Posted by Ryan Howard on Fri, Jun 23, 2017
When it comes to determining a budget for background screening, employers must look within. Employee turnover will be drastically different depending on the type of business, the typical ages of employees, the growth or downsizing of the business, if the business has been acquired or merged with another business and more. Even with all of those variables, there is a logical way to determine a background screening budget for your business.
Budgeting for employee background screening can be achieved with the following considerations.
Background Screening Budget Considerations
Human resources and background screening budgets should be established the same as other financial statements, typically at year end. Since other budgets are already developed based on business needs and growth, a hiring budget should also be included in this assessment.
To determine a place to begin budgeting for hiring, consider:
- Is your employer predicting company growth or downsizing?
- Does your business have a hiring and background check policy to better predict costs?
- Are your screening or hiring policies changing in the coming year due to new federal, state, or industry regulations?
- Has your employer evaluated the risk of current screening or hiring policies and/or already been taken to court over their hiring practices or non-compliance?
- Will your company be hiring international employees (typically screened at a higher cost)?
These questions will help determine if future costs will be rising or falling, or if more work is to be done before pulling together a budget.
Calculating Workforce Turnover
Every time an employee has to be replaced, there is an additional burden of cost to the employer in the way of recruiting, screening, hiring, onboarding and loss of productivity. Workforce turnover depends on many factors, however, a business may replace up to 20% of their workforce in a given year. Rather than budgeting based on the previous year, employers should budget for 20% of the business or more if there is an expectation of growth.
For a more exact number, use following formula to calculate employee turnover:
- Add up the number employee replacements, voluntary or involuntary, in the previous 12 months.
- For the turnover rate, divide the number of employee replacements by the total number of employees.
- To get the percentage of workforce turnover, multiply the turnover rate by 100.
Keeping Background Check Costs Low
With other departmental units scrambling for budget, HR may not get what they're asking for or may have to reduce their current budget in some way. Even if the background check budget doesn't match expectations, there is still a way to keep background checks low.
- Waterfall approach - Run instant screens first, and if those screens disqualify the candidate then employers save both time and money from running a full screening.
- Screen based on job - Every position should have the minimum screens but some jobs may require additional screening if they including driving, making financial decisions, or security.
- Volume discounts - If the employee turnover rate or hiring will be higher than usual, some screening providers may offer a discount for purchasing large volumes of background checks.
Managing Risk is Priceless
Although budget considerations and finances are heavily scrutinized, is it possible to put a dollar amount on reducing risk? Simply put, screening employees reduces the risk of a higher workforce turnover rate and the potential of negligent hiring claims. Done correctly and working with a FCRA certified team, background checks from professional screening companies can also reduce the risk of employers being taken to court for noncompliance.
If your employer or business is unsure how to best calculate a background check budget, needs assistance with hiring and screening policies, or has questions about reducing the cost of background checks, contact us. At VeriFirst, we aim to educate our audience to make informed decisions about screening and hiring.
Topics: Cost of a Background Check