What is a background check? An introduction for gig platforms and marketplaces

A background check is the process of verifying key details about an individual — like their identity, employment history, education, and criminal record — to assess trustworthiness or risk. 

If you run an online marketplace or a gig platform, you already know that your platform’s primary purpose is to connect buyers with sellers. Onboarding more sellers means that buyers can find a greater variety of products or services, increasing the likelihood that they’ll eventually complete a transaction or make a purchase. That’s why most online marketplaces invest so much time, energy, and money into attracting sellers to their platforms. The same is true for gig platforms attracting part-time workers, or for delivery marketplaces that connect customers with shoppers and delivery drivers. 

But it’s not enough to simply onboard as many sellers or gig workers as possible. Instead, your goal should be to onboard trustworthy individuals that are going to deliver on their end of the bargain to truly delight the buyers who use your platform — so they’ll return for additional purchases in the future.

The question is: How do you determine which sellers or gig workers are trustworthy vs. potential bad actors looking to defraud your buyers and may end up tarnishing your platform’s brand? Incorporating background checks into your broader worker or seller onboarding processes can help. 

Below, we explain what background checks are, how they work, and the different types you might consider implementing. Then, we take a closer look at the process for performing employee background checks before zeroing in on what matters most to online marketplaces and gig platforms. 

The background check definition

A background check is a process traditionally used by employers to gather more information about potential employees during hiring. In addition to verifying a job candidate’s identity, background checks can be used to confirm key details about an individual — such as their education and employment history, criminal record, driving record, and more. Background checks are also sometimes called background screenings. 

Employers are not the only parties that can perform background verification. Online marketplaces, for example, can benefit by running background checks as a part of the seller verification process (or Know Your Seller) for new suppliers that join their platform. Likewise, gig platforms that connect freelance or contract workers with employers may perform background checks on new workers joining their platform to ensure they maintain a trusted pool of talent for hire. 

In some industries or for certain companies, background checks are an important part of a broader Know Your Employee (KYE) process. 

How does a background check work?

A background check works like this:

• First, information is collected about an individual — such as a potential employee, gig worker, or marketplace seller. This typically requires their name, date of birth, place of birth, government-issued ID, contact information (email and phone number), and other information, as needed. 

• This information is then verified to ensure that it is accurate, legitimate, and tied to a real person. Verification may involve a variety of different methods, including government-ID verification, document verification, database verification, selfie verification, and more. 

• Following verification, the information collected from the individual is cross-checked against information contained in authoritative databases. These data sources can include everything from national criminal databases to individual state Department of Motor Vehicles (DMVs) to educational institutions, employment records, and more.

The results of a background screening will typically detail whether or not the individual appeared in a particular database — and whether that presence (or lack thereof) is expected or suspicious. 

The employer, gig platform, or online marketplace uses these results to decide whether or not they ultimately wish to engage with the individual. This decision should be informed by the company’s risk tolerance and whatever laws or regulations the business is subject to. 

Types of background checks

While background checks are often discussed as though they are all identical, the truth is that there are a number of different types of background checks, each of which is specifically tailored to uncover or verify particular pieces of information about an individual. 

The types of background checks you choose to perform on candidates should be informed by your company’s unique risk tolerance, as well as the specific risks it is exposed to.

Criminal background checks

A criminal background check, or criminal record check, is exactly what it sounds like: A means of determining whether or not a job candidate has a criminal record. This can include misdemeanor and felony convictions as well as pending charges. 

Criminal background checks work by looking for mentions of an individual in a variety of data sources, such as:

• National, state, county, and international criminal databases

• Registries, such as sex offender registries

• Departments of Corrections (DOC) records

• Court records, at the federal, county, and municipal level

• And more

Employment history verification

An employment history verification is a means of determining whether or not the past employment details provided by a job candidate or applicant are truthful and accurate. It typically involves contacting an individual’s previous employers to confirm details like the individual’s job title, salary, dates of employment, and potentially their reason for leaving. This is an important piece of deterring misrepresentation fraud when hiring new employees. 

Education and degree verification

Education and degree verification is the process of confirming whether or not an individual is lying about their educational history. It typically involves verifying that a person attended a particular university, college, or institution, including their dates of attendance. It also verifies whether or not they earned a degree or other credential, and specifies what credential was earned. 

Similar to employment history verification, education verification often involves contacting an educational institution directly to ask for transcripts, diplomas, or other information. It can also be achieved using third-party data sources that aggregate information about college graduates. 

