In-Depth Guide to Conducting Background Checks on Contractors

One mistake you should not make as a hiring manager or employer is to take contract staffing less seriously than full-time employment. Whether they are freelancers or independent consultants who will be around for just a short time, your business will still be in their hands. On one hand, they work for you, and on the other hand, they represent your brand. Hence, Contractor background checks are a critical component of the hiring process, helping to ensure that individuals engaged on a contractual basis are qualified and trustworthy. This in-depth guide explores the best practices and detailed steps for performing background checks on contractors effectively and ethically.

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Legal Frameworks Governing Background Checks

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Here are 3 legal frameworks that regulate background screening you should take cognizance of: 

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1. The Fair Credit Reporting Act (FCRA) is a federal law, mandating that all employment-related background checks adhere to its regulations, irrespective of the employer's location, industry, sector (public versus private), or other distinguishing factors. The FCRA mandates that employers inform job candidates in writing of their intent to conduct a background check, which must be separate from other application materials but can be combined with an authorization form. If an employer decides to retract or reject a job offer due to the background check, they must once again notify the applicant in writing, providing them with a copy of the report and a summary of their FCRA rights. After this notification, the applicant must be given at least five days to respond or contest the findings of the background check.
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2. The Equal Employment Opportunity Commission (EEOC) is a federal agency responsible for enforcing workplace civil rights laws. The EEOC upholds Title VII of the Civil Rights Act of 1964, which bars employer discrimination grounded in race, color, religion, sex, or national origin. Its primary mission is to combat all forms of employment discrimination. To fulfill this mission, the EEOC guides background checks as a tool to address employment discrimination. 
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3. "Ban the box" is a campaign that prohibits employers from inquiring about an applicant's criminal history and restricts access to such records until a later stage in the application process. According to the National Employment Law Project (NELP), ban-the-box policies have been enacted in 37 states and 150 cities and counties across the United States. In June 2022, NELP reported that 15 states and 22 cities or counties had expanded their ban-the-box legislation to include private companies.

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When conducting background checks, you will be dealing with data; the most sensitive resource that will pass through your desk during the hiring process. 

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Data acquisition and use are governed by laws that protect the owner's privacy. So, while you are trying to ensure fair and safe hiring for your company, you are not at liberty to play a game of hide and seek with your prospect's information. In fact, your prospective contract staff should be aware of the background check to be done. 

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This could be to your disadvantage, maybe, as the candidate to be hired might attempt to manipulate the authenticity of their information, thereby discrediting the process. 

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But that is where an expert third-party background check provider comes in. 

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Selecting a Background Check Provider

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Background check providers are typically recognized by law. However, you still have to do your due diligence to ensure that you are selecting the right one, whose services won't get you into trouble or jeopardize your hiring process. 

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Criteria for Selection

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1. Types of Checks Offered: Examine the assortment of background checks provided, including criminal record checks, employment verification, education verification, and financial history checks. Ensure that these services align with the specific requirements of your organization.
2. Level of Detail: Assess the depth and thoroughness of the background checks. A reputable company should meticulously delve into comprehensive details to offer a holistic understanding of an individual’s background.
3. Accreditation and Certifications: Investigate the company's accreditation and certifications to guarantee adherence to industry standards and regulations.
4. Compliance: Verify that the provider complies with all applicable laws and regulations governing background checks, such as FCRA (Fair Credit Reporting Act) and other laws listed above. 
5. Privacy Measures: Confirm that the provider has robust privacy measures in place to safeguard sensitive information collected during background checks. This includes secure data storage, strict access controls, and compliance with data protection regulations.
6. Reputation Assessment: Evaluate the background check provider's reputation through reviews, testimonials, or client references. A positive track record reflects reliability and professionalism.
7. International Capabilities: Evaluate the global reach of the background check company. If your organization operates internationally or interacts with individuals from diverse countries, it is crucial to verify the company’s capability to conduct checks on an international scale.
8. Read Reviews: Review feedback and testimonials from previous clients or users of the provider's services. Online reviews, ratings, and testimonials can provide insights into the provider's strengths, weaknesses, and overall reputation. You can also contact past clients or partners of the provider to inquire about their experiences. This helps gauge the provider's reliability, professionalism, and quality of service. 

Essentially, you are doing a background check on your selected background check provider

Crafting a Comprehensive Background Check Policy

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Your background check policy should be hinged on fairness and complying with legal Frameworks. But you don't have to wear yourself out with this. Even with strict privacy rules in place, your background check policy should remain thorough and cover every aspect it has to. It should inform your decision whether to proceed with hiring or not. 

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Overall, effective and documented communication between you and the candidate should be put in place to ensure transparency. That way, both parties can get through the process without breach of rights and policies. 

