Many employers have begun reviewing credit history
Report Budget, Taxes, and Public Investment. Download PDF. However, in recent years, the EITC has often come under political attack. Further, recent discussions about broad-based tax reform have focused much attention on eliminating or scaling back tax expenditures—special tax rates, deductions, exclusions, exemptions, and credits often called loopholes , including the EITC and CTC, that reduce tax liability.
We are searching data for your request:
Upon completion, a link will appear to access the found materials.
Content:
Why Do Employers Check Credit Reports?
Official websites use. Share sensitive information only on official, secure websites. I am the sole proprietor of the FiveL Company in Westminster, Maryland, and a member of the Society for Human Resource Management SHRM with nearly 25 years combined experience in human resources administration, management, employment law practice and teaching. Prior to FiveL, I was a practicing human resource HR professional for over ten years with private employers in Maryland.
I thank you for the opportunity to appear before the Commission today to discuss the use of credit background checks in employment. The Society for Human Resource Management is the world's largest association devoted to human resource management. Representing more than , members in over countries, the Society serves the needs of HR professionals and advances the interests of the HR profession. SHRM has been monitoring the intensifying debate on the national and state, legislative and regulatory levels regarding efforts to restrict an employer's ability, in the employment process, to access and consider the credit history of applicants and current employees.
To be clear, we believe that employment decisions should be made on the basis of an individual's qualifications — such as education, training, professional experience, demonstrated competence — and not on factors that have no bearing on one's ability to perform job-related duties.
Furthermore, SHRM and its members fully appreciate that the high unemployment rate and overall health of the economy in the U.
Therefore, this issue has heightened attention right now. However, SHRM believes there is a compelling public interest in enabling our nation's employers—whether that employer is the government or in the private sector--to assess the skills, abilities, and work habits of potential hires. Further, SHRM believes the ability to obtain reliable and accurate job performance information about prospective employees has a direct impact on critical business concerns such as quality, workplace safety and customer satisfaction.
In my statement today, I will explain what background information employers currently seek, how and why credit reports are used in the employment process, present the results of SHRM research on employment background screening, and outline our concerns regarding proposals to eliminate the ability of employers to consider credit information when evaluating applicants for key positions.
At private and public organizations, large and small, HR professionals are responsible for ensuring that each individual hired possesses the knowledge, skills and abilities needed for the organization's success. The consequences of making a poor hiring choice can be great, possibly leading to financial losses or an unsafe work environment.
Employers have a fiduciary responsibility to protect its assets and those of its clients, customers and members. If an employee engages in severe misconduct, organizations may face legal actions from customers, shareholders or other employees in the form of negligent hiring, negligent retention, vicarious liability lawsuits or other legal claims.
SHRM research shows that the top reasons why organizations conduct credit background checks are to limit theft and embezzlement in the workplace, reduce liability for negligent hiring, assess the overall trustworthiness of the job candidate, and comply with applicable state laws requiring a background check for particular positions. Accordingly, HR professionals strive to make the most informed choices possible when selecting candidates for their organizations.
Let me begin by explaining how human resource professionals consider applicants during the hiring process. In today's market, it is not uncommon to receive hundreds of responses to just one ad for a vacant position. To cull through those applications, employers use many factors to narrow that applicant pool to those who are most qualified.
Factors may include years of work experience, related work experience, work experience in the same industry, education, certifications and more. Once a group of candidates or a finalist is selected for a position, the HR department typically conducts a background check on the candidates or candidate. While the background check process is often a standard practice for most employers, the process varies, depending on the employer and the position in question.
The process may include checking previous work history, personal references, education, professional credentials, motor vehicle history, criminal history and credit history. In addition, employers may place a different emphasis on each element of the process depending on the position and the requirements of the job. For example, some employers put a great deal of importance on a steady work history, personal references, and credit history. Others value education and work history above all else.
In addition, some states statutorily require employers to conduct specific background checks for certain positions, such as licensed health care professionals, day care providers, teachers and athletic coaches, and police officers and firefighters. PCI Compliance is a complex set of network security and business practice guidelines adopted by Visa, MasterCard, American Express, Discover Card, and JCB to establish a minimum security standard to protect customers' credit card information.
In short, all businesses that accept, handle, store, or process consumer credit card data must be PCI Compliant. Examples of background checks include previous employment history, criminal record, credit history and reference checks. Based on the above, the PCI standards seem to indicate that employers should be performing these types of checks on anyone who handles credit cards directly or who has access to computer networks, servers, etc.
A major problem of the current background review process is that employers are reluctant to provide an accurate assessment of a former employee's work history, strengths, and weaknesses.
They fear that an unabridged assessment of a candidate's work background— whether good or bad—could expose them to liability in claims made by the former employee in the form of a defamation or retaliation lawsuit or the potential employer negligent referral. As a result, most employers provide only the minimum in a reference check — "name, rank, and serial number" and confirm that the candidate had worked for them, his or her title, and dates of employment.