Professional license verification

If a job candidate or applicant claims to have a professional license, permit, certification, or other type of registration, a professional license verification can determine whether or not that claim is true. 

Typically, this type of background check involves looking up the individual in the relevant databases, which in the US are largely run by individual states or industry groups. In addition to confirming that an individual is licensed, this check can also inform you about expiration and renewal dates, which may be relevant to the position you are hiring for. 

Credit checks

In some cases, you may want to get a clearer sense of an applicant’s financial situation to understand if they may pose a fraud risk to your business. A credit check as a part of the background check process can help with this, surfacing information about an individual’s debts, payment history, and adverse actions like bankruptcies. It’s important to note, however, that any credit check performed during background screenings must be compliant with the Fair Credit Reporting Act (FCRA).

Reference checks

A reference check involves contacting the references that an individual has supplied during the hiring process. These can include past or current coworkers, managers, classmates, advisors, and even friends and family members. The goal of a reference check is to ensure that the individual was not lying about their past. 

This type of background check also gives you an additional opportunity to verify employment or educational information while uncovering information about their personality or work/study habits, which can inform your hiring process. 

Motor vehicle reports

A motor vehicle report, also called a driving record check, queries state DMVs to surface information about an individual’s driving record. This can include details about their licenses, as well as traffic violations and point charges typically within the last three years (as dictated by state regulations). However, keep in mind that coverage of license data varies by state. 

A driving record check is especially important for roles where the employee is expected to drive or operate a motor vehicle as part of their duties, such as delivery drivers and couriers. 

Drug screening

A drug screening involves testing an individual’s system for certain dangerous or illegal drugs. Depending on the jurisdiction, this can include marijuana, cocaine, opiates, amphetamines, and more. Drug screenings are particularly important in roles where an applicant may be driving or interacting with heavy machinery, as well as roles revolving around safety.

Social media background checks

A social media background check, or social media lookup, is the process of reviewing an individual’s presence on social media. This review can help you confirm details about the individual and their educational and employment history. It can also give you greater insight into the individual’s personality and whether or not that might pose a risk to your business. 

Social media background checks can also help you uncover adverse media, as well as links to risky individuals, such as known or suspected criminals. 

International background checks

If a job candidate or applicant has an international background, the background checks above may need to be performed on an international scale. Depending on the industry your business operates within, you may also want to run these:

• Sanctions check

• Watchlist check

• Politically-exposed person (PEP) screening  

Identity verification (IDV)

Identity verification — the process of confirming that a person is who they say they are — isn’t usually considered a background check, but because it often takes place alongside those screenings, we wanted to be sure to include it here. 

In the context of employment, employment identity verification helps businesses prevent a wide range of fraud, including identity theft, remote work fraud, data breaches, corporate espionage, and more. It also ensures that an individual is authorized to work in a particular jurisdiction. While exact methods can vary, identity verification is often achieved via a mix of government ID verification, database verification, selfie verification, and document verification.

What are the benefits of running background checks?

Employers and online platforms can realize two main benefits by running background checks on new hires.

• First, background screenings give you a means of verifying the information that job applicants and new hires provide when they apply for a job, such as their employment history or educational record. 

• Second, background checks make it possible for you to uncover new information about an applicant or hire that you didn’t already know, like their criminal history, which you can use to inform your hiring decision and your risk assessment of the individual.

Taken together, these benefits increase the likelihood that you will be able to identify fraudulent applications or other untrustworthy behavior on the part of a candidate — ultimately helping you protect the user experience on your platform, as well as your bottom line.

What does an employee background check consist of?

An employee background check generally consists of:

• Identity verification

• Criminal background checks

• Drug screenings

• Education verification

• Employment history verification

• Reference checks

That being said, individual employers are free to design the background check process that makes the most sense for them, their business, the industry they operate within, and their unique risk tolerance.

How to do an employee background check

While there’s no one correct way to perform employee background checks, there are certain steps that will almost always make an appearance. If you’re considering whether or not to add background verification to your hiring and onboarding processes, the framework below can help you design your protocol. 

1. Define your background screening policy

Before you can perform your background checks, you’ll first need to define your background screening policy. This policy will ultimately inform your strategy, and should be considered in the greater context of your company’s hiring processes and risk management strategies. 

Some questions you should aim to answer include:

• Do you need to perform background checks for all roles, or only certain roles?

• Which types of background check or verification are necessary for each role?

