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What Is Bonding of Employees?

Malcolm Tatum
Updated May 16, 2024
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The bonding of employees is a strategy that many companies take to guard against any type of severe financial loss as the result of actions taken by key employees. This is often managed by working with an insurance company or some sort of bonding agency to secure what is known as a fidelity bond. In the event that the actions of an employee lead to some sort of verifiable financial loss to the business, and the circumstances are covered in the terms of the bond, the company can file a claim and use the proceeds to offset the loss.

Considered an important type of business insurance, the bonding of employees can cover a number of different scenarios. Some of the more common type of events covered by an employee bond include protection from embezzlement by employees who have access to company financial records and accounts. Theft of property is also often covered in the terms of the bond, along with protection in the event that the actions of the employee cause some sort of harm to others at the employer’s place of business. There are even examples of the bonding of employees that have to do with providing the company with some protection when individuals who are considered high-risk job seekers are hired.

The overall purpose of the bonding of employees is to protect employers from incurring losses when and if covered employees engage in actions that ultimately create financial issues for the business. Typically, there are limits on the amount of coverage that can be obtained on a single employee. The cost for the bond will depend a great deal on the scope of coverage that is required for a given employee. In addition, the claim process will normally require the ability to identify the specifics of how the employee’s actions have resulted in a real financial loss. For example, a employee who is rude to a sales prospect may or may not be the reason the prospect signed with another vendor and the insurance provider would likely not approve a claim for losses in this instance. By contrast, if a bonded employee obtained and sold a client list complete with proprietary data such as rates and contract terms, it would be relatively easy to demonstrate a real loss and be able to collect on a claim.

Bonding of employees may or may not completely offset a loss, but the compensation from this type of protection can often prevent any long-term damage to the business. For example, if an employee is found to have stolen equipment from the employer and it is impossible to recover that equipment, the insurance company issuing the bond will provide funds that will completely or at least partially cover the cost of replacement. In this scenario, the bond helps the company to recover from the loss in a shorter period of time, replace the errant employee and focus on other matters.

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Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By anon993842 — On Dec 20, 2015

If an employee knows its bond or agreement, then there shouldn't be any problems, but if they don't, they must be known to this. Because an employee has the right to know all in detail about the agreements which are in place between the employee and the employer within the company. They are their convention collective.

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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