California Employment Agency Bond

Several states and some local authorities require a bond before an employment agency can receive its license to conduct business. You should always check the licensing requirements in your state and municipality when providing staffing services.

For example, in Massachusetts, there are different requirements for agencies that charge job applicants fees vs. those that only charge companies fees. The first, referred to as employment agencies, must be licensed. The second, called placement agencies, don't need to be licensed, but they must be registered with the state's Department of Labor Standards.

In New York City you may need an Employment Agency license from the city's Department of Consumer Affairs before selling your services. However, this license may not be necessary if you contract out staff that you employ to other companies and issue them W2 forms at the end of the year. Additionally, you may not need this license if you work with specific types of services, like clerical services or theatrical talent, and charge only the companies a fee and not the people you find jobs for.

There are three parties to a surety bond contract: the state licensing authority (obligee); the employment agent or agency (principal); and the surety company that provides the bond.

If clients feel that actions by an employment agency have caused them financial loss, they may make a claim after obtaining a court judgment. The surety company will determine if the claim is legitimate and pay it if it is. The employment agency is then required to reimburse the surety company in full.

To get the proper surety bond coverage for your employment agency, complete the following steps:

1. Meet all state licensing requirements and complete the necessary forms.
2. Request a surety bond quote from a credible bonding agency.
3. Sign the contract and pay the bond premium.
4. Receive your bond.

Employment agency bonds usually remain in full force and effect as long as premiums are paid and the agency remains in business. However, the surety company reserves the right to cancel the bond with written notice.

Besides licensing and bonding, be sure to research applicable laws and regulations about the recruiting industry before opening an employment agency. If you're based in one state, but you place candidates at employers in multiple other states, what are those implications?

Also, check with your local planning department to make sure you are allowed to operate a business from your home. State and local governments can have different requirements for temp agencies than other businesses and different laws for different types of agencies. Consequently, you'll need to decide on your business model and then determine how the law in your state applies to that model.