• What background screening solution will you use and how will you incorporate it into your digital onboarding flow?

• What, if anything, would immediately disqualify a candidate or new hire from working with your business if it is uncovered during a background check?

• Are there any state or federal laws you need to consider while designing your strategy — such as state or local screening regulations, anti-discrimination laws, etc.?

Once you’ve answered these questions and implemented the necessary infrastructure, you can move forward with actually performing these checks.

2. Get applicant consent for background checks

In the United States, the Fair Credit Reporting Act (FCRA) requires you to:

• Inform an applicant if you plan to perform certain types of background checks, or if you will be utilizing a third-party service to perform the background check on your behalf

• Explain how the information in the background check may be used for hiring decisions

• Inform the applicant of their rights under the FCRA

• Get the applicant’s written consent to perform the background check

Failure to comply with these requirements can result in the applicant suing your company for actual damages, attorney fees, and punitive damages. It can also result in the Federal Trade Commission (FTC), which enforces the FCRA, imposing financial penalties. 

3. Collect the necessary applicant information

In addition to consent, in order to perform a background check, you’ll first need to collect certain information from the applicant. While the necessary information will vary depending on the type of background check you are performing, it will usually include things like the applicant’s:

• First and last name

• Date of birth

• Social Security number (or other taxpayer identification number)

• Address

• Government-issued ID 

Depending on the check you are performing, you may also need to collect additional information. A few examples include:

• Employment verification: Names of previous employers, dates of employment, job titles

• Education verification: Names of educational institutions, degrees earned, dates of attendance

As you collect personally identifiable information (PII) and other information from your applicants and hires, it’s important to give thought to how you will protect and secure this data. 

With that in mind, it can be a good idea to practice data minimization — collecting only the bare amount of data necessary from each user — to minimize your exposure to potential data breaches. Likewise, it’s essential that you ensure your data collection and retention policies are compliant with all applicable laws, potentially including the GDPR. 

4. Perform the required background checks

Once you have the necessary information, you can move ahead with actually performing the background check. You can do this manually yourself, or by using a third-party background checking service. 

While you might think that it would be most efficient to perform all of the background checks at once before making a decision, you may actually want to consider running the checks in a staggered manner — for example, identity verification first, followed by a criminal record check, followed by employment verification, etc. 

This gives you the opportunity to look for disqualifying information during each check before moving onto the next, which can help you save money — particularly if you leverage a service that charges by the query. 

Related: Using Persona’s integration with Yardstik, you can do this staggered approach of background screening called Sequential Screening. Learn more with our guide on integrated identity verification and background checks. 

5. Review the background screening results

Whether you perform all of your background checks up front or in a staggered manner, you will ultimately need to review the results of the screenings and make a final decision about whether or not you wish to hire a candidate. At the end of the day, this decision should be informed by your industry’s standards, as well as your company’s appetite for risk. 

6. Notify applicants and keep records

If the results of a background screening result in you not wishing to hire the applicant, there are steps you need to take under the FCRA. This includes:

• Providing the applicant with a copy of the report

• Providing the applicant with “A Summary of Your Rights Under the Fair Credit Reporting Act”

• Notifying the applicant that they were rejected due to information uncovered by the background check

• Providing the applicant with the name, address, and phone number of the company that sold the report

• Explaining that the company that sold the report did not make the hiring decision

• Explaining that the applicant has the right to dispute the accuracy or completeness of the report, and that they are entitled to an additional free report within 60 days

To protect your business against any potential legal actions that may arise in the future, many experts recommend keeping records related to background checks for a minimum of 5 years, which is the statute of limitations for the FCRA. This should include the results of the background verifications you performed, as well as any consent forms, notices, etc. shared with the applicant. 

How to perform background checks for marketplaces and gig platforms

Gig platforms and online marketplaces looking to perform background checks will largely need to follow the same steps as more general employers, listed above. The primary difference is that, instead of focusing on direct employees, your background screenings will be focused on the sellers, suppliers, drivers, couriers, and other contractors that you onboard to your platform. 

That being said, there are a number of best practices you should consider when designing your process that general employers don’t need to be concerned about.

Keep marketplace regulations in mind

In addition to employment laws like the FCRA and Equal Employment Opportunity Commission (EEOC) guidance, marketplace operators must comply with additional regulations that specifically apply to their industry. 

