What You Need to Know About Contractor Background Checks

Contractor Background Checks

The landscape of the way we work has changed dramatically over the last decade and a half. Although there have always been those who work independently to “be their own boss,” the vast majority of workers were employed by companies that organized the use of skilled labor. Today, though, a variety of shifts driven by changing technology and economic pressures mean that more people than ever provide services and labor on a more independent basis—not as traditional employees of a business, but either working on their own or as part of a loosely-associated group. The numbers bear out the reality of this change.

According to a Gallup study from 2020, 44 million Americans—approximately 28 percent of all workers in the United States—were self-employed for at least part of 2019. Fourteen percent of the American workforce was working full-time as independent contractors. As the so-called “gig economy” of work on demand grows, more jobs have shifted away from traditional part-time and full-time employment arrangements and towards less formal, less rigid contracting roles. More workers are open to taking these jobs, but even more, find these jobs to be the only available opportunities.

For employers and the general public alike, the rapid expansion of the contractor workforce has created many opportunities and conveniences. Employers can add staff with particular skills without needing a long talent search, and the public enjoys more rapid access to services. However, there is another side of the equation to consider: safety and due diligence. You must understand the pitfalls of hiring contractors and why screening is important. The convenience of contractors can detract from otherwise rigorous hiring processes—even in government, as we saw when the IRS failed to run background checks on contractors.

What is the value of background checks when hiring contractors? This question is one many businesses find themselves asking, especially when stories in the news make the consequences of poor contractor vetting very clear. How can employers and others tap into the value represented by this growing workforce segment without putting the business or others at undue risk? Join us for an in-depth review of contractor background checks and what employers today need to know.

Can We Run Background Checks on Independent Contractors?

Employers that structure their hiring and background check policies around traditional, permanent employment arrangements may wonder: are there different rules and regulations for running a background check on an independent contractor? What if we hire someone as a contractor from a staffing agency—can we be sure that the agency took the appropriate steps to send us someone safe and trustworthy? Do consulting companies do background checks? There's good news: you won't need a considerable overhaul of your business processes since there are many similarities between vetting employees and contractors.

An independent contractor background check doesn’t need to be substantially different from a background screening for full-time or part-time employees. If you decide to vet, the same rules and regulations companies use for background checks still apply. For example, companies should continue observing all the guidelines laid out by the Fair Credit Reporting Act (FCRA). This includes providing a standalone disclosure of your intent to run a background check and obtaining the applicant's written consent to the process.

The law requires you to present pre-adverse action and adverse action notices when you make decisions based on the contents of a background check, and you'll need to provide contractors with a copy of their report. Alongside FCRA requirements, you will also need to continue observing specific guidance issued by the Equal Employment Opportunity Commission.

With all that in mind, it seems simple enough: employers benefit from treating prospective independent contractors just as they would treat employees for background checks. Adopting the same level of due diligence you would use for an employee can ensure a more ironclad hiring process. To begin with, you should answer an important question: who qualifies? In other words, what exactly is an independent contractor?

Defining an Independent Contractor

There are several categories of work to consider when discussing contractor background checks: independent contractors, freelancers, and vendors. All these groups share some broad similarities, but the specific ways your business interacts with them may differ.

Contractors are individuals or companies your business engages in a short or long-term agreement to provide a service. Usually, as you'd expect from the name, this means signing a contract between the individual and your business. Contractors may have extensive access to some areas of a company, may work on the premises, or represent your brand out in the world as part of the gig economy. Compare the nature of a contractor with that of a freelancer, who is usually an individual who provides your business with a one-time service or as required.

Finally, there are vendors such as food trucks who provide a service to the public in conjunction with your business. They may also offer services to your employees, as in the case of a company cafeteria staffed by a third-party catering company. For all three of these employment categories, you must have a way to ensure your business doesn’t risk its reputation or the safety of others due to oversights.

The Importance of Running a Background Check

Why is it critical to run a background check on a contractor who may be a potential employee? The list of reasons is lengthy, covering several vital considerations. First, the individual you plan to hire will be a face and representative for your business. As such, you need to know that this candidate is more than qualified to perform the job. You must ensure that the individual doesn’t pose an immediate risk to their managers, colleagues, customers, your business and the public. One of these steps requires using background screening for contractors.

Many easily understood examples of background check results could indicate someone is a serious hiring risk. Warning signs could include evidence that a candidate lied about their qualifications; a history of criminal convictions for violent crimes that could make them a danger to public safety; white collar convictions, such as embezzlement, that make them a threat to the business itself. Employers who find this information through background screenings may choose not to hire that candidate. Smart screening can reduce the risks of undue expense, legal liability, or otherwise destructive errors.

All the reasons for running a background check on a full-time employment candidate hold for hiring an independent contractor.

Increasingly, independent contractors take on the roles that full-time employees used to fill. These changes have impacted many industries: chauffeur services (companies such as Uber or Lyft); food delivery (Postmates and DoorDash); and creative services in writing, graphic design, and web development. There are even federal contractors working to provide services to the government. These responsibilities often put contractors in the role of representing your business to the world. 

Their positions could put them in contact with your customers, give them access to sensitive company information, and more. The relationship between contractor screening and schools is especially important. Districts that need additional help often turn to third parties for a wide range of services, from custodial work to sports coaching and after-school supervision. It is important to understand that there is little reason to distinguish between employee classes regarding how you vet and screen prospective new hires. Hiring a contractor is often an identical risk as hiring a full-time employee would be.

A thorough independent contractor background check significantly reduces the magnitude of the risks businesses and nonprofits face. Let's take a closer look at the three most critical reasons to conduct background checks on contractors.

Protect Your Brand Reputation

An intense level of work goes into building a recognizable brand for your business. When the public encounters that brand, they immediately know something about you. Whether it’s the products you sell, your reputation for quality, or a local connection you have, brand identity is fundamental to success in today's crowded marketplaces. Many companies spend significant time and money cultivating their brand and strengthening how the public understands it.

All of that hard work can be undone immediately when businesses fail to conduct the appropriate due diligence. When your business relies on independent contractors and freelancers to represent your brand, it is vital to develop the same level of trust in them as you would a full-time employee. Failing to conduct checks on independent contractors could result in several serious problems. For example, they could produce shoddy, poor-quality work for your business if you don't verify their credentials.

Your brand could also face serious adverse PR effects if a contractor attacks someone while working for you. Consider the brand damage suffered by Charter Communications after one of its contractors murdered a woman—the company was held liable for over $1 billion in damages. Associating such negative information with your brand identity is challenging to reverse, especially in the internet age, where news stories can live for years or even decades.

Conducting due diligence and verifying to the best of your ability that a contractor is worthy of representing your brand protects your investment in marketing and, in the best cases, reinforces the quality of your company.

Ensure Consistency

Consistency is one of the most important aspects of a successful background check policy. Why? Essentially, it’s necessary to apply the same expectations across your entire workforce to avoid the appearance of favoritism or discrimination. It is generally considered a best practice to apply your policy to every employee–contractor or not. Skipping the check on someone could raise future questions about why you chose not to screen that particular individual. Should that person cause harm to your business or the public, the questions will only get tougher.

Verifying credentials and vetting individuals also contributes to a more consistent quality of output for your business. Especially with an ongoing pivot towards the gig economy and an increasing reliance on third-party independent contractors to supplement business capabilities, quality matters. You shouldn't produce a worse product or service because of a shift towards more affordable and flexible labor. Reap the benefits of consistency rather than a policy that never works the same way twice.

Keep Safe from Legal Requirements

In some industries, applying your background check policy to a contractor is hardly optional—it might be the law. Remember that some sectors have legal and regulatory requirements that mandate thorough background checks for specific jobs, such as youth sports, transportation, and healthcare. These rules and regulations aim to keep the public safe, and your business must follow the law or face potential fines and other legal ramifications. Skipping these requirements can also put you at risk of a negligence lawsuit from anyone impacted by a contractor's actions.

Employers must make an effort to understand complex legal requirements at a time when the employment landscape has shifted substantially. When developing background check strategies, it is essential to consider whether regulatory demands extend to contractor roles. Even without legal demands, there are still good reasons to develop a policy that broadly applies to anyone who works for your business.

How to Run a Background Check on an Independent Contractor

Because there is no fundamental difference between background checks for independent contractors and employees, you can use a process that is much the same. The that your business uses for vetting full-time or part-time employees will likely be equally effective for contractor background checks. Note that you can utilize all the services we offer at backgroundchecks.com for screening potential contractors. Let's review the basic steps to approach this procedure.

1. Identify the contractor(s) who will work for your business.
2. Provide an FCRA-compliant standalone disclosure of your notice of intent to perform background checks. Per the FCRA, this page must contain only the disclosure, and you should be careful to keep it separate.
3. Obtain the applicant's signed consent to run a background check.
4. Determine the types of vetting you will use. The best tools for contractor background checks include:
   • Criminal history and sex offender registry checks to uncover potential evidence of problematic behavior, such as violent crime or wrongdoing related to the duties.
   • Identity verification to understand potential aliases and avoid missing important criminal records.
   • Professional license verification or education verification when such elements are critical to suitability for the job role.
   • Education and employment verification to ensure that the contractor has the proper experience or credentials to represent your business.
     
     
5. Review the results of the background checks.
6. If you refuse to work with a contractor because of your findings, you must issue a pre-adverse action notice, inform the individual of their rights, and provide a copy of the background report you used to make the decision. You must then allow a reasonable time for the applicant to respond with any corrections or mitigating circumstances.
7. Issue a final adverse action notice after completing the above process. Otherwise, you may proceed with hiring as usual.

Costs of Running a Background Check

What is the price of better safety for your business? Many employers worry about such costs, especially with rising inflation and other economic pressures. The costs of running a background screening will vary depending on the specific services you require. Whether you need to run an independent background check for a contractor or a pre-employment screening for a full-time hire, the costs are usually similar.

At backgroundchecks.com, we offer a la carte services ranging from county criminal screenings to verification checks for resume information, such as education and work history. We also offer bundled packages. We include pricing transparency with each check we offer, but note that some checks may cost more than listed under special circumstances—for instance, if we need to send a court runner to your county of choice to pull criminal records. However, we also have a service created specifically for companies that rely more on contractors and third-party vendors to achieve their goals: VendorSAFE.

VendorSAFE

Individually processing background checks can be too burdensome for companies that rely on a large number of contingent workers in normal operations. Leaving the process entirely in the hands of other organizations is not an ideal solution, either. At backgroundchecks.com, we created our innovative VendorSAFE program to help organizations like yours implement a thorough screening process without requiring extensive hands-on work.

With VendorSAFE, a sponsoring organization (i.e., your business) puts together a tailored background check solution using our online platform to define what level of screening you require alongside other criteria. Vendors can then access this program and use the workflow to vet candidates and approve those who meet your criteria. VendorSAFE is free for sponsoring organizations and, in some jurisdictions, allows for the option of placing responsibility for paying for checks on candidates or their organizations.

Fully customizable and tailored to reflect your brand, this digital system streamlines contractor background checks and lets you start the onboarding process seamlessly. When a candidate or vendor completes the screening process and meets all the requirements, we issue a unique digital certificate so sponsor organizations can verify all vetting steps. For organizations that consistently rely on a broad network of contract workers, VendorSAFE offers the most comprehensive and easy-to-use package possible.