Surety and Fidelity Bonding for Employers

There are several categories of bonding amenities that exist for employers and companies. The following is an overview of those bonds, why they are beneficial to companies, and why employers should seriously consider looking into them.

Federal Bonding Program

In 1962, the federal government created the Manpower Development and Training Act (MDTA) for the purposes of training and retraining unemployed workers. The MDTA was aimed at those separated from their jobs due to automation or other technical advances.

The MDTA led to the Federal Bonding Program (FBP) in 1965 when it was enacted into law across the U.S. The program was initially known as Trainee Placement Assistance Demonstration Projects. The initiative is for the federal government to bond ex-felons and other at-risk employees as well as give incentives to the employers who hire them.

Who Can Be Bonded?

At-risk individuals who may qualify for the FBP include those who are categorized as being non-bondable, for reasons such as:

The FBP gives at-risk job seekers the ability to receive training and certification that qualifies them to be bonded for reemployment. It is required for all State Employment Services to make FBP available as part of the services they provide.

What Business Bonding Offers to Employers

The FBP offers employers these bonds for no charge as an incentive to employ at-risk workers. FBP bond insurance guarantees the honesty of at-risk or hard to place workers, and compensates the employer for any loss or theft committed by the FBP insured employee.  

Types of Business Bonds

Surety Bonds

A surety bond ensures completion of a contract in case a contractor defaults. These bonds are obtained by contractors through a surety company. If, for any reason, the contractor defaults on the obligation, the issuing surety company will find another authorized contractor to bring the contract to fulfillment or compensate the project seeker for their financial losses.

Four Types of Surety Bonds

The U.S. Small Business Association’s (SBA) Office of Surety Guarantees is responsible for monitoring surety bonds for small businesses who obtain bonds through surety companies.  

The SBA Federal Guarantee encourages participating surety companies to issue bonds to companies who have issues obtaining one. The SBA holds surety companies accountable for payment to small business contractors. The SBA Guarantee covers performance, bid, and payment bonds up to $6.5 million. Federal contractors can be guaranteed by the SBA up to $10 million if a federal officer deems that an SBA Guarantee is necessary.

Fidelity Bond

This type of bond is a form of insurance that covers businesses for loss due to fraudulent acts by employees, contractors, or shareholders. It typically covers instances of theft and/or embezzlement, which is not otherwise covered by a company’s standard insurance.

Fidelity bonds can be tailored to blanket-cover all employees or just specific individuals within a company.

Two Examples of Necessary Fidelity Bonds

Getting Bonded

Many factors affect how much a bond will cost – there is no set fee or deductible (if a deductible is allowed). Bonds are a risk management tool. They are not insurance in the traditional sense, but your insurance agent or financial business advisor may be able to point you in the direction of a reliable surety company or bonding agent. Bonding agents operate much like insurance agents, so tread carefully and don’t feel like you have to buy into the first offer that comes your way.

Some companies may have a hard time obtaining a bond due to credit issues. This is when seeking the assistance of the U.S. Small Business Association is recommended.