An Insider’s Guide to the Hidden Costs of Background Checks

For many hiring managers, the cost of performing background checks is a small price to pay for the assurance of hiring the right individual for a job. Others, especially those leading the human resource functions of small businesses, may look at the cost of background checks as an unacceptable expense and risk making a bad hire by opting to trust their instincts when assessing a candidate for employment.

While "gut instinct" is an important part of the hiring process, the potential costs - both tangible and intangible - of extending an employment offer to the wrong person more than offset the comparably insignificant costs of a thorough background check.

Tangible Costs of Background Checks

The tangible financial costs of conducting a background check vary with the extent of the information requested. A simple social security number trace and identity verification can range from $2 to $4 while a complete criminal background check including the national criminal database, national sex offender search, county, state, and federal criminal search costs between $25 and $75 dollars.

Credit histories generally cost from $10 to $20, a DMV record will cost between $10 and $20, and an education verification or employment verification costs around $15 each.

Some aspects of a background check are also subject to access fees that are charged by certain local courts and data providers. In many cases, these access fees are wrapped up in a background screening company's price.

In total, a complete background check usually costs between $100 and $200 per candidate, not including pre-employment drug screening.

Such costs may seem significant, especially for small organizations. However, when compared to the potentially higher costs an organization can incur from making a bad hire, or even being subject to negligent hiring lawsuits, the relatively small upfront expenditure on a quality background check is very much worth it.

The Hidden Costs of Bad Hires

Like anything in business, it is important to look at the return on investment and the cost-benefit analysis before making a decision. Below are some important stats to consider when weighing the pros and cons of a implementing a background screening program.

• Between 1992 and 2001, the average cost of a negligent hiring lawsuit was about one million dollars. An organization can easily screen all of its employees at a fraction of the cost of a single negligent hiring suit.
• According to the US Department of Labor, a bad hire generally costs at least 30 percent of that employee's first year salary. Such a cost is potentially devastating to a small business.
• According to the Society for Human Resource Management, half of all senior outside hires fail within 18 months in a new position and half of all hourly workers leave their new job within the first 120 days.
• One study reported that 39 percent of CFO's say that bad hires cost the company in productivity while managers spent 17 percent of their time (about one day per week) managing poorly performing employees. Many of these performance issues could be mitigated by simply verifying a potential employee's employment and education history.
• A recent survey of more than 2,500 hiring managers revealed that more than half have caught a job candidate lying on their resume with the most common dishonesty being embellishing their skills, responsibilities, or capabilities. A full 25 percent of hiring managers have found out a candidate has claimed to work for a company they were never employed by.
• The US Retail Fraud Survey recently reported that employee theft was the single biggest cause of loss to retailers, stealing more than six times the amount stolen by shoplifters.
• One 2007 study revealed that 75.3 percent of current illicit drug users were employed.

Why Background Screening is an Important Part of Risk Mitigation

While a complete background check may not mitigate all potential hiring risks, it can certainly paint a more accurate picture of a candidate than a simple resume or interview could. Having a thorough understanding of an applicant's criminal past, credit history, education, and past employment not only protects an employer from litigation by showing due diligence but also protects an organization's employees and customers from theft, fraud, and even violence. Adding up the potential tangible losses that are incurred when hiring the wrong employee and the intangible costs of loss of productivity, drop in employee morale, and overall disengagement shows that the benefits of utilizing a comprehensive background screening program during the hiring process far outweigh the relatively minor costs.

More Resources

For more information on the different types of Criminal Records Searches that are available and the pros and cons of each, download our handy infographic!