Background Check Compliance Guide for Employers
Background check compliance can be complex, whether you’re hiring in one location or across multiple jurisdictions. HR teams and hiring managers must navigate federal requirements, changing state and local laws, and industry-specific regulations, all while maintaining an efficient screening and hiring process.
In this guide, we’ll explain what employers should know about background check requirements, why background check compliance matters, and tips for building a compliant screening process.
Disclaimer: This blog is for general informational purposes only and should not be construed as legal advice.
What Makes a Background Check Compliant?
A compliant background check follows all federal, state, local, and industry-specific requirements throughout the screening process. One of the most important federal laws for background checks is the Fair Credit Reporting Act (FCRA).
The FCRA regulates the accuracy, fairness, and privacy of sensitive and personal information disclosed in consumer reports. In a hiring context, pre-employment background checks prepared by a consumer reporting agency (CRA) are considered consumer reports. FCRA requirements apply to these reports, which commonly include information such as:
- Criminal records
- Civil lawsuits
- Driving records
- Employment and education verification
Whenever a company obtains background check reports from a CRA, it must follow FCRA regulations. Under the law, employers need to recognize candidates’ rights and follow proper protocols for disclosure, authorization, and, when applicable, adverse action.
Beyond the federal FCRA, employers must also comply with other regulations at the state and local levels. Many states and cities have separate background check laws, such as ban-the-box and fair chance hiring laws.
Why Compliance Matters in Background Screening
As an employer, you may conduct background checks to avoid potential financial losses that come from making a bad hire. But when handled improperly, background screening can also create a risk of its own. Your organization must perform compliant background checks to avoid hiring delays, legal exposure, and reputational damage.
A compliant background screening process can help employers:
- Improve the candidate experience: When you have a compliant screening process, background checks go more smoothly and candidates know what to expect. This can improve the candidate experience and boost your employer brand.
- Minimize hiring delays: Compliance mistakes or failure to meet requirements can slow down hiring, causing your organization to miss out on top talent.
- Manage legal risks: Noncompliance with the FCRA, state laws, or local regulations can subject your organization to fines, lawsuits, and other legal challenges.
- Avoid financial losses: Compliance violations can lead to costly litigation or penalties for your organization, as well as increased operational costs.
- Protect constituents, clients, or patients: In regulated or safety-sensitive industries like healthcare, finance, and transportation, a compliant screening program can minimize safety and security risks for the people those organizations serve.
Knowing and following background check requirements can help employers build a stronger screening process and ultimately make more confident hiring decisions.
Background Check Requirements for Employers
When it comes to background check federal laws for employers, two major areas to understand are FCRA compliance and Title VII requirements related to criminal history.
FCRA Background Check Requirements
An FCRA-compliant background check encompasses several core parts. These include disclosure, authorization, and adverse action.
Disclosure and Authorization
Compliance with the FCRA starts before you conduct the background check. Simply put, background screenings cannot be completed without the candidate’s prior knowledge and consent.
Before screening, you must provide candidates with a clear and conspicuous disclosure that states you may conduct a background check for employment purposes. This disclosure must be a standalone document and cannot be combined with a job application, liability waiver, interview materials, or other extraneous information unrelated to the disclosure.
The disclosure commonly includes these elements:
- A statement that the employer may request a background check for employment purposes from a background check provider
- The type of information that will be provided in a background check report
- The background check provider’s contact information
Additionally, you must get the candidate’s pre-authorization signature before conducting the background check. As best practice, employers should obtain the candidate’s authorization on a separate consent form. When working with a screening provider, you will need to certify that you complied with the FCRA’s disclosure requirement, got permission from the candidate to conduct a background check and that you will not misuse the information in violation of applicable equal employment opportunity laws.
Adverse Action
The FCRA also regulates how an employer can legally use a background check report to make an employment decision that adversely affects a candidate, known as adverse action.
If you discover potentially disqualifying information in a background check report, you’re required to send the candidate a pre-adverse action notice that includes the following:
- A copy of the background screening report
- A copy of a document called “A Summary of Your Rights Under the Fair Credit Reporting Act”
This notice gives the candidate an opportunity to review the background check report and contact the screening company if they believe the information is inaccurate or incomplete. Employers should then wait a reasonable amount of time (the “waiting period”) before making an employment decision. The FCRA doesn’t explicitly state how long an employer must give a candidate to review the screening report, but five business days is generally considered reasonable.
