attended, and the grades they attained at various education levels.
The checks also help differentiate the skills of all the potential candidates, to help narrow down the list of applicants with the skills and qualifications required or most desired by the company.
#2 Judge a candidate’s past mistakes
An employer is interested in knowing the prospective employee’s past mistakes, as well as character issues and any potential risks that the employee may present to the organization. This may involve looking at criminal records, prosecutions, an international terror watchlist, etc. The Fair Credit Reporting Act (FCRA) sets the standards for employee screening and defines what employers are allowed to check. The employer is required to obtain the consent of the job candidate before conducting certain background checks.
#3 Protect employers from liability issues
Background checks also protect the employer from liability issues. An employer may hire an employee with a questionable past. If the employee engages in harmful or criminal activity, then the employer can be held responsible for negligence. For example, an employer may hire an employee who is on the terror watch list without conducting background checks – the company will be held responsible if such an employee executes terrorist activities while working as an employee of the company.
How Employers Conduct Background Checks
When an organization is conducting background checks on its own, it is not required to seek consent from the candidate. However, when the company uses any third-party screening company to conduct background checks on job candidates, it must notify each of the candidates in writing to request written consent. The candidate may grant authorization or reject the request for the background checks.
If the employer fails to hire a candidate based on the information obtained while conducting background checks, then the employer must provide the candidate with an adverse disclosure statement. The disclosure contains a copy of the consumer report/background checks the company used to make its decision, along with information on the candidate’s right to dispute the reports used.
Information Included in an Employee Background Check
The amount of information included in a background check depends on the sensitivity of the reason for which the background check is conducted. It includes the following:
#1 Employment history
Employment history verification is conducted by the employer to confirm that the employment information provided in the resume is accurate. It comprises verbal confirmations of past employment, duration at each job, performance, accomplishments, salary earned, relations to other employees, etc.
#2 Social Security validation
Social security validation confirms if the Social Security number of the candidate is legitimate. The validation also reveals the candidate’s full names, alias names used, date of birth, and locations where the candidate has previously lived.
#3 Credit report
A credit report gives an overview of the candidate’s history of meeting financial obligations. It is especially important when the job vacancy applied for involves managing financial resources. Where the candidate has a bad credit rating, that may be grounds for locking them out of the hiring process for such positions. The FCRA requires companies to obtain consent from the prospective employee when checking their credit report.
#4 Criminal record
There are varying regulations on background checks of criminal records, depending on the state. Criminal records involve checking an employee’s history of arrests and convictions. Some websites offer instant background checks by compiling results from various sources such as state courts, law enforcement records, and county records. Criminal records information is especially important for a position that requires trust and security.
#5 Legal working status
The legal working status of employees has become an issue in the recent past, with governments intensifying immigration raids to get rid of immigrant workers without work permits. Employers conduct background checks on such employees to determine the working status of their Social Security numbers, especially for jobs that require resident workers.
More Resources
CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:
