Bad hires can cost you. These are the employees who are significantly less likely to stay, waste your investment in on-boarding and add additional recruitment costs to an already expensive process. Bad hires can also put your company at risk for safety violations and even in legal jeopardy. The average jury award for negligent hiring, for example, is $1 million USD and companies lose 79% of these cases.

Background checks, including pre-employment drug testing and alcohol testing, can prevent many of these bad hires and the costs that go along with them. In fact, one study pegged the first-year retention rate for employees who underwent background checks at 89% compared to unscreened candidates, whose retention rate often fell below 60%.

While a thorough background check makes sense for most companies, it's the law for Department of Transportation (DOT) regulated companies. DOT mandates the pre-employment drug and alcohol testing and drug and alcohol testing history requirements in 49 CFR Part 40.25. Various DOT governed agencies, including the Federal Motor Carrier Safety Administration (FMCSA) and the Federal Aviation Administration (FAA), enforce additional employment background checks that include work history and driving records.

Here are six best practices you need to know about background checks to ensure you're getting the most out of the process.

1. Potential Employees Have Rights Too

You might be tempted to have an "a-ha" moment once you've uncovered information about a potential new employee. However, be wary and use the new data cautiously. Many states have privacy laws. There are also legal grace periods, after which it becomes illegal to use certain information. For these reasons, getting your employees to sign off on the background check is always a good idea. However, a signature alone will not save you if you misuse the information.

The Equal Employment Opportunity Commission has detailed guidelines regarding background checks and how you can and cannot use the information you uncover. For example, with criminal background checks, you must consider how long ago the crime occurred, the nature of the crime, and its relevance to the job you are hiring for. This makes sense under all circumstances. A traffic violation is not the same as a conviction for embezzlement, but a background check could flag both. The traffic violation might matter to a trucking company hiring a new driver, but not to a bank hiring a new teller.

The Fair Credit Reporting Act also has strict requirements for using the credit information you gather on potential employees. For example, you must inform candidates in a standalone document that their credit information could be used to eliminate them as a potential hire.

2. All Potential Hires Are Equal

If that traffic violation is going to eliminate a candidate for a position with your company, you must ensure that the same offence eliminates every potential employee. You cannot make exceptions, nor can you be perceived to be applying the background check more stringently to a single potential employee or group of employees.

This means all applicants to a specific job in your company. The criteria for eliminating warehouse employees could be very different than that of your office staff, but you must uniformly apply it to all applicants to each department.

In addition to not discriminating against someone based on a person's race, national origin, color, sex, religion, disability, genetic information (including family medical history), or age, you cannot be perceived to be discriminating based on these criteria. No matter how good your intentions were, it is the perception that matters. For example, unless it is necessary, avoid asking identifying questions on an application and maintain consistent criteria for elimination and hiring.

Finally, understand that you cannot eliminate a candidate solely based on criminal history, particularly if that client has been honest with you during the interview process.

3. Guidelines Can Keep You on Track

A written policy can help you take advantage of background checks' benefits while avoiding many of the pitfalls that accompany them. Your policy should outline the types of background checks you require of potential employees and their consequences. It should also clearly outline your procedures for conducting these background checks. Will you do checks in-house, or will you contract out, for example?

Social media is an incredibly valuable tool for conducting background checks, but it comes with risk. If you are going to use social media, create a policy that takes into account recent legal decisions and laws to ensure your use of social media to investigate new hires remains compliant with them.

A policy ensures you are consistent with individual applicants and with state and federal laws regarding background checks. But as these laws are continually evolving, ensure you revisit the policy often and revise as necessary.

4. Leverage Information Wisely

One often overlooked aspect of background checks is the additional positive information you may discover about an employee. This may include skills or experiences that were not highlighted in their resume or during the interview process. Their responses to additional requests for background information may reveal something about their character or approach that resonates with you.

On the other hand, you must maintain the privacy of your candidates. The information you gather must be strictly used for hiring decisions and may not be shared with others either inside or outside your firm.

Consider talking to candidates to request an explanation or additional information, particularly when you uncover something concerning. You don't want to dismiss potentially great candidates unnecessarily.

5. Contract to a Third Party

While it is possible to leverage your existing staff to do background checks on potential employees, there are some significant advantages to contracting out background check services.

First, they are professionals whose job it is to stay on top of the most recent legal requirements. Their knowledge means they can reduce your exposure to violations of privacy or discrimination laws.

Second, they are professionals with experience and expertise. They know precisely how to find the information you require and have access to databases and other technology you may lack. This means they are more likely to find the information you need and also find it more quickly. This can significantly reduce bottlenecks in your hiring process.

6. Check the Right Boxes

Avoiding a bad hire means ensuring you gather all of the relevant information you need about the candidate before you make an offer. This is why background checks are critical but focusing on the right checks is also crucial.

Some of the background checks you may want to consider include:

Choose the background checks that are relevant to the position. Avoid gathering information you don't need or shouldn't have as this can lead to claims of discrimination, and may potentially be an unnecessary distraction.