Background Checking—The Use of Credit Background Checks in Hiring Decisions

SHRM Survey Findings:Background Checking—The Use of CreditBackground Checks in Hiring Decisions July 19, 2012 The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012

Key Findings  What are the most important factors influencing the final decision to hire a particular job candidate over another? The three most important factors that influence the final decision to hire one candidate over another are 1) previous work experience, 2) a good fit with the job and the organization, and 3) specific skills expertise needed for the job.  Do organizations conduct credit background checks on job candidates? Slightly more than one-half (53%) of organizations do not conduct credit background checks on any of their job candidates. This represents a large decrease in the use of credit background checks: in 2010, only 40% did not conduct credit background checks, and in 2004, this percentage was 39%. Thirty-four percent of organizations reported that they conduct credit checks on select job candidates and only 13% conduct credit checks on all job candidates.  When do organizations initiate credit background checks? Of the organizations that conduct credit background checks, most organizations initiate credit background checks after a contingent job offer (58%) or after the job interview (33%). Very few organizations (2%) initiate credit background checks before a job interview.  Why do organizations conduct credit background checks? The top two reasons organizations conduct credit checks on job candidates are 1) to reduce/prevent theft and embezzlement (45%) and 2) to reduce legal liability for negligent hiring (22%). The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 2

Key Findings  On which category of job candidates do organizations conduct credit background checks? Of the organizations that conduct background checks on select job candidates (34%), 87% conduct credit checks on candidates applying for positions with financial responsibilities, 42% on candidates applying for senior executive positions and 34% on candidates for positions with access to highly confidential employee information.  Do organizations hire job candidates whose credit reports contain information that presents their financial situation negatively? 80% of organizations reported that they have hired a job candidate whose credit report contained information that reflects negatively on the candidate’s financial situation, suggesting that negative credit information is not often a barrier to hiring.  How many years of credit history are organizations interested in? Overall, most organizations that use credit checks focus on credit history of two to seven years. Twenty-one percent of organizations reported that two to three years were most influential in their assessment of a job candidate’s credit standing, 27% reported four to five years were most influential, and 31% reported up to seven years were most influential in their assessment of a candidate’s credit standing. Only 6% of organizations indicated that all years of credit history were equally important, a decrease from 17% in 2010.  Do organizations allow job candidates to explain the results of credit checks? Yes; 64% of organizations allow job candidates to explain the results of their credit checks before the decision to hire or not to hire is made, and 28% allow job candidates to explain the results after the decision to hire or not to hire is made. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 3

In general, when making a hiring decision about a job candidate, whichare the most important factors influencing the final decision to hire aparticular candidate over another? Previous work experience directly applicable to the 87% job 82% A good fit with the job and organization 86% 85% Specific skills expertise needed for the job 78% (e.g., technical skills, communication skills) 80% Performance during the interview (e.g., professional 78% demeanor, good communication skills) 67% Favorable reference background check results 60% (e.g., verification of employment history) 47% Education directly applicable to the job 60% 35% Favorable criminal background check results 59% (e.g., criminal history) 44% Certifications directly applicable to the job 51% (e.g., CPA, PHR, PMP) 29% Favorable credit background check results 2012 (n = 385) 14% (e.g., credit history) 9% 2010 (n = 518)Note: Percentages do not equal 100% due to multiple response options. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 4

In general, when making a hiring decision about a job candidate, which are the most important factors influencing the final decision to hire a particular candidate over another?Comparisons by organization sectorNonprofit organizations are more likely than privately owned for-profit organizations to select favorable reference backgroundcheck results as the most important factor influencing the final decision to hire a particular candidate over another. Comparisons by organization sector Nonprofit (74%) > Privately owned for-profit (55%)Note: Only statistically significant differences are shown. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 5

Does your organization, or an agency hired by your organization,conduct credit background checks for any job candidates?No, my organization does not conduct this 53%type of background check on any of its job candidates 40% 34% 2012 (n = 430) Select job candidates 47% 2010 (n = 343) 13% All job candidates 13%Note: Respondents who answered “not sure” were excluded from this analysis. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 6

Does your organization, or an agency hired by your organization, conduct credit background checks for any job candidates?Comparisons by organization staff sizeOrganizations with 2,500 to 24,999 employees are more likely than organizations with 100 to 499 employees to conduct creditbackground checks for select job candidates. Comparisons by organization staff size 2,500 to 24,999 employees (45%) > 100 to 499 employees (25%)Note: Only statistically significant differences are shown. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 7

The Use of Credit Background ChecksA Comparative Look: 2012, 2010 and 2004 2012 2010 2004Does your organization, or an Does your organization, or an In general, how frequently doesagency hired by your organization, agency hired by your organization, your organization, or an agencyconduct credit background checks conduct credit background checks hired by your organization, checkfor any job candidates by for any job candidates by any of the following references forreviewing the candidates’ reviewing the candidates’ its job candidates? Credit Checksconsumer reports? consumer reports?*Survey margin of error: +/- 4% *Survey margin of error: +/- 5% *Survey margin of error: +/- 5%All job candidates (13%) All job candidates (13%) Always (19%)Select job candidates (34%) Select job candidates (47%) Sometimes (24%) Rarely (18%) 42%No (53%) No (40%) Never (39%)Note: n = 430. Respondents who answered “not Note: n = 343. Respondents who answered “not Note: n = 296. Respondents who answered “don’tsure” were excluded from this analysis. sure” were excluded from this analysis. know” were excluded from this analysis.Source: SHRM Background Checking Survey— Source: SHRM Background Checking Survey — Source: SHRM Reference and BackgroundCredit Checks (2012) Credit Checks (2010) Checking Survey (2004) The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 8

When does your organization, or any agency hired by your organization,initiate credit background checks on job candidates? 58% After a contingent job offer 57% 33% After a job interview but before a job offer 30% 3% Varies by job level 9% 2012 (n = 171)After the completion of a job application but 2% before a job interview 2010 (n = 199) 3% 4% Other 1% The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 9

What is the primary reason your organization conducts credit background checks on job candidates?To reduce/prevent theft and embezzlement, other criminal 45% activity 54% 22% To reduce legal liability for negligent hiring 27% 19% To assess the overall trustworthiness of the job candidate 12%To comply with applicable state law requiring a background 7% check for a particular position (e.g., day care 7% teachers, licensed medical practitioners) To comply with credit card processor standards (PCI)** 3% Other 4% 2012 (n = 162) 2010 (n = 195) Note: ** Response option was not available in 2010. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 10

Has your organization ever hired a job candidate with information on hisor her credit report that presented the job candidate’s financial situationnegatively? No, 20% Yes, 80% Note: n = 101. Respondents who answered “not sure” were excluded from this analysis. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 11

In general, when conducting a credit background check on jobcandidates, how many years of credit history are most influential inyour assessment of the job candidate’s credit standing? Up to 10 years or more 8% 5% Up to 8-9 years 4% 3% 31% Up to 6-7 years 33% Up to 4-5 years 27% 27% Up to 2-3 years 21% 14% 2012 (n = 157) Up to 1 year 2% 2010 (n = 230) 0% All years are equally important 6% 17%Note: The data in this chart represent organizations that conduct credit background checks on select or all job candidates. Respondents were asked to roundup to the highest year. Percentages do not equal 100% due to rounding. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 12

When conducting credit background checks on job candidates, in general,how many years of credit history does your organization check for? 10 years 8-9 6-7 4-5 2-3 1 year or more years years years years Executive/upper 2012 33% 6% 43% 16% 2% 0% management (e.g., CEO, CFO) 2010 23% 11% 50% 16% 0% 0% Other management 2012 29% 6% 48% 13% 4% 0% (e.g., directors, managers) 2010 16% 11% 55% 18% 0% 0% 2012 23% 4% 53% 15% 4% 0% Nonmanagement salaried employees 2010 14% 12% 56% 16% 2% 0% 2012 24% 4% 49% 18% 4% 0% Nonmanagement hourly employees 2010 14% 12% 55% 17% 2% 0%Note: n = 45 - 49. The data in this table represent organizations that conduct credit background checks on all job candidates. Respondents were asked to round upto the highest year. Percentages may not equal 100% due to rounding. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 13

Does your organization allow job candidates, in certain circumstances, the opportunity to explain the results of their consumer report that might have an adverse effect on an employment decision (e.g., high debt, bankruptcy)? Yes, after the credit background check is 64%conducted but before the decision to hire or not hire is made 65% 28% Yes, after the decision to hire or not hire has been made 22% 2012 (n = 168) 2010 (n = 197) 8% No, not at any time 13% The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 14

Credit Background ChecksConducted on Select Job Candidates The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 15

On which category of job candidates does your organization conduct credit background checks? Job candidates for positions with fiduciary and financial responsibility (e.g., handling 87% cash, banking, accounting, compliance, technology) 91% Job candidates for senior executive positions (e.g., CEO, CFO, CHRO) 42% 46% Job candidates who will have access to highly confidential employee information 34% (e.g., salary, benefits, medical information or other personal information about… 34% Job candidates who will have access to company or other peoples property or 25% otherwise placed in a position of financial trust (e.g., IT, admin. services) 30% Job candidates who will have security responsibilities (e.g., security guards) 11% 9% Job candidates for positions for which state law requires a background check 2012 (n = 146) 10% (e.g., day care teachers, licensed medical practitioners) 11% 2010 (n = 158)Job candidates who will be employed in safety-sensitive positions (including operating 6% heavy equipment, transportation, etc.) 5% Job candidates for positions involving national defense or homeland security 5% 8% Job candidates who will work with children, the elderly, the disabled and other 2% vulnerable populations 3% Job candidates who will work in health care or with access to drugs 1% (e.g., hospitals, nursing homes, clinics, pharmacies, rehabilitation centers) 3% Other 6% 4% Note: The data in this figure represent organizations that conduct credit background checks on select job candidates. Percentages do not equal 100% due to multiple response options. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 16

In general, after conducting credit background checks, if information that presented the job candidate’s financial situation negatively were discovered, what information is MOST likely to affect your decision to NOT extend a job offer? Accounts in Current High debt-to- Medical- Education- debt outstanding Bankruptcy Tax liens Foreclosures income ratio related debt related debt collection judgment(s)Job candidates for positions for whichapplicable state law requires a background 61% 18% 9% 3% 3% 3% 3% 0%check (e.g., day care teachers, licensed medicalpractitioners) (n = 33)Job candidates who will work in health care orwith access to drugs (e.g., hospitals, nursing 57% 13% 13% 4% 0% 9% 4% 0%homes, clinics, pharmacies, rehabilitationcenters) (n = 23)Job candidates for positions involving national 52% 9% 13% 17% 4% 0% 4% 0%defense or homeland security (n = 23)Job candidates who will have security 52% 27% 12% 3% 3% 0% 3% 0%responsibilities (e.g., security guards) (n = 33)Job candidates who will work with vulnerablepopulations (e.g., children, the elderly, the 48% 28% 12% 4% 0% 4% 4% 0%disabled) (n = 25) Note: n = 23-123. The data in this table represent organizations that conduct credit background checks on select or all job candidates. Data are sorted by the “Accounts in debt collection” column. Caution should be used when generalizing results when the sample size is less than 30 for any category. Percentages may not equal 100% due to rounding. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 17

In general, after conducting credit background checks, if information that presented the job candidate’s financial situation negatively were discovered, what information is MOST likely to affect your decision to NOT extend a job offer? (continued) Accounts in Current High debt-to- Medical- Education- debt outstanding Bankruptcy Tax liens Foreclosures income ratio related debt related debt collection judgment(s)Job candidates who will have access tocompany or other peoples property orotherwise placed in a position of financial trust 42% 31% 15% 7% 4% 0% 1% 0%(e.g., IT, administrative services, cleaningcrews) (n = 74)Job candidates who will be employed in safety-sensitive positions (including operating heavy 41% 30% 19% 7% 0% 4% 0% 0%equipment, transportation, etc.) (n = 27)Job candidates for senior executive positions(e.g., CEO, CFO, CHRO) (n = 90) 38% 21% 17% 16% 7% 0% 2% 0%Job candidates for positions with fiduciary andfinancial responsibility (e.g., handling cash, 36% 22% 20% 16% 6% 0% 1% 0%banking, accounting, compliance, technology)(n = 123)Job candidates who will have access to highlyconfidential employee information (e.g., salary,benefits, medical information or other 31% 40% 9% 12% 7% 0% 1% 0%personal information about employees) (n =75) Note: n = 23-123. The data in this table represent organizations that conduct credit background checks on select or all job candidates. Data are sorted by the “Accounts in debt collection” column. Caution should be used when generalizing results when the sample size is less than 30 for any category. Percentages may not equal 100% due to rounding. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 18

When conducting credit background checks on job candidates, in general, how many years of credit history does your organization check? 10 years 8-9 years 6-7 years 4-5 years 2-3 years 1 year or moreJob candidates for positions involving national defense or homeland security 2012 14% 0% 71% 0% 14% 0%(n = 7) 2010 27% 0% 64% 9% 0% 0%Job candidates for positions for which applicable state law requires a 2012 8% 0% 69% 23% 0% 0%background check (e.g., day care teachers, licensed medical practitioners) (n =13) 2010 50% 0% 50% 0% 0% 0%Job candidates for positions with fiduciary and financial responsibility (e.g., 2012 17% 4% 52% 17% 9% 0%handling cash, banking, accounting, compliance, technology) (n = 122) 2010 16% 1% 61% 16% 6% 1%Job candidates who will have access to company or other peoples property or 2012 17% 3% 43% 26% 9% 3%otherwise placed in a position of financial trust (e.g., information technology,administrative services, cleaning crews) (n = 35) 2010 14% 0% 59% 14% 14% 0%Job candidates who will have security responsibilities (e.g., security guards) 2012 29% 0% 43% 21% 7% 0%(n = 14) 2010 7% 0% 79% 0% 7% 7% 2012 34% 3% 41% 15% 7% 0%Job candidates for senior executive positions (e.g., CEO, CFO, CHRO,) (n = 59) 2010 26% 1% 61% 9% 3% 0%Job candidates who will have access to highly confidential employee information 2012 20% 4% 39% 20% 14% 2%(e.g., salary, benefits, medical information or other personal information aboutemployees) (n = 49) 2010 12% 2% 61% 12% 12% 2%Job candidates who will be employed in safety-sensitive positions (including 2012 12% 0% 38% 38% 12% 0%operating heavy equipment, transportation, etc.) (n = 8) 2010 38% 0% 50% 0% 13% 0%Job candidates who will work with vulnerable populations (e.g., children, the 2012 0% 0% 33% 33% 33% 0%elderly, the disabled) (n = 3) 2010 0% 0% 100% 0% 0% 0%Job candidates who will work in health care or with access to drugs (e.g., 2012 100% 0% 0% 0% 0% 0%hospitals, nursing homes, clinics, pharmacies, rehabilitation centers) (n = 2) 2010 25% 0% 50% 0% 25% 0%Note: n = 2-122. The data in this table represent organizations that conduct credit background checks on select job candidates. Data sorted by 2012 data in the 6-7years column. Respondents were asked to round up to the highest year. Caution should be used when generalizing results when the sample size is less than 30 forany category. Percentages may not equal 100% due to rounding. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 19

Background Information on 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 web site has additional information on the rights and duties imposed by the Fair Credit Reporting Act at (www.ftc.gov/os/statutes/fcradoc.pdf) The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 20

Demographics: Organization Industry Percentage Manufacturing 19% Health care and social assistance 17% Professional, scientific and technical services 12% Other services except public administration 10% Educational services 9% Finance and insurance 7% Retail trade 5% Public administration 4% Transportation and warehousing 4% Religious, grantmaking, civic, professional and similar organizations 4% Accommodation and food services 3% Note: n = 386. Percentages do not equal 100% due to multiple response options. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 21

Demographics: Organization Industry (Continued) Percentage Arts, entertainment and recreation 3% Utilities 3% Administrative and support and waste management and remediation services 2% Construction 2% Information 2% Wholesale trade 2% Agriculture, forestry, fishing and hunting 2% Real estate and rental and leasing 2% Repair and maintenance 2% Mining 1% Management of companies and enterprises 1% Note: n = 386. Percentages do not equal 100% due to multiple response options. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 22

Demographics: Organization Sector Privately owned for-profit organization 51% Nonprofit organization 24% Publicly owned for-profit organization 18% Government sector 5% Other 3% Note: n = 386. Percentages do not equal 100% due to rounding. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 23

Demographics: Organization Staff Size 1 to 99 employees 24% 100 to 499 employees 40% 500 to 2,499 employees 14% 2,500 to 24,999 employees 17% 25000 or more employees 5% n = 375 The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 24

Demographics: Other Is your organization a single-unit organization or a multi-unit organization?Does your organization have U.S.-basedoperations (business units) only or does Single-unit organization: An organization init operate multinationally? which the location and the organization are 36% one and the sameU.S.-based operations only 76% Multi-unit organization: An organizationMultinational operations 24% 64% that has more than one locationn = 386 n = 387 For multi-unit organizations, are HR policies andWhat is the HR department/function for practices determined by the multi-unitwhich you responded throughout this headquarters, by each work location or both?survey? Multi-unit headquarters determines HR 56%Corporate (companywide) 71% policies and practicesBusiness unit/division 15% Each work location determines HR 4% policies and practicesFacility/location 15%Note: n = 256. Percentages do not equal 100% due to A combination of both the work locationrounding. and the multi-unit headquarters 40% determine HR policies and practices n = 257 The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 25

Background Checking—The Use of Credit Background Checks in Hiring Decisions Methodology  Response rate = 19%  Sample composed of 544 randomly selected HR professionals from SHRM’s membership  Margin of error +/-4%  Survey fielded December 28, 2011-February 7, 2012 For more poll findings, visit www.shrm.org/surveys Follow us on Twitter: http://twitter.com/SHRM_ResearchProject leader:Justina Victor, survey research analyst, SHRM ResearchProject contributors:Evren Esen, manager, SHRM ResearchMark Schmit, Ph.D., SPHR, Vice President, SHRM ResearchCopy editor:Katya Scanlan , SHRM Knowledge Center The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 26

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Background Checking—The Use of Credit Background Checks in Hiring Decisions

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