A fidelity bond is a form of protection that covers a business against financial losses caused by the dishonest or fraudulent acts of its employees. While the term "bond" is used, fidelity bonds function more like insurance policies than traditional surety bonds. They are purchased by the employer and pay out to the employer (or the employer's client) if an employee steals money, property, or other assets. Fidelity bonds are widely used by businesses that send employees into clients' homes or workplaces, as well as by any organization that wants to protect itself against internal theft.
Although fidelity bonds and surety bonds share a name, they work differently. A surety bond is a three-party agreement where the surety guarantees that the principal will fulfill an obligation to the obligee. If a claim is paid, the principal must reimburse the surety. A fidelity bond, on the other hand, is a two-party agreement between the insurance company and the employer. It protects the employer (or the employer's clients) against employee dishonesty, and if a claim is paid, the employer is not required to reimburse the insurer. In this way, fidelity bonds are closer to traditional insurance, even though they are often sold alongside surety bond products.
Janitorial bonds (also called janitorial service bonds) are designed for cleaning companies whose employees work in clients' offices, homes, and commercial spaces. The bond protects clients against theft by the cleaning company's employees while they are on the premises. Many commercial clients require janitorial companies to carry this type of bond before they will award a cleaning contract.
Business service bonds cover a broader range of service businesses that send employees to work at client locations. This includes home health aides, pet sitters, handymen, IT service providers, and other businesses where employees have access to client property. Like janitorial bonds, business service bonds protect clients against theft committed by the bonded company's employees.
Employee dishonesty bonds (also called commercial crime bonds) protect the employer's own assets against theft, forgery, embezzlement, and other dishonest acts by employees. Unlike janitorial and business service bonds, which primarily protect clients, employee dishonesty bonds protect the business itself. They are commonly purchased by businesses that handle cash, manage financial accounts, or have employees with access to valuable inventory.
ERISA fidelity bonds are required by the Employee Retirement Income Security Act (ERISA) for any person who handles funds or property of an employee benefit plan. This includes plan administrators, trustees, and anyone with fiduciary authority over plan assets. The bond must equal at least 10% of the plan assets handled, with a minimum of $1,000 and a maximum of $500,000 (or $1,000,000 for plans that hold employer securities). ERISA bonds protect plan participants against losses caused by fraud or dishonesty by plan fiduciaries.
Several types of businesses commonly need fidelity bonds. Cleaning and janitorial companies are among the most frequent purchasers, as many commercial and residential clients require proof of bonding before hiring a cleaning service. Home care and personal service businesses benefit from fidelity bonds because their employees work in intimate settings with access to clients' personal belongings. Any business that manages an employee benefit plan is required by federal law to carry an ERISA fidelity bond. Beyond these specific requirements, any business concerned about internal theft can purchase an employee dishonesty bond as a risk management tool.
Fidelity bonds are generally affordable. Janitorial bonds and business service bonds typically cost between $100 and $500 per year for coverage amounts of $5,000 to $50,000, depending on the number of employees and the coverage limit selected. ERISA fidelity bonds are also reasonably priced, with premiums often starting around $100 to $200 per year for smaller plans. Employee dishonesty bonds for larger organizations with higher coverage limits will cost more, but premiums are still modest relative to the protection they provide. The exact cost depends on the type of bond, the coverage amount, the number of employees covered, and the nature of the business.
Obtaining a fidelity bond is a straightforward process. Most fidelity bonds can be quoted and issued quickly, often the same day. The application typically requires basic information about your business, including the number of employees, the type of work performed, and the desired coverage amount. Unlike many surety bonds, most fidelity bonds do not require a personal credit check for the business owner. SuretyBondly can help you determine which type of fidelity bond you need and find the most competitive rate from our network of carriers.