Say one of your employees wrote herself a check for a considerable amount from a company bank account, cashed it, then skipped town. Or a window installer in your employ decided, while working in a house, to swipe valuable jewelry. Do you write off the loss? Compensate the homeowner out of company funds?
Not if your employees are bonded.
An employee dishonesty or fidelity bond is a form of insurance that protects employers from the dishonest acts of employees, says Jay Holtz, assistant vice president of commercial surety at CNA Surety in Sioux Falls, S.D.
For example, in that instance of purloined jewelry, the bond would cover the loss. According to D.S. Berenson, of Johanson Berenson LLP, a Virginia law firm that represents many home improvement companies, such insurance is usually available as a rider on your commercial liability policy. It is, Berenson notes, “a policy covering theft or fraud by employees beyond a commercial liability policy.”
RULES OF ENGAGEMENT Insurers have different rules for determining which employees can be bonded and which acts are covered. Most exclude from coverage employees who have committed prior dishonest acts, such as felonies. They also exclude independent contractors. And before CNA Surety, for instance, will pay out on a policy, there must be a criminal conviction. In other words, if a homeowner claims an employee stole jewelry, the employee must be convicted of that crime before the policy kicks in.
Costs vary, but Holtz says that at CNA Surety, for $25,000 coverage for five or fewer employees, the annual premium is less than $200. For 20 employees, the premium is about double.
Not sold on the need for an employee dishonesty bond is Miles Wilkins, general manager of The Board Store Home Improvements in LaCrosse, Wis. “It appears to be a cost I wouldn't gain any benefit from,” Wilkins says. “We're strongly branded, very well known, and most of my employees have been here between eight and 15 years.”
THE WHOLE STORY Jerry Kerby, president of California Replacement Windows in Anaheim, has an employee dishonesty bond for employees in his accounting department.
But he also uses the issue of bonding to learn more about potential employees. “Asking them if they can be bonded sometimes answers a lot of questions about applicants,” he says. He cites the job applicant at California Replacement Windows with a two-year gap in employment and who left the answer to the bonding question blank. When Kerby asked why, the applicant explained that she'd been in prison for driving the getaway car in a bank robbery. “We said, ‘Since you're not able to be bonded, it's not going to work out for us,'” Kerby recalls.