Pre-employment background checks help you find candidates who have the qualifications, experience, and skills your company needs.
But you might be asking yourself: “Are background checks actually worth the investment?”
This guide breaks down the real benefits of background screening and shows you how it can save your company money and boost your bottom line.
Key Takeaways
- A bad hire can cost your company substantial direct and indirect losses.
- Employment background checks help you avoid bad hiring decisions by identifying applicants with the qualifications and skills you need and who are a good fit for your company’s culture.
- Your ROI from conducting background checks can range into hundreds of thousands of dollars.
- To get a background check that pays off, know the relevant laws, create a thorough policy, train HR staff, choose a compliant and experienced provider like iprospectcheck, select tailored searches, look for fast turnaround times, use technology to streamline the process, and maintain legal compliance.
The True Cost of a Bad Hire
Direct Financial Costs
How much a bad hire will cost your company depends on your industry, the employee’s salary, recruitment, and onboarding and training costs.
Current research by SHRM estimates that the cost of a bad hire can be as much as 40% of their annual salary.
In addition to the salary cost, SHRM also estimates that the average recruitment cost can be as much as four times the position’s annual pay.
To put this into perspective, if a bad hire’s salary is $100,000 per year, the monetary cost to your company for that hiring decision is up to $40,000.
The direct monetary losses can be even higher if the bad employee harms someone while working, leading to litigation against your company and additional losses for attorneys’ fees and settlement costs.
Intangible Costs
A bad hire can cost your company more than dollars and cents. These include:
- Reputational damage caused by bad hires in public-facing roles
- Lower morale
- Reduced productivity
- Higher turnover
- Negative impacts on company culture
- Additional time spent by other employees to correct mistakes
- Lost customers or clients
The Cost-Saving Power of Background Checks
1. Reduced Turnover
When you conduct background checks on your candidates, you can confirm that the person you choose is a good fit for their role and your organization.
Choosing a well-suited candidate who fits your company’s culture and has the skills needed for their job increases the chance they will stay.
Some industries, such as retail, are known to have high turnover rates. However, companies in any industry can experience excessive turnover when they make bad hiring decisions.
High turnover drains your company’s resources, including its productivity, recruitment, and training.
With lower turnover rates from background checks, your company’s overall performance will increase.
2. Reduced Liability Risks
Background checks allow you to identify applicants who lack the experience, certifications, or skills needed to perform their jobs.
They also help you see whether someone has a history of unsafe behavior that could expose your company to liability risks.
When you thoroughly screen applicants, you can significantly lower your company’s liability risks from employee conduct.
Legal disputes can be costly and result in substantial losses. Performing background checks can minimize your company’s risk of lawsuits and civil penalties.
3. Lowered Risk of Theft and Fraud
If you hire someone with a history of fraud or theft, they could cause significant monetary losses for your organization.
According to the 2024 Report to the Nations from the Association of Certified Fraud Examiners, the median loss suffered by companies from internal theft and fraud was $145,000 per incident, and the average loss was $1.7 million.
Bad employees with access to your customers’ sensitive financial information might also abuse it to steal from them, potentially exposing your company to lawsuits and civil penalties.
Pre-employment background checks identify applicants who have theft or fraud convictions so that you can protect your company’s and your customers’ assets.
4. Increased Productivity
Employees who are well-suited to their jobs and your company’s culture are typically more productive.
When you conduct pre-employment background checks, you can confirm that your new hires have the skills, qualifications, and integrity for their jobs, which often translates into better performance.
This also helps to establish a team that is more efficient and motivated overall.
5. Improved Employee Morale
Vetted candidates who fit your company’s culture and have the skills needed to perform their jobs have a positive impact on employee morale.
Your employees’ feelings about their jobs are influenced by the confidence they have in their coworkers’ responsiveness and reliability.
Background checks help to increase employee morale and build trust that you value hiring the best candidates for the job.
Employees who feel safe and supported at work are more likely to be committed to your company.
6. Enhanced Reputation
How the public and your customers view your company is affected by the quality of your employees.
Personable and caring employees, especially in public-facing roles in retail and healthcare, build customer confidence and enhance your company’s reputation.
Background checks confirm whether your candidates meet your company’s standards and will uphold its values, which can attract top talent and new clients.
A positive reputation can set your business up for long-term growth and success.
