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Your employees routinely enter people’s homes, offices, and other locations to provide services. Although you likely work hard to assemble a trustworthy workforce, there is still a possibility that an employee will steal money, valuable property, equipment, or other items from a client or your business. A Fidelity Bond can step in to protect your company from these risks.
What is a Fidelity Bond?
A Fidelity Bond is a type of coverage that protects your company if employees commit theft, fraud, or other dishonest acts. Other insurance policies will not cover you in these instances—professional liability policies exclude dishonest and malicious acts, and employee theft is not covered by commercial property insurance. Fidelity Bonds are required for businesses in many states, and even if it is not required, clients may very well expect you to have coverage.
- While cleaning a client’s home, one of the employees of your cleaning company takes several expensive watches and later sells them. A business service bond will provide funds for you to reimburse the client for the value of the stolen items.
Why do cleaning services companies need a Fidelity Bond?
Fidelity Bonds provide crucial protection in the event that employees steal customer property. Cleaning services companies are typically employed to send workers into clients’ private homes and offices to perform their services. This means that they could have unmonitored access to valuable property. Although ensuring that no theft occurs is doubtless a top priority for your company, you can’t completely eliminate the possibility that an employee will commit a crime. Employee theft is a common problem that can cause significant financial losses, as well as damaging your reputation. Business service bonds can protect you in these situations.
Fidelity Bonds can also provide protection against employee theft or dishonesty within your company. If an employee steals from your own business or commits fraud, your business could suffer significant financial damage. An employee dishonesty bond can provide coverage in these types of situations.
Fidelity Bonds vs. Commercial Crime Insurance
Fidelity Bonds and commercial crime insurance are similar in some respects, but they differ in that commercial crime insurance covers a wider range of threats, while Fidelity Bonds offer more targeted coverage. Commercial crime insurance has an employee theft component that covers the theft of company property by employees, which provides the same essential coverage as a Fidelity Bond for employee dishonesty.
However, commercial crime insurance also covers crimes committed by people outside of the company, including burglary, theft, fraud, and forgery. If your cleaning company does not have a high level of risk exposure for crimes committed by people other than your employees, you may not need this protection. Fidelity Bonds are a good choice if you simply need to protect your company against the risk that your employees may steal from your business or clients.
What are the different types of Fidelity Bonds?
There are three types of Fidelity Bonds: business service bonds, employee dishonesty bonds, and ERISA fidelity bonds. Business service bonds, in particular, are a key coverage for companies in the cleaning services industry.
Business Service Bond
Business service bonds protect your company if your employee causes a client financial losses by stealing their personal property, money, or other valuables. Business service bonds are particularly crucial for cleaning services companies. Depending on the insurer, policies aimed at the cleaning industry may be called janitorial service bonds, janitorial bonds, or cleaning bonds; however, they all provide essentially the same coverage.
Since your employees perform most of their duties at other locations such as clients’ homes and offices, they may have frequent, unrestricted access to valuables belonging to your clients, which creates a high level of risk that theft may occur. It’s important to insure yourself against these risks since clients are unlikely to want to hire your company if they feel that their personal property is in danger. Clients will feel more confident knowing that they will be reimbursed if something is stolen from them. Some clients may require you to carry this coverage before they retain your services.
In most cases, policies require the employee to be found at fault before they will pay damages. Some states also require an indictment or conviction for the crime.
- One of your janitorial services company’s employees steals several laptops from a client’s offices. Security camera footage shows the employee leaving with the laptops. Your business service bond would cover the loss.
Employee Dishonesty Bond
If one of your employees steals money or valuable property from your company, an employee dishonesty bond will cover the losses. This type of coverage protects your company from the financial impact of employee theft, fraud, or other dishonest actions employees might take against your business.
Unlawful actions covered commonly include:
- An employee at your rug and carpet cleaning business has been taking cash from the safe in the back office. Your hidden security camera caught your employee in the act, and when you confront him about it, he takes off and never comes back to work. You’re unable to locate him, making it difficult to hold him responsible for paying you back. Your employee dishonesty bond would cover the losses.
Employee dishonesty bonds can either offer blanket coverage, which bonds all employees for the same amount, or scheduled coverage, which can bond employees for different amounts depending on their responsibilities. With scheduled coverage, employees who have access to company bank accounts and funds can be bonded for a higher amount, since they present a greater risk exposure than employees who do not have access to financial systems.
Employee dishonesty bonds typically include exclusions for:
- Theft by owners of the company, partners in a partnership, and members of limited liability companies
- Theft committed by the policyholder
- Errors in math or accounting
- Inventory shortages based on computations or profit and loss statements with no other evidence
- Future business income lost as a consequence of stolen property
- Restatement of a profit and loss statement
- Seizure or destruction of property by the government
- Independent contractors
ERISA Fidelity Bond
ERISA Fidelity Bonds come into play if your company offers retirement funds for employees. ERISA, or the Employee Retirement Income Security Act of 1974, is a law that sets out rules and responsibilities for employers who manage retirement plans for their employees. This law protects employees by requiring the people who handle pension plans, 401(k) plans, and other retirement plans to be covered by a Fidelity Bond. If the managers of the fund commit fraud or dishonest acts such as theft, embezzlement, or misappropriation of funds, ERISA Fidelity Bond coverage will protect the fund from losses.
- The administrator of your janitorial service company’s retirement plan has been redirecting employee contributions and depositing them in his own bank account. An ERISA Fidelity Bond will cover the financial losses.
Fidelity Bonds are a particularly important coverage for cleaning services companies, since their employees often work unsupervised at other locations and may be able to access valuables belonging to clients. Business services bonds can financially protect your company by providing funds to reimburse customers if they are victims of theft by your employees. In addition, employee dishonesty bonds can protect your company if your employees steal or defraud the company itself, and ERISA bonds will protect employees’ retirement plans from losses caused by misconduct by the plan’s managers. Acquiring the correct Fidelity Bond coverage is a crucial part of running your cleaning business. It will help you protect your company from risk while giving your clients confidence that the value of their property is not endangered when they hire you.