January 22, 2010

Background Checking: Conducting Credit Background Checks

Background Checking - Credit Checks| ©SHRM 2010

Introduction

Overview of Credit Background Checks

• Many employers conduct some kind of background check on job applicants and/or employees. Background checks may include verification of educational or professional history, contacting references, obtaining a report on an individual’s criminal history, and/or obtaining a report on an individual’s credit history.

• The Fair Credit Reporting Act (FCRA) authorizes employers to obtain a consumer report for “employment purposes” from a consumer reporting agency (CRA) so long as certain disclosure requirements are met. The term “employment purposes,” means a report that is used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.

• For some employers, credit payment records serve as a factor in evaluating an individual’s suitability for a job, while others seek information on driving records, criminal histories, or other background information. All of these types of reports are considered consumer reports if they are obtained from a CRA.

• Before procuring a consumer report, FCRA requires employers to clearly disclose, in writing, that a report may be obtained for employment purposes and get written authorization from the individual. FCRA also requires that the employer provide the individual with a copy of the report and a written description of the consumer’s rights before taking any adverse action based in whole or in part on the report.

• The Federal Trade Commission website has additional information on the rights and duties imposed by the Fair Credit Reporting Act at (www.ftc.gov/os/statutes/fcradoc.pdf)

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Background Checking - Credit Checks| ©SHRM 2010 3

Does your organization, or an agency hired by your organization, conduct credit background checks for any job candidates by reviewing the candidates’ consumer reports?

13%

47%

40%

All job candidates

Selected job candidates

No, my organization does not conduct this type of background check for any of its job candidates

Note: n = 343

Background Checking - Credit Checks| ©SHRM 2010 4

When conducting credit background checks on job candidates, in general, how many years of credit history does your organization check by job level?

1 year2–3

years4–5

years6–7

years8–9

years

10 years or

more

Executive/upper management (e.g., CEO, CFO) 0% 0% 16% 50% 11% 23%

Other management (e.g., directors, managers) 0% 0% 18% 55% 11% 16%

Nonmanagement, salaried employees 0% 2% 16% 56% 12% 14%

Nonmanagement, hourly employees 0% 2% 17% 55% 12% 14%

Note: n = 45. The data in this table represent organizations that conduct credit background checks on all job candidates. Respondents were asked to round up to the highest year.

Background Checking - Credit Checks| ©SHRM 2010 5

On which categories of job candidates does your organization conduct credit background checks?

Other

Job candidates who will work in health care or with access to drugs (e.g., hospitals, nursing homes, clinics, pharmacies, rehabilitation centers, etc.)

Job candidates who will work with children, the elderly, the disabled and other vulnerable populations

Job candidates who will be employed in safety-sensitive positions (including operating heavy equipment, transportation, etc.)

Job candidates for positions involving national defense or homeland security

Job candidates who will have security responsibilities (e.g., security guards, etc.)

Job candidates for positions for which state law requires a background check (e.g., day care teachers, licensed medical practitioners, etc.)

Job candidates who will have access to company or other people's property or otherwise placed in a position of financial trust (e.g., information technology, administrative services, etc.)

Job candidates who will have access to highly confidential employee information (e.g., salary, benefits, medical information or other personal information about employees, etc.)

Job candidates for senior executive positions (e.g., CEO, CFO, CHRO, etc.)

Job candidates for positions with fiduciary and financial responsibility (e.g., handling cash, banking, accounting, compliance, technology)

4%

3%

3%

5%

8%

9%

11%

30%

34%

46%

91%

Note: n = 158 .The data in this figure represent organizations that conduct credit background checks on select job candidates. Percentages do not total to 100% as respondents were allowed multiple choices.

Background Checking - Credit Checks| ©SHRM 2010 6

When conducting credit background checks on job candidates, in general, how many years of credit history does your organization check by job level?

1 year2–3

years4–5

years6–7

years8–9

years10 years or more

Job candidates who will work with children, the elderly, the disabled and other vulnerable populations 0% 0% 0% 100% 0% 0%

Job candidates who will have security responsibilities (e.g., security guards, etc.) 7% 7% 0% 79% 0% 7%

Job candidates for positions involving national defense or homeland security 0% 0% 9% 64% 0% 27%

Job candidates who will have access to highly confidential employee information (e.g., salary, benefits, medical information or other personal information about employees, etc.)

2% 12% 12% 61% 2% 12%

Job candidates for positions with fiduciary and financial responsibility (e.g., handling cash, banking, accounting, compliance, technology, etc.)

1% 6% 16% 61% 1% 16%

Job candidates for senior executive positions (e.g., CEO, CFO, CHRO, etc.) 0% 3% 9% 61% 1% 26%

Job candidates who will have access to company or other people's property or otherwise placed in a position of financial trust (e.g., information technology, administrative services, cleaning crews, etc.)

0% 14% 14% 59% 0% 14%

Job candidates who will be employed in safety-sensitive positions (including operating heavy equipment, transportation, etc.) 0% 13% 0% 50% 0% 38%

Job candidates who will work in health care or with access to drugs (e.g., hospitals, nursing homes, clinics, pharmacies, rehabilitation centers, etc.)

