How to do background checks on new hires? Should a startup even care about doing checks?

I am going to be hiring my first remote employee that I found on ODesk. Had initially contracted him on an hourly basis but would like to hire him full time directly outside of ODesk.

Should I do any background checks on him before doing so? If so, how?

Are there any generic contracts that I should get signed by him? ODesk provides employers with basic protections already such as retaining rights to work that was done. I'm guessing that wouldn't apply anymore if I hire him directly outside of their network.

Is this person going to have access to sensitive information? Do they get to represent your business in some visible fashion? What are the risks you are considering?

There are firms that do background checks, but you can start by requesting contact info for past 1-2 employers so you can verify employment dates and nature of termination. You can also ask for 3 references (typical).

You definitely want them to sign an agreement that has a non-compete section and covers work/copyright ownership for anything produced during the work hours. Your biggest risk is them taking the work you paid them for and going elsewhere with it or setting up their own co/product to compete with yours. If you are developing a unique product an NDA is advisable, although they are very hard to enforce (but might give people a pause).

Btw, are you sure you actually want them as employee and not just a freelancer/contractor? The 2 are not the same. Employee status comes with various legal protections and liabilities (tax, benefits, etc). If they are going to be remote, why not keep them as contractors at least at first? If you don't dictate where they work from or hours are somewhat flexible, you don't have to call them employees. Please consult an accountant on this topic.