7. Streamlined Hiring
Automated and integrated background checks greatly speed up your hiring process and reduce time-to-hire.
Automated background check processes, such as those provided by iprospectcheck, are faster, reliable, and legally compliant.
A streamlined hiring process helps your company hold candidates’ interest and prevent them from moving on to a competitor.
8. Improved Workplace Safety
You’re responsible for keeping your workplace safe for everyone – your employees, vendors, and customers.
Background checks help you spot candidates who have a track record of unsafe or concerning behavior before you hire them.
By screening out these risky applicants upfront, you significantly reduce the chances of workplace accidents or violent incidents happening at your company.
Know Before You Hire
Calculating the ROI of Background Checks
Let’s walk through a simple, realistic example to help you understand how background checks can save your company thousands of dollars each year.
The Setup: A Mid-Sized Business Hiring 100 People a Year
Let’s say you run a company that hires 100 employees per year. You decide to run a background check on each of them.
The cost per check (including the vendor fee and a bit of internal admin time) is around $80.
Total annual screening cost = 100 x $80 = $8,000
So that’s your upfront investment. Now let’s look at the payoff..
Avoiding Just Two Bad Hires Saves You $21,000
According to research from the Center for American Progress, replacing a bad hire can cost around 21% of that person’s salary.
If the average salary at your company is $50,000, that’s $10,500 per bad hire.
If background checks help you avoid just two poor hires a year (people who might’ve lied about experience, had red flags, or quit quickly), you’re already saving:
2 x $10,500 = $21,000
Less Fraud = $50,000+ in Prevented Losses
The ACFE’s 2024 Report to the Nations found that businesses lose an average of 5% of their total revenue to occupational fraud each year.
For a company making $1 million in revenue, that’s $50,000 lost annually to internal fraud like theft, expense abuse, and payroll fraud.
Background checks help prevent fraud by screening out applicants with red flags, including prior convictions, resume falsification, or a history of financial misconduct.
If screening reduces your fraud losses by even 10%, you prevent:
10% of $50,000 = $5,000 saved
If your company’s revenue is higher, this number grows quickly. For example, at $5 million in annual revenue, a 10% reduction in fraud saves you $25,000.
Better Productivity = $50,000 in Gains
Thorough background checks can help identify candidates who are more likely to stay longer and contribute positively to the organization.
If improved hiring practices lead to 5 employees each contributing an additional $10,000 in value annually:
5 × $10,000 = $50,000 in added productivity
Avoiding Legal Risks: $1,600 saved
Negligent hiring lawsuits can be costly. Recent data indicates that the average settlement for such cases is approximately $1.6 million.
Even a 0.1% reduction in the risk of such lawsuits due to thorough background checks equates to:
0.001 × $1,600,000 = $1,600 saved
Safety & Compliance = $15,000 in Avoided Costs
Workplace injuries can be expensive. The National Safety Council reports that the average cost per medically consulted injury is $43,000.
If background checks help prevent even one such incident annually:
1 × $43,000 = $43,000 saved
| Benefit Category | Estimated Savings |
| Reduced Turnover | $21,000 |
| Fraud Loss Mitigation | $5,000 |
| Enhanced Productivity | $50,000 |
| Legal Risk Avoidance | $1,600 |
| Safety and Compliance | $43,000 |
| Total Benefits | $120,600 |
| Background Check Costs | (-$8,000) |
| Net Benefit | $112,600 |
ROI = ($112,600 ÷ $8,000) × 100 = 1,407.5%
That’s over $14 saved for every $1 spent on background checks.
How to Get a Background Check That Pays Off
1. Know Your Legal Requirements
Familiarize yourself with all relevant background check laws at the local, state, and federal levels.
These include the Fair Credit Reporting Act (FCRA), Title VII of the 1964 Civil Rights Act, the Fair Chance to Compete for Jobs Act, and local and state-specific laws in your jurisdiction.
2. Create a Thorough Background Check Policy
Once you understand your legal requirements, create a thorough background check policy that adheres to them.
Your policy should explain the steps your HR staff must take throughout the hiring process to maintain compliance.
Explain the particular searches you perform for positions at differing authority levels.
Make sure your background checks at each level are uniform to prevent liability risks.