In the US, one of the most important marketplace regulations related to background checks is the INFORM Consumers Act. This law requires marketplace operators to collect and verify the contact information, bank account details, and tax identification number of any third-party seller that completes more than 200 transactions and brings in at least $5,000 in gross revenues via the platform in a 12-month period. 

Operators are allowed to use government ID verification, email and phone verification, and tax document verification for these purposes. 

Likewise, as you design your background screening and employee onboarding processes, you will need to ensure that they are compliant with any data privacy regulations impacting your business. 

Note that, depending on where you operate, these can vary by jurisdiction, adding complexity to your compliance efforts. Potential laws to be aware of include:

• The General Data Protection Regulation (GDPR) in Europe

• California Consumer Privacy Act (CCPA) and Virginia Consumer Data Protection Act (CDPA) in the United States 

• Brazilian General Data Protection Law (LGPD)

• And more

Minimize friction during sign-up

Background checks for marketplaces can be a powerful tool to limit the employment risk your platform faces, but they also introduce a certain level of friction during the seller onboarding process. Unmanaged, this friction can potentially harm conversions, making it important to find ways to minimize friction as much as possible. 

Some options to consider for limiting friction include:

• Embracing a mobile-first verification experience to appeal to an increasingly mobile-first user base

• White labelling a third-party solution with your own branding so as not to confuse or discourage users from completing the background check

• Combining identity verification and background checks into a single onboarding flow

• Tailoring your background checks to individual roles to avoid subjecting sellers and gig workers to checks that may not be necessary

• Intelligently designing your verification and background check flow to avoid making the user re-enter the same information

• Providing guidance to your users directly within the verification flow to help them avoid common mistakes without needing to start over

• Leveraging auto-extraction technologies capable of pulling the relevant information out of a user’s ID, like Optical Character Recognition (OCR), to avoid manual entry and the errors it may cause

Keep learning: 3 tips for managing risk without sacrificing user experience

Automate decisions and follow-up actions

Manually reviewing the results of each background check your platform performs can be time-consuming and expensive. With the right logic in place, it may be possible to automate the vast majority of these decisions, saving only the most complex cases for manual review.

You might, for example, establish logic that automatically turns away any applicant who fails initial identity verification, while pushing those who pass IDV through to the background check process. 

You might also determine which risk signals automatically disqualify an applicant from consideration, or those that require a manual follow-up. Depending on the solution you use, it may also be possible to automatically trigger downstream actions in other systems — for example, updating your CRM or ERP with new applicant statuses. 

What to look for when choosing background check services

While there may be reasons for performing background checks on your own via an in-house team, it becomes more and more difficult as your platform scales and you’re onboarding dozens or even hundreds of sellers or gig workers each day. That’s when background check services or solutions can be especially helpful.

Here are some potential criteria to keep in mind as you consider and evaluate different solutions:

• Verification speed: How long does it take to perform various background checks and verifications? 

• Ease of implementation: How easy is it to integrate the online background verification solution into your broader verification and onboarding flow? Is it possible to pursue an integrated solution that bundles together multiple functions in a single implementation — such as background checks as well as identity verification?

• Affordability: Does the service fall within your budget? Are you charged a flat fee, or will you pay on a query-by-query basis? 

• Audit trail: Is the solution auditable? Does it contain timelines, audit trails, and context that can be used to explain decisions, if you are approached by regulators? 

• Data privacy and security: Can the solution handle and secure personally identifiable information (PII) for you to limit the need for additional privacy and security measures?

• Global support: If you operate in multiple jurisdictions, does the service support international IDs, languages, and international data sources?

How Persona can help you streamline background screening

Here at Persona, we understand how important it is for an online marketplace to feel confident that they are onboarding trustworthy, legitimate sellers, couriers, drivers, and gig workers. That’s why we’ve partnered with Yardstik to offer a fully integrated and unified identity verification and background screening solution. 

With our integrated identity verification and background checks solution, it’s now possible to verify the identity of your workers while simultaneously getting a clearer sense of the risks they may pose to your business — all with a single procurement process, contract, integration, and implementation that makes it possible to get up and running faster than ever. 

While the solution is currently focused on criminal background checks and driving records, we’ll soon be rolling out additional screenings to truly unlock the power of background checks for your business. 

Best of all, Persona’s intuitive UI and Yardstik’s sequential screening approach empower you to control friction and reduce unnecessary costs, all while onboarding more trustworthy workers and earners to your platform. 

Ready to learn more about how Persona can help you get background checks and IDV right? Get started today with a free account, or contact us for a demo to see how it all works.