By Lester Rosen, President of ESR

(Originally Posted on Toolbox for HR)

From the mailbox: Why shouldn’t employers simply do their own background checks in-house? They can hire people from the screening industry and can certainly figure it out.

Answer: First, the fact that a firm may be able to set up an internal screening program does not mean it makes sense. All sorts of professional services could be done in-house. Successful firms typically spend time and energy doing what they are good at (their core function), and they outsource functions that although critical, do not need to take up in-house resources. Of course, if a firm is large enough it may make sense. Of if the firm has a special place in the market where there is a need to be able to tell people they control the process, then that may be a good reason to perform services in house. Most successful firm outsource those HR endeavors that are unusually complicated or regulated, which would include many human resource services such as benefits, retirement planning and screening.

Secondly, it can be a trap to think that the federal Fair Credit Reporting Act (FCRA), the law that controls third party background checks has no application to in-house processes. An employer that performs these activates in-house can easily hit an FCRA “tripwire” thus invoking the FCRA. There are numerous examples. Hiring an out of state agency to pull a court record for example could, per an FTC staff letter, make what appears to be a non-FCRA investigation into an FCRA regulated activity. Accessing non-public databases can make it an FCRA event. California has applied some FCRA type rules on a limited basis to employers that do public record checks in-house. So unless every single thing an in-house department does is done by your own W-2 employees and you only access public records, you may end up tripping the FCRA. Our advice is that even if done in-house, act as though the FCRA applies.

One argument made in favor of in-house processes is that a firm can conduct better reference checks because it knows what it is looking for. Verifications are an interesting issue. There are two types of verifications. Managers may call to determine if someone should be hired. Screening firms are typically called upon AFTER a tentative hiring decision has been made for the purpose of a methodical review of the work history to confirm employment. Hiring managers cannot always be counted on to document the entire work history. Either Human Resources, an internal department or an outside vendor needs to ensure that all employers have been contacted.

Finally, there are a number of specialized skills and resources that are needed, such as figuring out education fraud, or if a criminal record can be used. Unless a firm has access to experts on the laws of all 50 states, and an understanding of EEOC rules, etc, doing it in-house can be very risky. Accessing records from thousands of different courts can be very tricky. A great deal of knowledge is required,

The bottom-line is that if a business does it in-house and they miss a record that a competent third party firm would have found and someone is harmed, it would not be much of a jury defense that the business was trying to save a few bucks by doing something in-house that requires such specialized skills and knowledge.

There is also the cultural issue that some firms find it advantageous to have a third party do the background checks, so the employment relationship does not start with what may seem an invasion of privacy.

So, the bottom-line is an organization needs to figure out if at the end of the day, the time and effort it takes to perform service in-house is worth it, if it can be outsourced. There are certainly organizations that for cost savings have essentially set up their own internal background units successfully, but they essentially have became an in-house background firm that needs to know how to do everything a third party firm can do. However, for the right firm, an in-house process can make sense as long as they know how to do everything a third party firm can do and if it makes economic sense.

For more information about background checks, visit Employment Screening Resources (ESR) at