The short answer
A reference check verifies what someone did and how they did it. You contact past employers and colleagues to confirm the work history on the resume and to gather signal: was the person reliable, how did they perform, would the employer rehire them. It runs during interviews, while you are still deciding.
A background check verifies records. It confirms identity and pulls public-record information such as criminal history, and sometimes credit or motor vehicle records depending on the role and the state. It typically runs after you extend a conditional offer, at the offer or onboarding stage.
One is about past-employer judgment. The other is about records. You usually want both, at the right moments, and in the right order.
What a reference check covers
A reference check is a structured conversation with people who actually worked with the candidate. Done well, it tells you things a resume cannot:
- Verified work history. Confirming the candidate held the role, for the dates and at the place they claim.
- Performance signal. How they handled the day-to-day, where they were strong, and where they struggled.
- Reliability. Attendance, follow-through, and whether they finished what they started.
- Would-rehire. The single most telling question. A past employer who would not take them back again is telling you something.
It does not tell you about criminal records, credit, or driving history. That is not its job. A reference check is about reputation and track record, gathered from the people best placed to judge it.
What a background check covers
A background check verifies records, usually through a consumer reporting agency. Depending on the role and your state's rules, it can include:
- Identity verification. Confirming the person is who they say they are.
- Criminal history. County, state, or federal records, subject to lookback limits.
- Credit history. Only where it is job-relevant and legally permitted.
- Motor vehicle records. For roles that involve driving.
What it does not tell you is whether the person was good at the job, easy to work with, or worth hiring. A clean record is not the same as a strong hire. Plenty of people who would be a poor fit have nothing on a background check at all.
When each one runs
This is where most of the confusion lives, and where order matters.
A reference check runs during the interview process, before you commit. That timing is the whole point. The signal only helps if it can still change your decision, ideally before the second interview. Run it late and you are just confirming a choice you have already made.
A background check runs after a conditional offer, at the offer or onboarding stage. It is verification, not screening. By the time you order one, you have usually decided you want the person and you are checking that nothing on record stops the hire.
Run them in the wrong order and you waste money and time: paying to verify records on candidates you were never going to hire, while skipping the earlier reference signal that would have told you not to bother.
Side by side
The same hire, two different checks:
| Reference check | Background check | |
|---|---|---|
| Timing | During interviews, before you commit | After a conditional offer, at onboarding |
| What it verifies | Work history, performance, reliability, would-rehire | Identity and records (criminal, sometimes credit / driving) |
| Who's contacted | Past employers and colleagues | Courts, agencies, and public-record databases |
| Cost | Lower; runs on every finalist | Higher; runs on the person you intend to hire |
| Compliance | FCRA may apply when a third party runs it | FCRA applies; consent, disclosure, adverse action |
Which does a small business need?
Both, but they are complementary, not substitutes. They answer different questions, so doing one does not let you skip the other.
For a small business, the reference check is the higher-leverage check, because it runs early and cheaply. A wrong hire costs real money: training, lost productivity, and the cost of re-recruiting. The reference check is the signal that catches a bad fit before those sunk costs pile up and before an offer is on the table. The background check still matters, but it lands after you have already decided, so it cannot save you from a fit problem.
The practical pattern for most owner-operators: reference-check every finalist during interviews, then run a background check on the one person you intend to hire.
One more thing both checks share: when a third party runs either of them for hiring purposes, the FCRA generally applies, which means consent, disclosure, and adverse-action steps. The rules are real, but they are routine. Confirm yours with an employment attorney before you rely on either check.
MyLynda runs the reference-check half. We email each reference a structured questionnaire (no phone tag), then return a green / amber / red verdict with the questions to ask next — before the second interview. It's $2.99 per check, and your first check is free. Background checks still happen later, at the offer stage. This page is general information, not legal advice.