This lack of direct, complete reference information motivates many employers to seek additional information about the candidate that can be legally obtained through the use of third-party background check companies. Employers may employ the services of such companies to obtain the most accurate picture of a potential employee's work history, personal references, education and professional credentials, criminal history and credit history.
The FCRA specifically allows for the use of background checks for "employment purposes. Before taking any adverse action based on a background report, such as deciding to not hire an individual, an employer is first required to give the applicant a pre-adverse action notice. That notice must include:.
The individual must then be given a "reasonable" period of time to contact the employer if any of the information in the report is incorrect. This protects an individual from losing an employment opportunity due to incorrect information, such as a transposed Social Security number or an incorrectly reported date of birth, resulting in "bad" credit information being reported about the individual. It is only after that "reasonable" period that the employer may decide to not hire the individual.
In that instance, the employer must provide the candidate with an adverse action notice that includes:. As explained above, while credit histories are but one piece of the puzzle used by HR professionals in evaluating job candidates, the information can be useful in determining whether a candidate has the skills and decision-making qualities for a particular job. It can also help a potential employer assess whether the individual is qualified to handle money.
In addition, at a time when financial pressures on households are increasing, employee theft is on the rise resulting in major financial problem for companies. According to the Association of Certified Fraud Examiners' Report to the Nation on Occupational Fraud and Abuse, employee financial pressures are one of the key motivating factors behind check tampering, theft, and fraudulent reimbursement schemes by employees, who are usually first-time offenders.
The study found that "living beyond financial means" 43 percent of cases and "experiencing financial difficulties" 36 percent were the two most common warning signs displayed by perpetrators of workplace fraud. In light of these findings, it should be re-emphasized that employers have a fiduciary responsibility to safeguard critical assets and sensitive information that belong to employees, customers and the public, as well as the organization. As an example, consider identity theft prevention.
A number of states have enacted laws that prohibit employers from printing employees' full Social Security number SSN on pay stubs and certain wage and payroll records. The purpose is not to presume that just because an employee works in a payroll or accounting department and has access to employees' SSNs that such an employee is predisposed to steal another employee's identity. It was intended only as a reasonable measure to prevent identity theft. Likewise, we do not presume that just because an individual has slow or bad credit then she or he is automatically not qualified for any job.
Credit checks are intended, like shielding the publication of SSNs, as just one reasonable measure toward a purpose. In this case, choosing the most qualified candidate for a particular position. Recent media reports have implied that nearly all employers run credit checks on nearly all job applicants, and then use the results to deny employment regardless of the position sought.
Many of these publications have even used SHRM data to support this interpretation. In the current economic climate, such stories are particularly compelling. But they also give the public a misleading description of the use of credit reports during the hiring process.
In order to provide a more complete picture of the background check process, SHRM recently released one of the most complete sets of data on employer background screening practices. The report includes data from large employers or more workers , medium-sized employers employees , and small employers employees from both the public and private sectors.
The survey results are attached to this testimony. This last data point is particularly relevant because some assert that consumer reports are frequently error-laden. Unquestionably, consumer credit reports can contain typos and information that is incorrect. While the FCRA requires that an individual must be given a "reasonable" period of time to address inaccurate information in the report; the SHRM data show that HR professionals overwhelmingly provide job applicants an opportunity to explain or correct facts and figures found in consumer reports during the hiring process.
As reflected in the SHRM data above, organizations overwhelmingly are not taking a broad, one-size-fits-all approach to the use of credit checks in the hiring process. In contrast, employers are using these tools in a very narrow, job-focused way: they consider the nature of the position in question before seeking a credit report; they do so at the end of the hiring process so fewer candidates are impacted; they consider the nature of the credit information on the report, and, if negative information is found, they give the candidate a chance to explain it.
Under current federal law, employees already enjoy significant protections from unauthorized uses of credit checks. First, as noted above, the FCRA requires that an employer give a job applicant advance notice and secure the applicant's signed consent before a credit check can be performed.
If an applicant is not hired in whole or in part because of a credit report, the employer must inform the applicant in advance of making the decision, plus provide a copy of the report and a statement of the individual's rights under the FCRA.
Finally, the employer must then provide the same individual with a second adverse action notice after the final decision to not hire is made. As the Commission is aware, Title VII of the Civil Rights Act of , prohibits employment discrimination based on race, color, religion, sex, or national origin. It bars employment decisions based on policies, tests, or standards, such as credit checks, that have a "disparate impact" on protected groups, unless those policies, tests or standards are job-related and consistent with business necessity.
