By Derrick Lin
Businesses spend a lot of time building trust with their employees in an attempt to understand the people they’re working with and find out how these people can best contribute to their success. Unfortunately, no matter how well businesses get to know their employees, a plan is necessary in case that trust is broken–eventually, an employee will steal from the business, a co-worker or a customer.
A business needs to be protected in these situations, as well as provide protection for its customers. This is where fidelity bonds come into play. A fidelity bond is theft protection for a business and its customers. The bond covers money and possessions that are lost to employee theft.
Benefits to Businesses
Fidelity bonds are an expense for businesses, but the benefits outweigh the costs. They are a great marketing tool for attracting customers, especially if the business works in customers’ homes. Customers feel more comfortable hiring a business that guarantees to protect their money and property while on the job.
There is also a significant benefit for new startups. A newly founded business does not have a lot of time to accumulate wealth, so it likely will fail if an employee steals a significant amount of money. A fidelity bond can eliminate the risk of failure because the business would be reimbursed for their loss.
Types of Fidelity Bonds
There are many different types of fidelity bonds, so it can be difficult to figure out which one is right for different types of businesses. Here are some examples of commonly-used fidelity bonds:
Business services bond– This bond (more commonly referred to and used as a “janitorial service bond”) is most helpful for businesses, such as janitorial services and moving companies, that work in customers’ homes or other businesses. If an employee steals a customer’s money or possessions, then the customer will be reimbursed for the loss.
Dishonesty bond–This bond protects a business against theft from its own employees. For example, an employee stealing from the business’s profits or from the boss’s desk.
Pension trust bond (aka ERISA bond)–This bond will protect employees who put money into the business’s retirement fund. The fund manager must be bonded to guarantee the other employees will be reimbursed if the manager steals from the fund.
There are many other types of fidelity bonds, but these are the main ones that businesses need to know about.
Commercial Crime Insurance
Commercial crime insurance is also a type of fidelity insurance, but it is for businesses with more employees. Most fidelity bonds are bought by small businesses to protect against small-scale employee theft. In comparison, commercial crime insurance is usually bought by a big companies to protect themselves from employee theft on a much larger scale.
Commercial crime insurance also covers more significant crimes than employee theft:
- Employee dishonesty and theft
- Forgery or alteration
- Robbery and safe burglary (protects against non-employees)
- Computer fraud and theft
- Theft of money and securities, disappearance, and destruction of property (protects against non-employee)
- Counterfeit money received
- Clients’ property
- Funds transfer fraud
If your business does work in client homes, a basic fidelity bond is a quality safety measure for covering both your business and clients in the event of employee theft; as your business grows and gains more employees, consider upgrading to commercial crime insurance for wider coverage.