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Your background check policy should have a checklist of:

• The scope of your check
• Execution 
• Communication and record keeping

Scope of Background Checks

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First, it's crucial to understand that it's illegal to request additional background information from candidates based on factors like race. There are strict rules regarding the types of questions you can ask during the hiring process:

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1. Medical Information: employers cannot inquire about or check your medical background unless they have offered the candidate a job. However, they may request medical information in specific situations, either after extending a job offer or once the employment has commenced.

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2. Genetic Information: It's prohibited for employers to ask about genetic information, including family medical history, except in very limited circumstances. This ensures fairness and protects against discrimination based on genetic predispositions.

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Legally, as an employer, you are allowed to conduct a range of checks on contract staff, including

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1. Criminal Records Check: To ensure the candidate has no criminal history that could pose a risk to the workplace. However, this is dicey. Denying a candidate an offer based on criminal records is seen as discriminatory, especially if such is a citizen of the United States, guided by its laws. So, if you will be denying or rescinding an offer based on criminal records, it has to be based on provable evidence that such is detrimental to the company. 

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2. Education Verification: Confirming the candidate's educational qualifications, degrees, certifications, or licenses claimed on their resume or application.

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3. Employment History Verification: Validating the candidate's past employment history, positions held, duration of employment, and reasons for leaving previous jobs.

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4. Credit History Check: Assessing the candidate's financial responsibility and trustworthiness, especially for roles involving handling finances or sensitive information.

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5. Professional Licenses and Certifications: Verifying any professional licenses or certifications required for the position to ensure the candidate is qualified and compliant with regulatory standards.

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6. Reference Checks: Contact previous employers or professional references to gather insights into the candidate's performance, work ethic, and suitability for the role.

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7. Drug Testing: Depending on the nature of the job and company policy, you may conduct drug tests to ensure a safe and drug-free workplace.

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These checks help you make informed decisions about hiring contract staff, mitigating risks, and ensuring the suitability of candidates for their roles. The extent of these checks may vary depending on the industry your company operates in, job requirements, and organizational policies.

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Informed Consent Procedures

The first step you have to take in the entire process will be between you and the prospect. As we mentioned earlier, clear and documented communication should underlay all your processes. 

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With the prospect, you have to agree to a background check, following their interest in the role. 

Your step-by-step process should include:

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1. Initial Notification: Communicate to the contractor that a background check is required for their engagement. This notification should include the purpose of the background check and the types of information that will be gathered.

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2. Consent Form: Draft and provide the contractor with a consent form detailing the background check process, including what information will be collected, the independent third party in charge, how their data will be used, and who will have access to the information. Ensure the form is clear and easy to understand. Additionally, it could help to include what the process would NOT entail. 

Moreover, the FCRA mandates that employers must notify applicants in writing about the intent to conduct a background check for employment reasons. This notification must be both clear and prominent, presented as a separate document. 

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3. Explanation of Rights: Explain to the contractor their rights regarding the background check process, including their right to review the information gathered and to dispute any inaccuracies. While they are obliged to be informed about their rights, it is also safe for you to explain the areas that concern you (and can stir conflict), and have them read and understand, based on the contract between you two. 

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4. Signature: Have the contractor sign the consent form, indicating their agreement to undergo the background check. This signature serves as documentation of their consent.

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5. Record Keeping: Maintain a copy of the signed consent form in the contractor's file. This documentation is important for compliance purposes and may be required in the future.

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Once you are both in agreement on this, you can move on to Executing the Background Check with your chosen independent provider. 

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Executing the Background Check

Step 1: Contractor Information Collection

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When conducting a background check on contractors, specific pieces of information required may include:

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1. Personal identification details:

• Full name (registered name) 
• Date of birth
• Address (either local or international) 
• Means of identification (a driver's license, etc.) 
• Social Security number. (or a national ID number for an international prospect). 

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2. Employment history: 

• Previous employers
• Job titles
• Dates of employment
• Job details and reasons for leaving

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3. Educational background:

• Degrees obtained 
• Institutions attended.

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4. Criminal history, including any convictions or pending charges.

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5. References (mostly professional. However, you could conduct a check from any other referee, depending on the nature of the contract). 

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Secure methods for collecting this information during a background check may include:

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1. Using encrypted online forms or secure portals for applicants to submit their personal information. These forms should be accessible only to you, the prospect, and the independent background checker. 

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2. Verifying identity through official documents such as passports or driver's licenses, either in person or through secure electronic verification processes. 

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3. Ensuring compliance with relevant data protection laws throughout the collection and review process.

