Calculating the ROI of employee background checks

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Jordie Black
Updated on:

Many businesses still decide whether conducting detailed background checks is worthwhile when recruiting new staff members. The Return on Investment (ROI) for employee background checks goes beyond mere pounds and pennies. This blog post discusses how performing due diligence on potential employees can bring significant rewards.

Unneeded expenditure versus necessity

Those who oppose background checks see them as a monetary burden on organisations. Yet, what is often forgotten is that these checks are an investment in preventing financial losses. A company's reputation is easily hit when careless recruiting leads to costly legal fees or reduced productivity.

Therefore, a thorough screening process saves a business from potential damage. This is especially true regarding positions with access to sensitive information or company finances. 

Certain laws and regulations require employers to thoroughly screen potential employees. If these laws are not followed, you could face significant penalties, which might be more costly than the initial expense of conducting the background checks. Essentially, background checks serve as an effective barrier against these financial risks.

Weighing the consequences of an ill-judged hire

In 2013, when Facebook purchased Instagram for a whopping $1 billion, the latter only had a small team of 13 employees, proving how vital each choice was. Recruiters must pay more attention to the cost of making a bad hire. 

The U.S. Department of Labor estimates that it could be up to 30% of the employee's yearly wages, a number that could drive even a large company to ruin.

Data from Oxford Economics and Unum indicate the financial consequences of a wrong hiring decision. On average, it costs £30,165 for a company to hire someone earning £25,000 a year, with £5,433 allocated to recruiting alone.

A poor hiring decision costs beyond the salary and benefits you offer. It extends to recruitment expenses, training costs, possible declines in productivity, and even the risk of tarnishing the organisation's carefully built reputation.  

A mismatched hire can lead to burnout among diligent employees, who must do extra work. That's because negativity spreads; according to Gallup research conducted since 2000, less than one-third of workers in the U.S. are actively engaged in their work.

In addition to these tangible expenses, there is also an unacknowledged cost - the productivity gap. This refers to the time it takes for an employee to reach total capacity after being hired; typically, 28 weeks must pass before that occurs.

Therefore, if they are not suitable for the job, the employer experiences a decrease in output plus additional outlays when needing to locate another worker. As such, poor recruitment generates an unavoidable double financial burden.

Carrying out detailed employee background checks can provide a defence against such risks. Background checks can reveal warning signs, such as false qualifications, criminal records, or a track record of unethical behaviour. This information allows you to make more informed hiring decisions.

The value of automated background checks

Conducting background checks is costly in other ways more than just costly in terms of money; depending on how they are conducted, it can also takes up a huge amount of resources and time. However, there is a solution for this. Automated background checks save the employer and the employee time.

There’s no one-size fits all solution when it comes to background checks, but there are  universal benefits for companies who utilise reference checks. When conducting background checks, references play an important role in developing an all-round view of a candidate. Gathering relevant information from a candidate's former managers and learning about their past work experiences  doesn't just show you what the candidate might excel in; it also gives you insights into their preferred work and management styles.

Previous managers will have insights into  how the individual adapts to different work environments, deals with challenging situations, and interacts with other team members. They can provide insights on their work ethic, commitment levels, and even personality traits that may not be immediately evident during an interview process.

Some candidates might thrive under hands-on supervision while others may prefer a more autonomous work style. This knowledge can help you evaluate if the candidate will fit into your team's dynamic and working culture.

The benefits extend further when we look into the candidate’s strengths in their previous roles. By looking at what they excelled at, you can forecast how they might perform in your organisation. A pattern of consistent strengths can give you confidence in their abilities, and if these strengths align with the job role you’re offering, it could be a perfect match.

For example, if a candidate demonstrated excellent leadership skills in their previous roles, they might be a great fit for a managerial position in your company. If they consistently showed creativity and initiative, they could be an asset to your marketing team.

Using an automated screening solution helps to streamline the recruitment process by quickly filtering out any candidates who don't possess the necessary qualifications or experience.

For instance, an HR professional with a salary of £35,000 per annum would take approximately one hour for each candidate on administrative work checking references and cross-employee data.

If this same organisation had 40 recruits each month, that's 40 hours a month - amounting to £8,400 yearly - dedicated solely to manual background checks. 

One of the primary advantages of automated background checks is the ability to seamlessly integrate with existing systems. These integrations allow for 'one-click' checks, which can be initiated directly from within your HRIS (Human Resource Information System). This means less time jumping between systems and more time dedicated to strategic tasks.

With integrations, data can be directly pulled from your ATS (Applicant Tracking System). This eliminates the need for repetitive data entry and reduces the risk of human error, ensuring that your background checks are both accurate and efficient. Simply put, you won't have to lift a finger to maintain a rigorous, comprehensive background check process.

At Zinc, we strive to improve the recruitment process for companies of all sizes. Our automated background checks are reliable, comprehensive, and cost-effective.
Core benefits of using Zinc to conduct your background checks:

  • Time-saving: Automated background checks eliminate the need for manual checks that can take hours each week, freeing up valuable time for HR professionals.
  • Faster turnaround: With automated systems, background checks can be completed in just days rather than weeks. This accelerates the recruitment process and allows candidates to start their roles sooner.
  • Centralised data management: Automated systems provide a central repository where all data is seamlessly stored and easily accessible. This ensures a more streamlined and efficient process, enhancing the experience for both candidates and recruiters.

Boosting employee morale and trust

The Return on Investment (ROI) of running background checks stretches beyond financial or legal advantages – it is also crucial in creating a safe and secure work environment. Ensuring that employees undergo a thorough screening process strengthens the team's trust and morale. 

A secure work environment enhances employee commitment, productivity, and job satisfaction. This positive impact on employee engagement leads to tangible benefits such as decreased turnover rates, better retention of top-performing talent, and cost-effectiveness. 

Final thoughts

Employers who perceive background checks as a costly burden may overlook the benefits they bring. Beyond the financial aspect, background checks offer a range of advantages, resulting in a substantial ROI. In some cases, regulatory authorities may require background checks, reducing the likelihood of lawsuits or costly penalties.

A negligent hiring decision may have far-reaching consequences and damage the company's reputation. Implementing background checks lead to a streamlined hiring process, enabling HR teams to focus on top candidates while ensuring swift and efficient onboarding. 

Organisations also reduce risks by ensuring they select trustworthy candidates. Finally, by offering a safer work environment and improving the quality of hires, employee morale and motivation may increase, resulting in a win-win situation for both employees and employers.

To find out the total ROI of conducting background checks for your company, try our free ROI calculator and see the time and monetary value running automated checks could offer. 

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