Hiring a new employee is a big financial decision, and a successful hire can greatly contribute to the growth of your business. But if you bring on the wrong person, it can potentially cost you thousands, or even get you into legal hot water. Here are some steps you can take to reduce the chances of making a bad hire, minimizing your risk.

Have Applicants Sign a Consent Form

Many employers are reluctant to talk about the details of a former employee’s performance for fear of being sued. But when you’re considering bringing an employee into your business, you need to know more than just their start date, separation date and job title, which is all some companies will give you. One way to get companies to open up is to have applicants sign a reference check authorization form for their last few employers. Nolo.com advises employers to require these releases in order to avoid potential defamation lawsuits from the employee. In it, the applicant grants permission for you and applicants’ former employers to discuss the details of his employment, and releases both parties from any liability or harm that may come from those discussions.

Check With Former Employers

Once you have the consent form in hand, it’s time to call applicants’ former employees. To increase your odds of getting useful information, you should ask to speak to the person who managed each applicant. You’ll want to first verify the details that the applicant gave you, and then ask additional questions, such as:

  • How well did they get along with their boss? With co-workers?
  • How much supervision do they need?
  • Why did they leave your company? They will not be able to answer this question if the employee left for medical reasons.
  • What were their responsibilities?
  • Which of those responsibilities did they handle best? Worst?
  • What areas do you think they should work to improve?
  • How do they interact with customers?
  • Are they team players?
  • Is there anything else you would like to say about them?

In addition to asking about work experience, some states allow you ask about past disciplinary actions and performance reviews. To find out if your state allows this, check with the local state labor office in your area.

Verify Their Educational History

Several high-profile people have made the news by claiming to have a degree from LaSalle University, a notorious diploma mill that was shut down after an FBI investigation. Among those found falsifying their resumes were the Navy’s surgeon general, the president of a university, a police chief of a major city, and a state senator. In fact, according to HireRight, there is a roughly 20 percent discrepancy rate in the information given to potential employers by applicants about their educational history. That’s important, because, for some jobs, a certain degree, training, or certification can mean the difference between someone who can do the job, and someone who can’t. If you want to verify that applicants have the degree(s) they claim, you can:

  • Hire an online service, such as the National Student Clearinghouse, to do it for you.
  • There are many offshore diploma mills that have answering services that pretend to be the registrar’s office. If you’ve never heard of the institution listed on an applicant’s resume, find out if it’s a legitimate institution on the Counsel for Higher Education Accreditation’s website.
  • The Family Educational Rights and Privacy Act (FERPA) allows you to call a university and verify the “directory information” only, which includes the applicant’s name, address, phone number, birth date and location, honors and awards, and dates of attendance.

Do a Criminal Background Check

Criminal checks are important not only to ensure that you hire someone trustworthy to work in your business, but also because if you hire someone who has a criminal past and then goes on to commit a crime while in your employment, you can be held liable for their criminal conduct in a negligent hiring and retention case. For example, if you hire someone to work with the public who has been convicted of violent actions in the past, you could be held liable if that person harms someone while on in your employ.

To run a criminal background check on an applicant, you’ll first need to ask them to sign a consent form allowing you to do so. Then, contact a service that will run a full check for you such as EmployeeScreenIQ or GoodHire. States have differing laws that govern the extent to which employers can consider a criminal background in hiring decisions, so be sure to contact your state labor office to learn more about your state’s rules.

Run a Credit Check

Some employers feel that if their new employee will be handling large sums of money, or will be responsible for customer’s credit cards, they want to know more about their financial background. According to the Federal Trade Commission, that’s perfectly legal, but employers are required to get a job applicant’s permission in writing before doing it. But not every state allows you to check an applicant’s credit history, so your first step is to check out the National Conference of State Legislature’s list of states that have passed laws regarding the practice. If your state allows you to pull the report, you’ll need to have the applicant sign a consent form. The form should inform the applicant that you intend to check his credit, and give you authorization to do so. The form must be a stand-alone document, so don’t include it in the job application or with other consent forms.

The Fair Credit Reporting Act [PDF] outlines the steps you must take if you decide not to hire an applicant based on their credit report. You’ll first need to send them a notice informing them that you are considering taking the “adverse action” of not hiring them based on something you saw in their credit report. Along with this notice, you must include a copy of their credit report and a copy of a document called a Summary of Your Rights Under the Fair Credit Reporting Act [PDF].

Finally, if you decide that you will not hire the applicant, you should send them an adverse action notice [PDF], which explains that you made your final decision based on their credit report, and informs them that they can dispute the information.

Employees are a major investment for any business owner, and it makes financial sense to do everything you can to ensure that the people you bring on board are up for the job. By taking the steps listed above, you can help increase your chances of hiring the right employees for your business and reduce your own exposure to risk.

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