1. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 July 19, 2012 SHRM Survey Findings: Background Checking—The Use of Credit Background Checks in Hiring Decisions

2. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Key Findings 2  What are the most important factors influencing the final decision to hire a particular job candidate over another? The three most important factors that influence the final decision to hire one candidate over another are 1) previous work experience, 2) a good fit with the job and the organization, and 3) specific skills expertise needed for the job.  Do organizations conduct credit background checks on job candidates? Slightly more than one-half (53%) of organizations do not conduct credit background checks on any of their job candidates. This represents a large decrease in the use of credit background checks: in 2010, only 40% did not conduct credit background checks, and in 2004, this percentage was 39%. Thirty-four percent of organizations reported that they conduct credit checks on select job candidates and only 13% conduct credit checks on all job candidates.  When do organizations initiate credit background checks? Of the organizations that conduct credit background checks, most organizations initiate credit background checks after a contingent job offer (58%) or after the job interview (33%). Very few organizations (2%) initiate credit background checks before a job interview.  Why do organizations conduct credit background checks? The top two reasons organizations conduct credit checks on job candidates are 1) to reduce/prevent theft and embezzlement (45%) and 2) to reduce legal liability for negligent hiring (22%).

3. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Key Findings 3  On which category of job candidates do organizations conduct credit background checks? Of the organizations that conduct background checks on select job candidates (34%), 87% conduct credit checks on candidates applying for positions with financial responsibilities, 42% on candidates applying for senior executive positions and 34% on candidates for positions with access to highly confidential employee information.  Do organizations hire job candidates whose credit reports contain information that presents their financial situation negatively? 80% of organizations reported that they have hired a job candidate whose credit report contained information that reflects negatively on the candidate’s financial situation, suggesting that negative credit information is not often a barrier to hiring.  How many years of credit history are organizations interested in? Overall, most organizations that use credit checks focus on credit history of two to seven years. Twenty-one percent of organizations reported that two to three years were most influential in their assessment of a job candidate’s credit standing, 27% reported four to five years were most influential, and 31% reported up to seven years were most influential in their assessment of a candidate’s credit standing. Only 6% of organizations indicated that all years of credit history were equally important, a decrease from 17% in 2010.  Do organizations allow job candidates to explain the results of credit checks? Yes; 64% of organizations allow job candidates to explain the results of their credit checks before the decision to hire or not to hire is made, and 28% allow job candidates to explain the results after the decision to hire or not to hire is made.

4. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 In general, when making a hiring decision about a job candidate, which are the most important factors influencing the final decision to hire a particular candidate over another? 4 Note: Percentages do not equal 100% due to multiple response options.

5. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 In general, when making a hiring decision about a job candidate, which are the most important factors influencing the final decision to hire a particular candidate over another? 5 Comparisons by organization sector Nonprofit organizations are more likely than privately owned for-profit organizations to select favorable reference background check results as the most important factor influencing the final decision to hire a particular candidate over another. Comparisons by organization sector Nonprofit (74%)>Privately owned for-profit (55%) Note: Only statistically significant differences are shown.

6. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Does your organization, or an agency hired by your organization, conduct credit background checks for any job candidates? 6 Note: Respondents who answered “not sure” were excluded from this analysis.

7. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Does your organization, or an agency hired by your organization, conduct credit background checks for any job candidates? Comparisons by organization staff size 2,500 to 24,999 employees (45%) > 100 to 499 employees (25%) 7 Comparisons by organization staff size Organizations with 2,500 to 24,999 employees are more likely than organizations with 100 to 499 employees to conduct credit background checks for select job candidates. Note: Only statistically significant differences are shown.

8. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 The Use of Credit Background Checks A Comparative Look: 2012, 2010 and 2004 201220102004 Does your organization, or an agency hired by your organization, conduct credit background checks for any job candidates by reviewing the candidates’ consumer reports? *Survey margin of error: +/- 4% Does your organization, or an agency hired by your organization, conduct credit background checks for any job candidates by reviewing the candidates’ consumer reports? *Survey margin of error: +/- 5% In general, how frequently does your organization, or an agency hired by your organization, check any of the following references for its job candidates? Credit Checks *Survey margin of error: +/- 5% All job candidates (13%) Select job candidates (34%) No (53%) All job candidates (13%) Select job candidates (47%) No (40%) Always (19%) Sometimes (24%) Rarely (18%) Never (39%) Note: n = 430. Respondents who answered “not sure” were excluded from this analysis. Source: SHRM Background Checking Survey— Credit Checks (2012) Note: n = 343. Respondents who answered “not sure” were excluded from this analysis. Source: SHRM Background Checking Survey — Credit Checks (2010) Note: n = 296. Respondents who answered “don’t know” were excluded from this analysis. Source: SHRM Reference and Background Checking Survey (2004) 8 42%

9. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 When does your organization, or any agency hired by your organization, initiate credit background checks on job candidates? 9

10. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 What is the primary reason your organization conducts credit background checks on job candidates? 10 Note: ** Response option was not available in 2010.

11. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Has your organization ever hired a job candidate with information on his or her credit report that presented the job candidate’s financial situation negatively? 11 Note: n = 101. Respondents who answered “not sure” were excluded from this analysis.

12. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 In general, when conducting a credit background check on job candidates, how many years of credit history are most influential in your assessment of the job candidate’s credit standing? 12 Note: The data in this chart represent organizations that conduct credit background checks on select or all job candidates. Respondents were asked to round up to the highest year. Percentages do not equal 100% due to rounding.

13. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 13 When conducting credit background checks on job candidates, in general, how many years of credit history does your organization check for? 10 years or more 8-9 years 6-7 years 4-5 years 2-3 years 1 year Executive/upper management (e.g., CEO, CFO) 201233%6%43%16%2%0% 201023%11%50%16%0% Other management (e.g., directors, managers) 201229%6%48%13%4%0% 201016%11%55%18%0% Nonmanagement salaried employees 201223%4%53%15%4%0% 201014%12%56%16%2%0% Nonmanagement hourly employees 201224%4%49%18%4%0% 201014%12%55%17%2%0% Note: n = 45 - 49. The data in this table represent organizations that conduct credit background checks on all job candidates. Respondents were asked to round up to the highest year. Percentages may not equal 100% due to rounding.

14. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Does your organization allow job candidates, in certain circumstances, the opportunity to explain the results of their consumer report that might have an adverse effect on an employment decision (e.g., high debt, bankruptcy)? 14

15. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Credit Background Checks Conducted on Select Job Candidates 15

16. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 On which category of job candidates does your organization conduct credit background checks? 16 Note: The data in this figure represent organizations that conduct credit background checks on select job candidates. Percentages do not equal 100% due to multiple response options.

17. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 In general, after conducting credit background checks, if information that presented the job candidate’s financial situation negatively were discovered, what information is MOST likely to affect your decision to NOT extend a job offer? 17 Note: n = 23-123. The data in this table represent organizations that conduct credit background checks on select or all job candidates. Data are sorted by the “Accounts in debt collection” column. Caution should be used when generalizing results when the sample size is less than 30 for any category. Percentages may not equal 100% due to rounding. Accounts in debt collection Current outstanding judgment(s) High debt-to- income ratio BankruptcyTax liens Medical- related debt Education- related debt Foreclosures Job candidates for positions for which applicable state law requires a background check (e.g., day care teachers, licensed medical practitioners) (n = 33) 61%18%9%3% 0% Job candidates who will work in health care or with access to drugs (e.g., hospitals, nursing homes, clinics, pharmacies, rehabilitation centers) (n = 23) 57%13% 4%0%9%4%0% Job candidates for positions involving national defense or homeland security (n = 23) 52%9%13%17%4%0%4%0% Job candidates who will have security responsibilities (e.g., security guards) (n = 33) 52%27%12%3% 0%3%0% Job candidates who will work with vulnerable populations (e.g., children, the elderly, the disabled) (n = 25) 48%28%12%4%0%4% 0%

18. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 In general, after conducting credit background checks, if information that presented the job candidate’s financial situation negatively were discovered, what information is MOST likely to affect your decision to NOT extend a job offer? (continued) 18 Accounts in debt collection Current outstanding judgment(s) High debt-to- income ratio BankruptcyTax liens Medical- related debt Education- related debt Foreclosures Job candidates who will have access to company or other people's property or otherwise placed in a position of financial trust (e.g., IT, administrative services, cleaning crews) (n = 74) 42%31%15%7%4%0%1%0% Job candidates who will be employed in safety- sensitive positions (including operating heavy equipment, transportation, etc.) (n = 27) 41%30%19%7%0%4%0% Job candidates for senior executive positions (e.g., CEO, CFO, CHRO) (n = 90) 38%21%17%16%7%0%2%0% Job candidates for positions with fiduciary and financial responsibility (e.g., handling cash, banking, accounting, compliance, technology) (n = 123) 36%22%20%16%6%0%1%0% Job candidates who will have access to highly confidential employee information (e.g., salary, benefits, medical information or other personal information about employees) (n = 75) 31%40%9%12%7%0%1%0% Note: n = 23-123. The data in this table represent organizations that conduct credit background checks on select or all job candidates. Data are sorted by the “Accounts in debt collection” column. Caution should be used when generalizing results when the sample size is less than 30 for any category. Percentages may not equal 100% due to rounding.

19. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 When conducting credit background checks on job candidates, in general, how many years of credit history does your organization check? 10 years or more 8-9 years6-7 years4-5 years2-3 years1 year Job candidates for positions involving national defense or homeland security (n = 7) 201214%0%71%0%14%0% 201027%0%64%9%0% Job candidates for positions for which applicable state law requires a background check (e.g., day care teachers, licensed medical practitioners) (n = 13) 20128%0%69%23%0% 201050%0%50%0% Job candidates for positions with fiduciary and financial responsibility (e.g., handling cash, banking, accounting, compliance, technology) (n = 122) 201217%4%52%17%9%0% 201016%1%61%16%6%1% Job candidates who will have access to company or other people's property or otherwise placed in a position of financial trust (e.g., information technology, administrative services, cleaning crews) (n = 35) 201217%3%43%26%9%3% 201014%0%59%14% 0% Job candidates who will have security responsibilities (e.g., security guards) (n = 14) 201229%0%43%21%7%0% 20107%0%79%0%7% Job candidates for senior executive positions (e.g., CEO, CFO, CHRO,) (n = 59) 201234%3%41%15%7%0% 201026%1%61%9%3%0% Job candidates who will have access to highly confidential employee information (e.g., salary, benefits, medical information or other personal information about employees) (n = 49) 201220%4%39%20%14%2% 201012%2%61%12% 2% Job candidates who will be employed in safety-sensitive positions (including operating heavy equipment, transportation, etc.) (n = 8) 201212%0%38% 12%0% 201038%0%50%0%13%0% Job candidates who will work with vulnerable populations (e.g., children, the elderly, the disabled) (n = 3) 20120% 33% 0% 20100% 100%0% Job candidates who will work in health care or with access to drugs (e.g., hospitals, nursing homes, clinics, pharmacies, rehabilitation centers) (n = 2) 2012100%0% 201025%0%50%0%25%0% 19 Note: n = 2-122. The data in this table represent organizations that conduct credit background checks on select job candidates. Data sorted by 2012 data in the 6-7 years column. Respondents were asked to round up to the highest year. Caution should be used when generalizing results when the sample size is less than 30 for any category. Percentages may not equal 100% due to rounding.

20. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Background Information on Credit Background Checks Many employers conduct some kind of background check on job applicants and/or employees. Background checks may include verification of educational or professional history, contacting references, obtaining a report on an individual’s criminal history and/or obtaining a report on an individual’s credit history. The Fair Credit Reporting Act (FCRA) authorizes employers to obtain a consumer report for “employment purposes” from a consumer reporting agency (CRA) so long as certain disclosure requirements are met. The term “employment purposes” means a report that is used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee. For some employers, credit payment records serve as a factor in evaluating an individual’s suitability for a job, while others seek information on driving records, criminal histories or other background information. All of these types of reports are considered consumer reports if they are obtained from a CRA. Before procuring a consumer report, FCRA requires employers to clearly disclose, in writing, that a report may be obtained for employment purposes and get written authorization from the individual. FCRA also requires that the employer provide the individual with a copy of the report and a written description of the consumer’s rights before taking any adverse action based in whole or in part on the report. The Federal Trade Commission web site has additional information on the rights and duties imposed by the Fair Credit Reporting Act at (www.ftc.gov/os/statutes/fcradoc.pdf)www.ftc.gov/os/statutes/fcradoc.pdf 20

21. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Demographics: Organization Industry 21 Note: n = 386. Percentages do not equal 100% due to multiple response options. Percentage Manufacturing19% Health care and social assistance17% Professional, scientific and technical services12% Other services except public administration10% Educational services9% Finance and insurance7% Retail trade5% Public administration4% Transportation and warehousing4% Religious, grantmaking, civic, professional and similar organizations4% Accommodation and food services3%

22. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Demographics: Organization Industry (Continued) 22 Percentage Arts, entertainment and recreation3% Utilities3% Administrative and support and waste management and remediation services2% Construction2% Information2% Wholesale trade2% Agriculture, forestry, fishing and hunting2% Real estate and rental and leasing2% Repair and maintenance2% Mining1% Management of companies and enterprises1% Note: n = 386. Percentages do not equal 100% due to multiple response options.

23. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Demographics: Organization Sector 23 Note: n = 386. Percentages do not equal 100% due to rounding.

24. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Demographics: Organization Staff Size 24 n = 375

25. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 Demographics: Other 25 Does your organization have U.S.-based operations (business units) only or does it operate multinationally? U.S.-based operations only76% Multinational operations24% n = 386 Is your organization a single-unit organization or a multi-unit organization? Single-unit organization: An organization in which the location and the organization are one and the same 36% Multi-unit organization: An organization that has more than one location 64% n = 387 For multi-unit organizations, are HR policies and practices determined by the multi-unit headquarters, by each work location or both? Multi-unit headquarters determines HR policies and practices 56% Each work location determines HR policies and practices 4% A combination of both the work location and the multi-unit headquarters determine HR policies and practices 40% n = 257 What is the HR department/function for which you responded throughout this survey? Corporate (companywide)71% Business unit/division15% Facility/location15% Note: n = 256. Percentages do not equal 100% due to rounding.

26. The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012  Response rate = 19%  Sample composed of 544 randomly selected HR professionals from SHRM’s membership  Margin of error +/-4%  Survey fielded December 28, 2011-February 7, 2012 26 Methodology Background Checking—The Use of Credit Background Checks in Hiring Decisions For more poll findings, visit www.shrm.org/surveyswww.shrm.org/surveys Follow us on Twitter: http://twitter.com/SHRM_Researchhttp://twitter.com/SHRM_Research For more poll findings, visit www.shrm.org/surveyswww.shrm.org/surveys Follow us on Twitter: http://twitter.com/SHRM_Researchhttp://twitter.com/SHRM_Research Project leader: Justina Victor, survey research analyst, SHRM Research Project contributors: Evren Esen, manager, SHRM Research Mark Schmit, Ph.D., SPHR, vice president, SHRM Research Copy editor: Katya Scanlan, SHRM Knowledge Center