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Should Holiday Hiring Include a Credit Check?

With some glimmers of hope on the economic horizon businesses are considering adding an employee or two to meet anticipated holiday shopping demand. It's an employer's market with plenty of qualified candidates ready and willing to jump into a spot, temporary or full-time.

There are a lot of ways to whittle down the crowd of applicants and a credit check can sound like a valuable part of the process.

Is is Job Related?
Pre-employment credit checks are pretty easy to obtain. Get a signature of agreement on a form from the candidate, provide the personal information to the credit check company and results are back within a very short period of time. The entire procedure can be done online without phone calls, travel and contact with reluctant former employers. Among the background check options credit checks are pretty inexpensive with price breaks available when they are bundled with other services such as criminal background checks.

The ease of use has made them a bit too common. Before jumping into the arena of reviewing credit history the first step is to identify whether the information obtained would be job related. Credit checks are most often conducted on the theory that a poor credit rating shows a lack of judgment and inability to manage money. Retail employers who hire individuals to handle cash are worried that someone with a pile of debt will dip into a register drawer to cover some bills. Controllers fear an embezzlement scheme to add to personal bank accounts. Sounds plausible but it's not hard to see why many applicants will have less than stellar, if not poor credit. Consumer debt is dropping slowly but still remains high the direct result of people using credit to make basic purchases.

The candidate for accounts receivable clerk may be focusing on a paycheck to get back on track with bills and not thinking about ways to divert funds into their own personal accounts.

Check With Your State
Four states, Hawaii, Oregon, Washington and Illinois (effective January 1, 2011) all ban pre-employment credit checks. Similar legislation has been proposed in a list of other states supported by organizations that identify the practice as potentially discriminatory towards minorities. Steer clear of a violation if you maintain operations in more than one state. Any credit check provider should be able to keep you up to date on these regulations.

When you do use credit checks to make employment decisions it is essential to apply the requirement and results consistently. Don't mandate better credit scores from women than men in an effort to reduce online shopping at work!

FCRA Is Not a Vitamin Supplement
The Federal Credit Reporting Act regulating the credit reporting industry was passed in 1970 but amendments beginning in 1999 added requirements for specific steps for employers seeking to check job candidate and employee credit. The rules specify notice content before a check is done and when decisions are made based on results. Candidates must have windows of opportunity to explain negative credit reports to potential employers. Any credit check company should provide the notifications that must be signed and formats for all correspondence.

Deciding on pre-employment credit checks is a balancing act. Consider economic conditions, relationship to the job and don't forget the potential of credit report errors and the fallout from identity theft. Conduct your own thorough analysis of the reasons and potential results before you are faced with the decision to pass on the perfect candidate with imperfect credit.