Do You Need to Background Check Your Contractors?
Unlike employees, independent contractors aren't always subject to background check requirements. However, certain industries, types of work, and client expectations may make screening essential. Understanding when background checks are legally required, when they're advisable, and how to conduct them properly keeps your business protected while respecting contractor privacy.
When Background Checks Are Required
Regulated Industries
Several industries have mandatory screening requirements that extend to contractors:
- Healthcare: Contractors with access to patients or protected health information may be required to undergo criminal background checks, credential verification, and exclusion list screening (OIG, SAM)
- Financial services: Contractors with access to financial data or systems may need criminal and credit checks under regulations like SOX compliance or FINRA rules
- Education: Contractors working in schools or with minors typically require criminal background checks and sex offender registry screening
- Government contracting: Federal and state contracts often mandate specific clearance levels and background investigations
- Transportation: DOT-regulated roles require drug testing and driving record checks
Client Requirements
Even when not legally mandated, your clients may require you to screen contractors who will:
- Access client systems or data
- Work on client premises
- Handle confidential or sensitive information
- Interact with the client's customers
If your client agreement includes screening obligations, you need to flow those requirements through to your contractor agreement.
If you're a contractor and a client requires a background check, the client (or the company that engages you) must comply with all applicable screening laws, including the Fair Credit Reporting Act (FCRA) if using a third-party screening service.
Legal Framework for Screening Contractors
Fair Credit Reporting Act (FCRA)
The FCRA applies whenever a company uses a third-party consumer reporting agency (CRA) to conduct a background check, even for independent contractors. FCRA requirements include:
- Written disclosure: Providing the contractor with a clear, standalone written notice that a background check may be conducted
- Written consent: Obtaining the contractor's written authorization before conducting the check
- Pre-adverse action notice: If you plan to take adverse action based on the results, you must provide the contractor with a copy of the report and a summary of their rights before making a final decision
- Adverse action notice: After making a final decision, notify the contractor of the adverse action, the CRA's contact information, and their right to dispute the report
State and Local Ban-the-Box Laws
Many states and cities have "ban the box" laws that restrict when and how criminal history can be considered. While many of these laws focus on employees, some extend to independent contractors. Key provisions may include:
- Prohibiting criminal history inquiries on initial applications
- Requiring an individualized assessment before rejecting someone based on criminal history
- Limiting how far back criminal records can be considered
Equal Employment Opportunity Laws
Background check criteria must be applied consistently and cannot discriminate based on race, color, national origin, sex, religion, disability, or other protected characteristics. This applies to contractor screening as well as employee hiring, though the legal framework may differ.
Types of Background Checks
Criminal Background Check
The most common type of screening. Searches criminal records at the county, state, and/or federal level for felony and misdemeanor convictions.
When appropriate: When the contractor will have access to sensitive information, work with vulnerable populations, or handle financial assets.
Credit Check
Reviews the contractor's credit history, including payment history, outstanding debts, and bankruptcies.
When appropriate: Primarily for contractors who will manage finances, have purchasing authority, or handle sensitive financial data. Some states restrict the use of credit checks for employment and contractor screening purposes.
Identity Verification
Confirms the contractor's identity through documentation like driver's license, passport, or Social Security number verification.
When appropriate: For all contractor relationships to confirm you're entering into an agreement with the right person or entity.
Professional License and Credential Verification
Confirms that the contractor holds the professional licenses, certifications, or degrees they claim.
When appropriate: When the work requires specific qualifications (licensed contractor, CPA, medical credentials, professional engineering license).
Reference Checks
Contacting previous clients or employers to verify work history and quality.
When appropriate: For high-value or long-term engagements where understanding the contractor's track record is important.
For most standard contractor relationships, identity verification and professional credential verification are sufficient. Reserve more extensive screening (criminal, credit) for situations where the nature of the work genuinely warrants it.
Incorporating Screening Into Your Agreement
Pre-Engagement Screening
If you require background checks, address them before work begins:
- State that the contractor relationship is contingent on successful completion of screening
- Specify which types of checks will be conducted
- Identify who pays for the screening (typically the hiring company)
- Define what results would disqualify the contractor
- Set a timeframe for completing screening before the engagement start date
Ongoing Screening
Some industries require periodic re-screening. If applicable, specify:
- The frequency of re-screening (annual, bi-annual)
- What triggers additional screening (change in access levels, new client requirements)
- The contractor's obligation to self-report relevant changes (arrests, license suspension)
Contractor Representations
Include representations in the agreement that the contractor:
- Has no disqualifying criminal convictions (defined appropriately)
- Holds all required licenses and certifications
- Will notify the company of any changes that affect their qualifications
- Has provided accurate information in the screening process
Privacy and Data Handling
Minimizing Data Collection
Collect only the information necessary for the screening purpose. Don't request Social Security numbers, dates of birth, or other sensitive data unless required for the specific type of check being conducted.
Secure Storage
Background check results contain sensitive personal information. Specify:
- Who has access to screening results
- How results are stored (encrypted, restricted access)
- How long results are retained
- How and when results are destroyed
Contractor Notification
Keep the contractor informed about:
- What information was collected
- How it will be used
- How long it will be retained
- Their right to access and dispute the information
When Contractors Screen Subcontractors
If your contractor uses subcontractors, consider whether screening requirements should flow down. Your agreement might require the contractor to:
- Screen subcontractors to the same standards
- Provide certification that subcontractor screening is complete
- Maintain screening records for subcontractors
- Notify you if a subcontractor fails screening or becomes disqualified
Build Screening Requirements Into Your Agreement
Background check provisions should be integrated into your contractor agreement from the start, not added as an afterthought. PactDraft generates independent contractor agreements that can include screening requirements, contractor representations, and data handling provisions. Create your agreement today and ensure your screening process is legally compliant and clearly documented.