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Hiring Your First Employees: Background Check Rules
The Fair Credit Reporting Act (FCRA) governs the credit-bureau style reports employers use to hire, promote or keep staff. The Federal Trade Commission, the Consumer Financial Protection Bureau and state attorneys general can enforce it, and people can sue. For owners adding their first employees, a background check is where it applies, whatever the headcount. Our checklist is the Porch-Light Screening Sequence, below. The statute is 15 U.S.C. 1681 to 1681x.
The short version
- Any employer getting a consumer report from a reporting agency for hiring, promotion, reassignment or retention is covered; there is no employee-count threshold.
- Before the report: a stand-alone written disclosure and the person's written authorization.
- Before an adverse action: a copy of the report and a summary of rights (some trucking jobs differ).
- Willful violations: $100 to $1,000 per consumer, plus punitive damages, costs and fees.
Who it covers
| Group | Covered? | Note |
|---|---|---|
| Any employer using an employment consumer report | Yes | No minimum headcount |
| Illinois employers, credit checks | Most | Barred unless the job fits a listed exception |
| Illinois employers with 15 or more employees | Yes | No criminal-history question before interview selection or a conditional offer, with exceptions |
The numbers
| Item | Amount | Year |
|---|---|---|
| Willful violation, per consumer | $100 to $1,000, plus punitive damages | Current, not indexed |
| Negligent violation | Actual damages, costs and fees | Current |
| Time to sue | Earlier of 2 years after discovery or 5 years after the violation | Current |
- Disclosure and written authorization
- Report copy and summary of rights
- Notice; 60 days to request a free report
- Dispose of the report data securely
Source: 15 U.S.C. 1681b and 1681m, 16 CFR 682
The Porch-Light Screening Sequence
- Decide which jobs get checks, with one standard per job.
- Keep the disclosure and authorization on a separate form.
- Draft both notices before the first check.
- Calendar secure disposal, such as shredding or wiping.
- Check Illinois limits before asking about credit or criminal history.
What it means for year-round planners
- A first hire also brings payroll duties: FICA payroll taxes and employees and contractors.
- EEOC says hiring records are kept 1 year; employment tax records run at least 4 years.
- Hiring deserves a line on the year-round calendar.
Mistakes people make
- Placing the authorization inside the job application, or wrapping it in extra text.
- Acting on a report before the person has a copy and the summary of rights.
- Asking about criminal history earlier than Illinois or Cook County allows, or rejecting on a conviction without written notice and 5 business days to respond.
A candidate's complaint, a demand letter, or drafting the forms is where an attorney comes in.
Common questions
Does the FCRA apply to an employer with one employee?
Yes. It covers any person using a consumer report for employment, with no headcount test.
Can an employer run a credit check in Illinois?
The FCRA sets the steps, but the Employee Credit Privacy Act bars credit inquiries unless the job fits a listed exception, such as unsupervised access to cash or assets worth $2,500 or more.
How long does someone have to sue?
The earlier of 2 years after discovering the violation or 5 years after it happened.