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Step 2: Submission to Provider

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Following the steps listed above, you should simply pass on the details collected to the independent background checker to take up the process from there. The background checker, however, might need or should ensure the following:

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1. Verification of Identity: The background check provider may require additional verification of the applicant's identity to ensure the accuracy of the information provided. This could involve presenting official identification documents in person or through secure electronic verification processes.
2. Data Handling by Provider: The background check provider receives the information and conducts the necessary checks while adhering to strict data security protocols. This includes protecting the information from unauthorized access, ensuring compliance with relevant data protection laws, and securely storing the data throughout the process.
3. Results Delivery: Once the background check is complete, the provider delivers the results to the employer through a secure channel, ensuring that sensitive information remains protected during transmission.

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Step 3: Analysis of Results

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Deal-breakers vary depending on the nature of the position and your organization's policies, but they generally include: serious criminal convictions, falsification of information, significant financial issues, or patterns of irresponsible behavior that could pose risks to your organization, employees, or clients. 

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Across all areas of the check, you might want to watch out for the following red flags:

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1. Personal Information:  Discrepancies in names, addresses, or other identifying details could indicate potential issues or inaccuracies.

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2. Employment History Verification:  Red flags may include unexplained gaps in employment, discrepancies in job titles or responsibilities, or discrepancies between the provided information and what's listed in the report.

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3. Educational Background Verification:  Red flags could include discrepancies in degrees earned, institutions attended, or dates of attendance.

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4. Criminal History Check:  Common red flags include convictions for crimes relevant to the position, such as theft, fraud, violence, or drug-related offenses. Additionally, recent or frequent criminal activity may raise concerns about the applicant's suitability for the role.

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There are other areas you may need to request details on to check for yourself. 

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•  A credit history check MAY be applicable and legally permissible, depending on what role the prospect is coming into. Here, red flags may include a history of financial irresponsibility, such as bankruptcies, foreclosures, or significant debt, which could indicate potential reliability or integrity issues

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• Professional License Verification: If the position requires professional licensure, verify the validity of the applicant's license. Red flags may include expired or revoked licenses, disciplinary actions, or discrepancies between the provided information and what's listed in the report.

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• Social Media and Online Presence: Consider reviewing the applicant's social media profiles or online presence, if applicable. Red flags may include inappropriate or concerning behavior, such as discriminatory remarks, hate speeches, cyberbullying, illegal activities, or unprofessional conduct, which could reflect negatively on the organization.

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It's essential to assess each red flag or potential deal-breaker in context and consider mitigating factors before making a final decision. 

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However, your prospects should be allowed to explain any discrepancies or provide additional context for the information reported in the background check.

Evaluating Background Check Findings

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You may want to prepare for disappointments. Your prospects are humans who are flawed, and your findings may reveal a chunk of discrepancies. However, you don't have to dismiss them just immediately. You should assess the severity and recency of negative findings for a balanced and fair decision.

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 Here's a framework for evaluating these factors:

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1. Severity Assessment:

• Nature of the Finding: Evaluate the seriousness of the adverse finding. For example, a minor traffic violation may be less severe than a felony conviction.
•  Potential Impact on the Role: Consider how the adverse finding relates to the contractor's proposed responsibilities. A financial discrepancy may be more concerning for a role involving handling finances than for a purely administrative position.
•  Relevance to Organizational Values: Assess whether the adverse finding aligns with the organization's values and standards of conduct. Certain behaviors or convictions may be incompatible with the organization's culture or mission.

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2. Recency Evaluation:

• Timeframe: Determine the timeframe of the adverse finding relative to the present. Recent findings may carry more weight than older ones, especially if they indicate ongoing issues or patterns of behavior.
• Demonstrated Rehabilitation: Consider evidence of rehabilitation or efforts to address past issues. For example, completion of probation, participation in rehabilitation programs, or positive changes in behavior since the adverse finding occurred.
• Consistency of Behavior Over Time: Assess whether the adverse finding appears to be an isolated incident or part of a pattern of behavior. A single, distant incident may be less concerning than repeated or recent occurrences.

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3. Framework for Fair Decision-Making:

• Objective Criteria: Establish clear criteria for evaluating adverse findings, based on the nature of the role and relevant legal requirements. This helps ensure consistency and fairness in decision-making.
• Individualized Assessment: Consider the unique circumstances of each case and allow the contractor an opportunity to provide context or mitigating factors. Avoid making blanket decisions based solely on the presence of an adverse finding.
• Balanced Consideration: Weigh the severity and recency of adverse findings against other factors, such as the contractor's qualifications, skills, and potential for rehabilitation. Strive for a balanced assessment that considers both the risk to the organization and the individual's ability to contribute positively.

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Here is a matrix you can adopt in your decision-making.

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Post-check practices to follow: 

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1. Communicating with Contractors About Findings

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Clear communication regarding background check findings and their impact on engagement is vital for transparency, trust, and fairness. Contractors have the right to know discovered information, fostering trust and respecting their rights. This enables informed decision-making, including understanding limitations and addressing concerns. It also allows contractors to provide context, ensuring compliance with regulations like the FCRA and promoting fairness. Open communication maintains positive relationships, enhancing cooperation and respect throughout the process.

