We are often asked if background checks should be conducted on independent contractors. The issue is becoming increasingly relevant with the continued rise of the gig economy and evolving changes in contractor relationships.
For the most part, the answer is yes. And it is typically in the best interest of companies to have a proper screening done for any contractor prior to bringing them in. The decision to background check an independent contractor may rely on a variety of factors; including the industry in which the company operates, the position the contractor is filling, policies the company currently has in place, state regulations, or the terms of client contracts.
By having a background check done, a company can better mitigate the potential risks and liabilities of hiring the contractor, especially if the work is to be conducted on-site or directly with their clientele. In many cases, conducting contractor background checks is a requirement. For example, if the position requires a high level of security clearance or the company works in a high-risk industry (such as education or the healthcare industry), an appropriate screening is mandatory. Also, many contracts and agreements dictate that a background check is required for any employee or independent contractor that will be exposed to or directly handle a client’s work. It is also increasingly common for client contracts to require ongoing screening of employees as well as independent contractors. We often see these screenings are conducted annually but some companies do them semi-annually or even monthly.
It is important to remember Fair Credit Reporting Act (FCRA) regulations when conducting such background checks and to ensure that compliant protocols are followed if the contractor is being hired for “employment purposes” as defined by The Federal Trade Commission (FTC). In the FCRA text, the term “’employment purposes’ when used in connection with a consumer report means a report used for the purpose of evaluating a consumer for employment, promotion, reassignment, or retention as an employee.” The FTC also provides an Advisory Opinion in which they later concluded that “the term ‘employment purposes,’ as used in the FCRA, should be interpreted liberally to effectuate the broad meaning of the Act” and further, the term “employment” is not limited to situations in which the consumer is being evaluated “as an employee.” Ultimately this means the FTC believes that following FCRA guidelines is not limited to the strict traditional concept of employment and instead are to be used more broadly, which would include background checks of independent contractors.
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