Although a company can conduct its own background check, most employers use a third-party to conduct investigation of job candidates. When an outside entity is used to investigate a candidate, national laws, called the Federal Fair Credit Reporting Act (FCRA), place restrictions on the information the employer can use for hiring purposes. An outside agency that conducts background checks is called a consumer reporting agency.

An employer that uses a consumer reporting agency for background checks is prohibited by law from using the following information for hiring purposes: bankruptcies after 10 years; paid tax liens after seven years; accounts entered into collection after seven years, civil judgments and civil suits after seven years; records of arrest after seven years from the date of entry and any negative information after seven years, except for criminal convictions.

If the job salary is $75,000 or more per year, employers are exempt from the above restrictions. Also, if the background investigation is conducted by the employer’s in-house staff, the employer is permitted to use any information obtained during their investigation.

Some states have stricter statutes or codes on how employers can use background check information. For example, in the State of California, criminal convictions cannot be considered for hiring purposes after seven years. Also, some jurisdictions, including California, prohibit employers from obtaining arrest records, unless the job applicant is out on bail awaiting trial or was actually convicted of an offense. However, if the job is related to patient care or will allow the job candidate access to drugs, California codes permit employers to ask about arrests pertaining to these types of jobs.