It's especially critical for small companies to screen employees well...

It's especially critical for small companies to screen employees well before hiring, since the losses from a bad decision can be especially crippling. (March 27, 2012) Credit: Getty Images

A bad hire can be costly for any organization, but potentially even more so for small employers.

Large companies can often absorb with little impact on overall operations any financial loss that could result, but in smaller businesses with limited resources, a loss can be crippling.

That's why making the right hiring decisions is critical, and the only way to do that is to have the proper screening measures in place, experts say.

"Employee screening enables you to find employees that fit your workplace," says Regina E. Faul, a partner in the employment and labor practice group at Rivkin Radler Llp in Uniondale.

There are basic steps you can take to vet applicants.

Solid application: For starters, you should have a good employment application that complies with the law, Faul says. Be careful about pulling a generic one off the Internet that may not adhere to federal or state laws, she notes. For instance, the application shouldn't ask questions that would elicit information about legally protected characteristics like race, age or religion, she notes.

Make sure the application includes the basics, like education and prior work experience, and ask the applicant for references and verify those, she notes.

"The most important thing you can do is call a past employer," notes Lester Rosen, author of "The Safe Hiring Manual" (Facts on Demand Press; $24.95) and founder of Employment Screening Resources, a California-based pre-employment screening firm.

At the very least, you'll verify the applicant's start and end date and job title, he notes.

"The fact you called and tried shows due diligence on your part," Rosen says.

If using a third-party screener to review your candidate, you need written consent from the applicant to do a background check in order to comply with the Fair Credit Reporting Act, Faul notes. Even if you're not using a third-party screener, she still suggests getting permission via a separate disclosure form.

"At a bare minimum, employers should be conducting a thorough criminal records search," says Kevin Klimas, president of Phoenix-based Clarifacts, an employment screening firm.

Avoid having a blanket policy automatically rejecting an applicant with a criminal record, he notes. Look at the nature of the offense and what relation it has to the position the applicant is seeking, he says. For example, if someone is convicted of embezzlement, do you want them to be your new controller?

Prudent checks: Criminal background checks are part of the screening process for Empire National Bank in Islandia due to the nature of the business, says Jane Reid, vice president for human resources. The bank also checks the applicant's credit and previous employer references, she says.

"We have to do everything we can to keep the customers' accounts and the soundness of the bank safe and secure," Reid says.

If one of the checks uncovers something that could impact the candidate's chances of being hired, such as a poor credit report, Empire will send the applicant a "pre-adverse-action letter" with a copy of the credit report. This gives the applicant a chance to address whatever is in the report.

In general, the bank sticks to traditional screening methods and doesn't use social media as a screening tool. This is a good idea, say experts.

A business can expose itself to the risk of appearing to discriminate based on personal information found on social media sites, Faul says. Still, if you decide to search candidates' social media profiles, get their permission, she suggests.

Also keep detailed information on why you decided not to hire a candidate, "because you may have to defend [against] the appearance of discrimination," she notes.