0% 25% 0% 50% 0% 25%

Job candidates for positions for which applicable state law requires a background check (e.g., day care teachers, licensed medical practitioners, etc.)

0% 0% 0% 50% 0% 50%

Note: n = 4-138. The data in this table represent organizations that conduct credit background checks on select job candidates. Data sorted by the 6–7 years column. Respondents were asked to round up to the highest year.

Background Checking - Credit Checks| ©SHRM 2010 7

In general, if a credit background check revealed information that presented the job candidate’s financial situation negatively, what types of information are MOST likely to affect your decision to NOT extend a job offer?

Other

Medical debt

Education-related debt

Tax liens

Foreclosure

High debt-to-income ratio

Bankruptcy

Accounts in debt collection

Current outstanding judgment(s) (e.g., lawsuit filed in court)

0% 10% 20% 30% 40% 50% 60% 70%

3%

1%

2%

10%

11%

18%

25%

49%

64%

Note: n = 201. Percentages do not total to 100% as respondents were allowed multiple choices. Respondents were asked to select their top two options.

Background Checking - Credit Checks| ©SHRM 2010 8

When does your organization, or any agency hired by your organization, initiate credit background checks on job candidates?

Other

After the completion of a job application but before job interview

Varies by job level

After job interview but before a job offer

After a contingent job offer

0% 10% 20% 30% 40% 50% 60%

1%

3%

9%

30%

57%

Note: n = 199

Background Checking - Credit Checks| ©SHRM 2010 9

Does your organization allow job candidates, in certain circumstances, the opportunity to explain the results (e.g., high debt, bankruptcy, etc.) of their consumer report that might have an adverse effect on an employment decision?

65%

22%

13%

Yes, after the credit background check is conducted but before the decision to hire or not hire is made

Yes, after the decision to hire or not hire has been made

No, not at any time

Note: n = 197

Background Checking - Credit Checks| ©SHRM 2010 10

What is the primary reason that your organization conducts credit background checks on job candidates?

To comply with applicable state law requiring a background check for a particu-lar position

To assess the overall trustworthiness of the job candidate

To reduce legal liability for negligent hiring

To reduce/prevent theft and embezzlement, other criminal activity

0% 10% 20% 30% 40% 50% 60%

7%

12%

27%

54%

Note: n = 195

Background Checking - Credit Checks| ©SHRM 2010

Demographics: Organization Industry

Industry

Health care, social assistance (e.g., nursing homes, EAP providers) 18%

Services—professional, scientific, technical, legal, engineering 12%

Manufacturing—other 11%

Educational services/education 8%

Government/public administration—federal, state/local, tribal 5%

Financial services (e.g., banking) 5%

Transportation, warehousing (e.g., distribution) 5%

Insurance 5%

Retail/wholesale trade 4%

Construction, mining, oil and gas 3%

Other services (e.g., nonprofit, church/religious organizations) 3%

High-tech 3%

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Note: n=312. Percentages may not total 100% due to rounding.

Background Checking - Credit Checks| ©SHRM 2010

Demographics: Organization Industry (continued)

Industry

Telecommunications 3%

Utilities 3%

Services—accommodation, food and drinking places 2%

Publishing, broadcasting, other media 2%

Arts, entertainment, recreation 2%

Consulting 1%

Manufacturing—auto/auto-related 1%

Real estate, rental, leasing 1%

Association—professional/trade 1%

Pharmaceutical 1%

Other 1%

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Note: n=312. Percentages may not total 100% due to rounding.

Background Checking - Credit Checks| ©SHRM 2010

Demographics: Organization Sector

Government sector

Publicly owned for-profit organization

Nonprofit organization

Privately owned for-profit organization

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

8%

25%

25%

43%

13

Note: n = 319. Percentages may not total 100% due to rounding

Background Checking - Credit Checks| ©SHRM 2010

Demographics: Organization Staff Size

Small (1-99 employees) Medium (100-499 employees) Large (500 or more employees)

-10%

0%

10%

20%

30%

40%

50%

60%

70%

7%

28%

65%

14

Note: n = 312. Percentages may not total 100% due to rounding

Background Checking - Credit Checks| ©SHRM 2010

Demographics: Organization Region

West

Northeast

South

Midwest

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

19%

20%

29%

32%

15

Note: n = 312. Percentages may not total 100% due to rounding

Background Checking - Credit Checks| ©SHRM 2010

Demographics: Organization Operations Location

Primarily nationally based

Primarily locally based Primarily state based Primarily multinationally based

0%

10%

20%

30%

40%

50%

43%

24%

18%14%

16

Note: n = 315 Percentages may not total 100% due to rounding

Background Checking - Credit Checks| ©SHRM 2010

Background Checking: Conducting Credit Background Checks

• Response rate = 19%• Sample comprised of 433 randomly selected HR

professionals from SHRM’s membership• Margin of error is +/- 5 • Survey fielded November 18 – December 4, 2009

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Methodology