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1. Provide contractors with written notification of the findings, including a summary of any adverse information discovered.
2. Schedule a meeting or virtual call to discuss the findings in detail and answer any questions or concerns you or the contractor may have.
3. Clearly explain any potential limitations or conditions placed on the contractor's engagement as a result of the findings.
4. Encourage open dialogue and ensure contractors feel comfortable sharing their perspectives or providing additional information.
5. Document all communications and decisions related to the background check process to maintain transparency and accountability.

2. Dispute Resolution

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You should give your prospects the liberty to dispute incorrect or contested findings, along with timelines and processes for re-evaluation. If they wish to proceed with this, they should:

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1. Review the background check report to identify any inaccuracies, discrepancies, or information that is contested. This is why you should sustain transparency from the onset. 

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2. Gather any relevant supporting documentation or evidence that supports their position and refutes the disputed findings. This may include official records, certificates, letters of reference, or other documentation corroborating their claims. However, since most of these are expected to be provided from the start, you should thoroughly check on facts from those documents, in comparison with references provided. 

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3. Promptly notify the organization or background check provider in writing of the disputed findings and provide a detailed explanation of the inaccuracies or contested information. Include any supporting documentation or evidence to substantiate the dispute.

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4. Prospects may consider escalating the matter to higher authorities within the organization or seeking legal advice to protect their rights, if necessary. However, it's best to avoid this so you do not have to incur extra expenses. 

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5. Once the dispute has been resolved, prospects should review the updated background check report to ensure that inaccuracies have been corrected and disputed findings have been addressed satisfactorily.

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Timelines and processes for re-evaluation may vary depending on the urgency of the hiring need for your organization and the specific circumstances of the dispute. However, contractors should expect a prompt and thorough investigation of their dispute, typically within 30 to 60 days. 

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3. Auditing and Reporting

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1. Establish Audit Schedule: Develop a regular schedule for conducting internal audits of background check processes. The frequency of audits may vary depending on factors such as the volume of background checks conducted, changes in laws or regulations, and organizational risk tolerance. Generally, audits should be conducted at least annually, with more frequent audits recommended for high-risk or high-volume hiring environments. 

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2. Define Audit Scope and Objectives: Clearly define the scope and objectives of the audit, outlining the specific areas and processes to be reviewed. This may include examining the entire background check process from initiation to decision-making, as well as evaluating the accuracy, completeness, and timeliness of record keeping. 

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3. Review Legal and Regulatory Compliance: Ensure that background check processes comply with applicable laws and regulations, such as the Fair Credit Reporting Act (FCRA), Equal Employment Opportunity Commission (EEOC) guidelines, state and local laws, and industry-specific regulations. Verify that all required disclosures, authorizations, and notifications are provided to applicants or contractors and that adverse action procedures are followed as required.

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4. Assess Data Security and Privacy Practices: Evaluate the security measures in place to protect the confidentiality, integrity, and availability of background check data. This includes assessing the security of electronic databases, file storage systems, and communication channels used to transmit sensitive information. Ensure compliance with data protection laws and regulations, such as the General Data Protection Regulation (GDPR) for international operations.

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5. Examine Recordkeeping and Documentation: Review the accuracy, completeness, and retention of records related to background checks, consent forms, and decisions made based on the findings. Verify that records are maintained by established policies and legal requirements, and that access to sensitive information is restricted to authorized personnel.

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6. Monitor and Follow-Up:  Continuously monitor changes in laws, regulations, and industry best practices to ensure that background check processes remain up-to-date and compliant over time.

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Conclusion: 

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The entire point of conducting a background check is to foster trust and integrity from both parties. That is why "documentation" and "communication" are recurring practices across all phases of this process. Additionally, it's important to train all personnel involved in the contractor engagement process on these procedures to ensure that everyone is on the same page. 

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FAQs

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1. How is this background check different from that of a full-time staff? 

There are no differences. However, a contract-based staff does not have the relationship and immunity that full-time employees have from the employer. While you can always do a continuous internal check on full-time employees, you may not be able to do that with contractors. Hence, it is crucial to put even more effort into this. 

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2. What if I don't want to employ an independent third-party background check provider? 

If you prefer not to employ an independent third-party background check provider, you can still conduct background checks internally. You can designate someone within your organization to handle the background check process, ensuring they adhere to legal requirements and best practices.  Just make sure whoever conducts the checks is trained to handle sensitive information and follows all applicable laws and regulations. However, it's easier and safer to employ a professional to handle the process. 

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3. What states follow the FRCA? 

All 50 US states follow the FRCA, since it's a federal law.