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Have a question? +1 815-826-6324 (815-8-BondAI) phil@AmericasSuretyBonds.com
Army Veteran Owned | Expert Surety Bonds Since 2004
This bond has no fixed amount. The Employment Development Department sizes it from your estimated taxable wages, so the figure grows with payroll. A guarantee bond lets a self-insured voluntary plan employer satisfy the security deposit without tying up cash or a letter of credit, and it goes straight to the EDD Voluntary Plan Group on the state's own bond form.
California employers that run a voluntary plan for disability and paid family leave benefits in place of State Disability Insurance must post security with the Employment Development Department unless the plan's liability is transferred to an admitted disability insurer. Under Unemployment Insurance Code 3258, the security can be a guarantee bond from an admitted surety insurer. The amount is at least the worker contribution rate times 0.5 of estimated taxable wages, with a $1,000 floor.
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A voluntary plan is an employer alternative to State Disability Insurance that provides short term wage replacement benefits for disability and family leave. It is set up by mutual consent of the employer and a majority of the employees, and it needs EDD approval before it starts.
The security requirement falls on self-insured plans. Unemployment Insurance Code 3258 applies when a voluntary plan does not transfer the employer's liability to an admitted disability insurer. In that case the Director requires security in one of three ways: the bond of an admitted surety insurer conditioned on payment of the employer's obligations, a deposit of approved securities, or an irrevocable letter of credit. An employer whose plan is fully insured by an admitted disability insurer is outside this section.
This is the part employers most often get wrong, because there is no flat figure. Section 3258 sets the minimum at the worker contribution rate for the ensuing year multiplied by 0.5 of the estimated taxable wages to be paid to employees covered by the plan. The EDD publishes the formula as estimated taxable wages x 0.5 x 1.3% = VP minimum security deposit. On $10,000,000 of estimated taxable wages, that works out to $65,000.
The minimum deposit is $1,000. Above the minimum, the EDD can also weigh the number of employees, payroll size, risk classification, the employer's financial standing and other factors it considers relevant.
The EDD prescribes Form DE 2544V, Guarantee Bond, Rev. 16 (3-26), written in favor of the people of the State of California and citing Unemployment Insurance Code 3258 and sections 1126 and 1176. Plans administered by a small business third party administrator use Form DE 2544VP, which cites section 3254.1.
The surety's liability matches the employer's obligations under the plan, up to the penal sum. If an assessment becomes final and the employer does not pay, the surety pays it within 30 days. The surety can cancel on 30 days written notice to the State Treasurer and the Director. After a plan terminates, the bond continues until all benefit claims outstanding after the lapse of 12 complete calendar quarters have expired, so it cannot simply be dropped when the plan ends.
The surety prices the bond on the penal sum the EDD requires and on the employer's financial statements and credit. Because the bond guarantees benefit payments and assessments, underwriting looks closely at the employer's balance sheet and payroll history.
It depends on payroll. Section 3258 sets the minimum at the worker contribution rate times 0.5 of estimated taxable wages, and the EDD states it as taxable wages x 0.5 x 1.3%. The floor is $1,000, and the EDD can require more based on payroll, risk and financial standing.
No. It applies when the plan does not transfer the employer's liability to an admitted disability insurer. Self-insured plans post security, and a guarantee bond is one of three accepted forms along with approved securities and an irrevocable letter of credit.
Form DE 2544V, Guarantee Bond, for a standard self-insured voluntary plan. A plan administered by a small business third party administrator uses Form DE 2544VP.
Not right away. The bond continues until benefit claims outstanding after the lapse of 12 complete calendar quarters following termination have expired, so it keeps covering claims that trail the plan's end.
Once the assessment is final, the surety pays it to the Director within 30 days, up to the bond amount. The employer then reimburses the surety.
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