If you decide to take an adverse action after the waiting period, you must send a final adverse action letter, which must include the following:
- Notice of the adverse action based on the background screening report
- Name, address, and telephone number of background screening provider
- A statement that the background screening provider did not make the adverse decision and is unable to explain why the action was taken
- Notice of the candidate’s right to get a free copy of the background check report within 60 days
- Notice of the candidate’s right to dispute any inaccurate information
These steps can protect your organization from potential penalties under the FCRA.
Title VII and EEOC Guidance
Title VII is a federal law that prohibits employers from discriminating against any individual because of race, color, national origin, sex, or religion. The Equal Employment Opportunity Commission (EEOC) interprets and enforces Title VII.
Title VII can apply in hiring when an employer uses criminal history to make an employment decision. EEOC guidance makes it clear that employers can conduct criminal background checks, but this information cannot lead to unlawful discrimination.
There are two key concepts employers should know when using criminal records in hiring: disparate treatment discrimination and disparate impact discrimination. Disparate treatment can occur when an employer deliberately treats candidates differently based on a protected characteristic, such as race.
Disparate impact discrimination is a bit different. It can happen when a policy that appears neutral actually ends up disproportionately excluding protected groups. For example, a policy excluding anyone with a criminal conviction may have a disparate impact if it screens out protected groups at higher rates.
To help reduce the risk of disparate impact discrimination, EEOC guidance recommends employers consider whether criminal background checks exclusions are job-related and consistent with business necessity. Employers can use three factors recognized in Green v. Missouri Pacific Railroad, commonly known as the “Green Factors,” to make this determination. These factors are:
- The nature and gravity of the offense or conduct
- The time that has passed since the offense, conduct, or completion of the sentence
- The nature of the job being held or sought
EEOC guidance also recommends conducting an individualize assessment, when appropriate, to give candidates an opportunity to provide additional information before a final employment decision is made and to reevaluate whether the exclusion remains job-related and consistent with business necessity.
These steps can help you determine whether an offense and its assoicated risks are relevant to the position and whether the exclusion is job-related and consistent with business necessity.
Tips for Compliant Background Checks
Background check compliance is an ongoing process. Laws can change, hiring needs can evolve, or organizations may move into new locations or industries. Follow these best practices to remain compliant with background screening regulations:
- Stay aware of state and local laws. FCRA compliance is only part of the picture. Stay informed about state and local laws regarding background screening, including fair chance hiring, drug testing, ban the box, and salary transparency laws.
- Audit your compliance processes regularly. Every year, look over your disclosure, authorization, and adverse action notices. Reviewing these policies regularly can help your organization maintain compliance and consistency in the screening process.
- Consult with your legal counsel. They can provide insights into how federal, state, and local requirements may apply to your organization. Qualified legal counsel can also review policy forms and adverse action notices to support compliance.
- Partner with a compliance-focused screening partner. A reputable screening provider can offer helpful guidance and education on compliance requirements. Look for a partner with accreditation through the Professional Background Screening Association (PBSA), which means they’re held accountable for following strict standards to maintain background check FCRA compliance.
FAQs About Background Check Compliance
Here are the answers to some other frequently asked questions about background screening compliance:
Can I make a hiring decision before a background check is complete?
No. You should review the completed consumer report before you consider taking adverse action. If you still potentially plan to take adverse action based on a completed background check, you must follow the adverse action process as defined by the FCRA. This process allows the candidate the opportunity to dispute the information contained in their consumer report.
Can I make a hiring decision while a report is being disputed?
It’s in the best interest of you and the candidate to wait until after the dispute process to make a hiring decision. Under the FCRA, a background check company has 30 days to reinvestigate any information a candidate disputes. While there’s no law prohibiting you from making a hiring decision during the reinvestigation period, it’s generally not advised, since the reinvestigation may correct inaccuracies or discover updated information.
Am I allowed to know what information a candidate disputes?
Generally, a background screening provider will notify you of the dispute without sharing specific details. After the dispute is completed, they will notify you whether the report was updated and provide a copy of the updated report, if applicable.
How can employers determine if a criminal conviction exclusion policy is job-related?
There are many parts to background check compliance, ranging from the federal FCRA and Title VII to state, local, and industry-specific requirements. It can be complex, especially for employers hiring across jurisdictions or industries. But with the right process, your screening program can be transparent, consistent, and compliant with all applicable requirements.
Build a Compliant Screening Program with InCheckBuild a Compliant Screening Program with InCheck
At InCheck, we help employers build background screening programs to fit their hiring needs while supporting compliance at every stage. We offer responsive, friendly support and practical guidance to help organizations minimize hiring risks. If you’re ready to build a compliant screening program for your organization, contact us today to get started.