Founder and CEO of Endera
You probably had to go through a background screening for one or more jobs in your career. Your employer-to-be might have told you they’d be running a background check, made you sign some documentation and let you know they’d be in touch once the results were processed. They likely sifted through data such as your credit history, criminal convictions, driving records and many other types of personal information—including those irrelevant to the job you were being considered for. Meanwhile, you didn’t have a clear picture of what exactly they’d be evaluating the future of your career on.
Now that you’re a business leader, you might be on the other side of the equation, running or reviewing background checks for your company’s prospective hires. If so, you’re not alone. According to a 2021 survey, 93% of organizations stated that they run background screenings on potential employees—and with good reason. That same survey found that of the organizations surveyed, 76% said they run background checks “to protect employees and customers.”
But even though companies have good intentions when running background checks, there’s a lot at stake. Employers are waking up to the new realities of hiring and retaining employees who are increasingly conscious of their own data and privacy rights. Labor shortages, in part influenced by shifting attitudes about the nature and type of employment, put employers in a unique pinch with needing a quick, accurate, inclusive and fair way to perform background screenings without the increasing liability of collecting personal identifiable information. Companies stand to gain three main benefits by democratizing the employment screening process and putting more agency in candidates’ hands.
What Does A More Democratized Employment Screening Process Look Like?
First, let’s establish what a more democratized employment screening process would look like. At the baseline, it involves being extremely clear with candidates about what information the company is screening for, why the company is screening for that information and how that information will be used. Companies can go a step further and be leaders in protecting individuals’ privacy by asking each applicant to get their own background report directly from a third-party service, verify its accuracy and then share it with the company. With this approach, candidates won’t have to sacrifice their personal identifiable information.
No matter how a company decides to democratize its employment screening process, here are the three main benefits it’ll gain.
1. A Chance To Secure Better Employment Practices Liability Insurance Rates
There are many different types of commercial insurance on the market. The one I’ll focus on is employment practices liability (EPL) insurance. EPL insurance helps businesses pay to legally defend themselves from or settle employment lawsuits. Examples of employment lawsuits include an employee saying they were wrongfully terminated or a candidate saying they weren’t hired due to discriminatory practices.
EPL insurance isn’t cheap. According to NerdWallet, coverage “can range from as little as $100,000 to as much as $25 million.” And EPL coverage is likely to get even pricier. In a 2021 report, insurance and consulting firm Gallagher revealed that it saw “further increases in the rates most EPL insurers charged at renewal, with most companies seeing between 10%–25% increases, and many companies seeing retention increases as well,” spurred by pandemic layoffs and furloughs. Additionally, Gallagher stated that at “the end of 2020, particularly in higher risk states” and “especially for those companies most impacted” by the pandemic, it saw “large EPL insurers pushing increases of 25%–75% and even higher.”
Another firm, CBIZ, predicted in its 2022 EPL outlook that “the employment practices liability (EPL) market has hardened,” and that while “most policyholders will experience rate increases, the EPL insurance environment is actually anticipated to improve slightly this year” and that organizations in “riskier” states or industries “may encounter higher rate increases.”
But come policy renewal time, if employers can show EPL carriers that they’ve put measures in place to make their employment screening processes more transparent and objective—by extension, reducing their risk of getting hit with hiring practices lawsuits—they have a good opportunity to negotiate with their carriers for reduced EPL insurance costs. Employers can then invest those savings into other crucial areas of their business.
2. Staying Ahead Of Proposed Legislation
Companies have to navigate proposed consumer data privacy and background check law changes that impact them, and it’s best to get a head start.
For instance, according to legal intelligence website JD Supra, a 2021 California court ruling made employment background checks “appreciably more difficult by prohibiting searches of criminal court records with the use of a person’s birth date or driver’s license number.” What’s more, JD Supra also reported that in February 2022, a California state senator brought forth a bill “that would reinstate more streamlined searches of court records.”
These and other privacy law changes could present significant compliance costs and risks to employers. The laws are changing. The market is changing. Embracing an applicant-centric paradigm will set organizations on the path to reducing privacy and regulatory risks in connection with employment screening—and be better prepared to deal with the myriad of state and federal regulations and any future changes to employment laws.
3. Removing As Much Subjectivity As Possible When Hiring And Nurturing Better Relationships With Employees
EPL insurance rates and legal matters aside, employers should think about their people, as they are the lifeblood of any organization.
Above all, it’s crucial that companies do everything possible to be objective at the hiring stage. Current non-transparent, non-standardized employee background check processes leave many opportunities for bias to seep in and talented workers to be left out.
Additionally, employee background screening processes that provide transparency and standardized risk measure can get employers and applicants started on the right foot. For instance, an applicant might think more favorably about an organization that gives candidates more agency around background screenings and would in turn be more likely to join that company.
Given the tight labor market, employers who empower candidates with transparency are more likely to succeed in the hiring process.
The information in this article is not legal advice. You should consult with a licensed professional for advice concerning your specific situation.