3. Train Your HR Personnel
Conduct training sessions with your HR team about their legal responsibilities when performing background checks.
Include a checklist of information about what your hiring staff must do before, during, and after a background check.
4. Verify Your Provider’s Compliance and Experience
Your background check provider must be FCRA-compliant and knowledgeable about all relevant local, state, and federal laws.
This protects your business from lawsuits that could be filed if your background checks are conducted improperly.
The provider you choose should also have significant experience conducting background checks for companies in your industry.
Industry-specific checks help you meet your regulatory requirements.
At iprospectcheck, we always comply with state, local, and federal background check laws and stay up-to-date with legal changes as they occur.
We provide background checks for many industries, including healthcare, finance, transportation, and more.
5. Choose Tailored Background Checks
Choose only the reports you need for a job’s risk level and responsibilities.
Tailored background checks help to reduce unnecessary expenses and improve hiring.
6. Look for Fast Turnaround Times
When you’re considering background check providers, look for fast turnaround times.
Your provider should return reliable, comprehensive reports quickly to speed your hiring process.
At iprospectcheck, we can return most reports in a matter of hours, up to a couple of days.
Our speed helps to avoid delays that could cause you to lose top talent.
7. Use Technology for a Streamlined Process
Choose a provider that offers extensive integrations with your ATS and automates processes.
At iprospectcheck, we integrate with most ATS and HRIS.
An automated process that you can initiate within your ATS increases efficiency and reduces manual data entry errors.
8. Maintain Legal Compliance
If the results of a background check concern you, make sure to follow federal and state laws before basing an adverse hiring decision on that information.
For example, guidance from the Equal Employment Opportunity Commission states that you should individually evaluate convictions as they compare to a job’s duties and workplace safety before denying employment based on them.
You must also complete the adverse action steps before making a final decision not to hire an applicant because of what you learned in a background check, including:
- Sending a pre-adverse action letter to notify the applicant of your concerns, and including a copy of the report that contains the negative information
- Giving the applicant a reasonable time to respond with evidence that the information is wrong or that they have rehabilitated, which is generally five business days
- Sending a final adverse action notice if you ultimately decide not to hire the applicant, and including a copy of their FCRA rights
Maintaining legal compliance helps your company avoid expensive lawsuits and civil penalties.
Choose background checks with iprospectcheck for a Better ROI
Pre-employment background checks provide your company with direct and indirect benefits and cost savings and can improve your ROI.
Your provider’s quality and experience can greatly enhance your company’s profitability and reduce your costs.
At iprospectcheck, we always comply with all relevant background check laws and provide fast screenings to improve your hiring process.
Contact us today for a free quote: (888) 509-1979.
DISCLAIMER: The resources provided here are for educational purposes only and do not constitute legal advice. Consult your counsel if you have legal questions related to your specific practices and compliance with applicable laws.
FAQs
How much does a background check cost?
The cost of a background check depends on the reports you choose and their complexity.
At iprospectcheck, we offer multiple packages with affordable pricing and volume discounts.
Contact us to receive a free quote.
What percentage of companies run background checks?
The Professional Background Screening Association (PBSA) reports that 93% of companies conduct some type of background check.
However, these checks vary greatly in quality. To get reliable, legally-compliant results, choose an experienced provider like iprospectcheck that prioritizes compliance, accuracy, and speed.
How long do background checks take?
How long a background check might take depends on the complexity of your requests.
We can return most reports in a matter of hours to a couple of days.
Complex requests might take longer, however.
What does a background check show?
What a background check shows depends on the searches you request.
Commonly requested searches include:
- Criminal history – Shows information about a pending case or conviction, including case number, offense date, offense type, disposition, disposition date, and sentence (when available).
- Employment verification – Reveals information about an applicant’s employment history, including employer names and addresses, employment dates, and positions held.
- Education verification – Shows details about an applicant’s education, including school names and addresses, enrollment dates, and any degrees or diplomas conferred.
- Professional license verification – Reports information about an applicant’s professional credentials, including license number, licensee’s name, issuance date, expiration date, license type, and any public discipline or sanctions.
- Motor vehicle records search – Reveals details about an applicant’s driver’s license and driving record, including their driver’s license validity, license class, legal name, registered address, license number, traffic infractions, major traffic crimes, issuance date, expiration date, and revocations or suspensions.