Disparate impact refers to any test or system that appears to be neutral, but results in a disproportionate impact on specific groups of people protected by the equal employment opportunity laws. In cases of disparate treatment, employees or applicants must show that intentional discriminatory practices took place. In response, an employer must show a legitimate reason for the practice. Consistent with this approach, the Commission has provided guidance on the use of certain tests and background checks for employment purposes.
We share the Commission's desire to ensure that employees continue to have ample protections against practices that result in either disparate treatment or disparate impact during the hiring process.
We do not presume to know what future actions the Commission or Congress will pursue in the area of credit background checks, but we have concerns about the direction of the current debate on the use of credit information in employment. Concurrent to the Commission's consideration of the background check issue, the U. Nelson U. While not pertaining directly to credit information, the pending case concerns the National Aeronautics and Space Administration's NASA right to conduct background investigations for employees working on a federal contract.
In this particular case, the federal government has argued that NASA's background check practices in the employment context are legitimate and consistent with the federal Privacy Act of A third area of federal activity is the U.
This bill would prohibit the use of credit checks on prospective and current employees for employment purposes. The exceptions in H. Nelson, appear to recognize that credit history is relevant for positions in which a professional is required to manage financial or sensitive information.
Such credit history is equally relevant for similar positions in the private and non-profit sectors. We urge the Commission and Congress to bear in mind the numerous positions in a variety of industries that warrant an employer having access to information from credit reports to assist them in making sound hiring decisions for those positions—particularly where ensuring employee integrity and confidence is in the public interest.
Such positions include those with responsibility for managing money, property, personal identity or financial information, and other critical resources. The following are just a handful of examples of such positions:. In sum, it is unclear why credit checks would be deemed critical for government employers but not for private-sector employers. The threats of embezzlement, fraud, security breaches and identity theft are present at public and private employers alike.
Given current economic pressures, SHRM and its members understand the heightened relevance of the issue of credit history and employment.
Can you be denied a job due to bad credit?
Get Started. No upfront minimums or contractual tie ins. An Adverse Credit Check is a type of pre-employment screening check that employers can carry out on current or prospective employees. They can be an invaluable part of the pre-employment screening process, enabling you to make more informed recruitment decisions. Adverse Credit Checks are a great way to ease any potential worries over staff fraud or dishonesty. For example, an employee who is shown to be economically vulnerable could be more open to accepting bribes, which could put your organisation at risk.
WHOOPS! Something broke.
Example — A start-up business that will be eligible for payments under the JobMaker Hiring Credit scheme. A company A Co incorporates on 10 October It has an active sole director who is paid a nominal annual director fee. The director would not qualify as an eligible additional employee. A Co is opening a retail store. On 15 November they hire two additional eligible employees to help set-up the store. The employees will be paid monthly in arrears.
Can Employers Reject Job Candidates Because of a Credit Check?
The result, Inspector General Kelly Madigan wrote , is that county may not know about employees facing criminal charges or who pose a financial risk. The county could not confirm Thursday afternoon how many employees were currently working without being screened for prior criminal history. In a random sampling of employees, Madigan found that 20 of them — 11 of whom were hired without a background check — had criminal charges; some of which resulted in convictions for assault, battery, robbery, driving while intoxicated and illegally possessing a handgun, she wrote. The report did not include employees arrested for minor crimes such as trespassing or some traffic-related offenses. Even more employees had significant financial problems: defaulting on credit obligations, filing for bankruptcy protection, or state, federal or court-related liens filed against them.
Employers Will Overlook Bad Credit
Johnny C. Taylor Jr. The questions are submitted by readers, and Taylor's answers below have been edited for length and clarity. Have a question? Submit it here.
PERSONAL LOAN
Research shows that people who plan carefully for big purchases, like owning a home, are less likely to run into financial trouble later. The first step: Check your credit. The better your credit history, the more likely you are to receive a good interest rate on your mortgage loan. Lenders will use your credit reports and scores as important factors in determining whether you qualify for a loan, and what interest rate to offer you. If there are errors on your credit report, you may have trouble qualifying for a loan.
How Do Credit Checks Impact Your Credit Score?
Taxpayers may continue to file Forms by facsimile until January 31, and their applicable employment tax returns by the required due date. Thank you for your patience during our annual system update. See instead: New law extends coronavirus tax credit for employers who keep workers on payroll.
Member Access
RELATED VIDEO: IVRS: Pre Employment Transition Services Pre-ETS: What Services are Available at Age 14Credit Scores and Reports Advertiser Disclosure. Published: January 15, Author: Susan Ladika. Filed Under:.
Eligible employers
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
Some credit score myths seem to be fading, such as the mistaken belief that your credit score is beyond your control. In fact, 94 percent of respondents to a survey by the Consumer Federation of America and VantageScore Solutions, a credit score development company, knew that making on-time loan payments helps improve your credit score. The truth: While many employers do consider credit when evaluating job candidates, they are looking at a modified version of credit reports. Not credit scores.
Instead of criticising write the variants is better.