According to a 2023 report from MBO Partners, the number of full-time independent contractors in the U.S. grew a meteoric 90% from 2020 to 2023. What’s more, research from Statista projects that 86.5 million Americans will be independent contractors by 2027. That amounts to more than half of the U.S.’s total workforce.
This rise in the gig economy offers businesses and workers mutually beneficial opportunities—but given the wide range of work functions fulfilled by contractors, it also presents new challenges in business security. As independent contractors become an integral part of businesses across all industries, the need for thorough vetting is more important than ever.
Below, we explain why vetting top-tier talent can help safeguard your enterprise from potential risks. Keep reading to learn what contractor background checks include and how they protect your business.
Vendors, contractors, freelancers—given the abundance of terms used to describe non-employee service providers, it’s first worth defining what an independent contractor is.
According to the IRS, an independent contractor is a self-employed individual who provides specialized services to a company under contract. A vendor, on the other hand, typically sells goods or products, with less focus on customization or ongoing labor.
Also known as freelancers or freelance workers, contractors can fulfill a variety of roles, including IT support, marketing, design, and bookkeeping. Clients hire them for their expertise and flexibility, often for specific tasks or short-term assignments. Unlike employees, independent contractors do not receive employee benefits or have taxes withheld from their payments. This offers businesses the opportunity to leverage skilled talent as needed, but conversely, also introduces potential risks and liabilities based on their role, data access, and scope of work.
You are absolutely allowed to run background checks on independent contractors—in fact, doing so is recommended. Background checks establish a consistent standard among all workers and help ensure the safety and security of your company. By thoroughly vetting contractors, you mitigate potential risks and uphold the integrity of your business.
In the U.S., the coverage of the Fair Credit Reporting Act (FCRA) for independent contractors has been a topic of debate, with mixed outcomes in various legal cases. For this reason, before running any screenings, it’s important to distinguish between FCRA background checks—which are typically used for employees—and broader checks that are more appropriate for independent contractors.
Because the Federal Trade Commission (FTC) has expressed that FCRA protections could extend to nontraditional workers like independent contractors, running FCRA checks on contractors can blur the lines between employee and contractor status. This potentially exposes your business to liability and limits the scope of information that can be reported.
To mitigate risks and maintain compliance, many experts recommend using more comprehensive background check services like Business Screen, which are specifically designed for contractors. These allow businesses to uncover hidden risks that may be overlooked by traditional FCRA checks.
Just like with employees or business partners, contractors can impact your company reputation, finances, and legal standing.
Consider how as far as back as 2014, multiple passengers have accused Uber of negligent hiring after encountering sexual assault from drivers, who work as independent contractors. The resulting lawsuits underscore concerns around Uber’s inadequate background checks, suggesting that more rigorous vetting could have prevented these incidents from happening.
Uber is just one example. No matter your industry, running background checks on independent contractors is essential to mitigating potential risks to your business. Background checks provide insight into a contractor’s history, verifying their credentials and ensuring their reliability. They also help uncover financial losses, reputational damage, and legal liabilities associated with contractors who may have hidden financial issues or criminal records, as in Uber’s case.
Ultimately, background checks provide businesses with peace of mind by verifying the credibility and reliability of contractors before they enter into working relationships.
A thorough contractor background check should include five crucial elements:
When preparing to run a contractor background check, it’s important to gather the right information. Business background checks call for the company’s legal name and address while for individuals, it’s necessary to get their legal name, location, date of birth, last four digits of their Social Security number—and possibly their address and cell phone number.
In most cases, however, best practice advises collecting authorization from independent contractors, which not only streamlines the process but also promotes equity and transparency.
To help guide your background check process, use our checklist below:
Maintaining a standardized background check process is ideal for saving time and ensuring compliance with the FCRA. To that end, many businesses implement processes to promote consistency and fairness across all contractor evaluations.
Contractor background checks are a fundamental practice for maintaining a secure and trustworthy business environment. By thoroughly vetting potential contractors, you can mitigate risks, verify compliance, and protect your company's reputation.
To streamline your background check process and ensure comprehensive results, consider working with Business Screen. Contact us today to learn more about our background check services, use cases, and other resources.
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