Navigating Benefits

What is Short-Term Disability? A Beginner’s Guide for Employers

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Posted by April 11, 2017

What is short-term disability, and will your employees find it useful? Disability benefits are very popular, so take the time to study whether this addition will enhance your benefits package.

What is Short-Term Disability?

Short-term disability is a benefit that protects employees’ incomes when they become disabled. If an employee must miss work due to an injury, illness or even pregnancy, he or she will still be able to “earn” a paycheck. The money employees receive while out on short-term disability can be used to pay for any life expenses, such as bills, groceries or even a coffee on the way to their doctor’s appointments.

How Does Short-Term Disability Work?

Short-term disability benefits are paid out to employees at a percentage of their weekly salary, usually with a maximum benefit amount. If you elect to add a short-term disability plan that covers employees at 60%, with a maximum benefit of $1,000, here are two examples of how an employee would get paid:

Example weekly salary #1: $500. 60% of $500 is $300. Because $300 is less than the maximum benefit of $1,000, benefits will be paid to your employee in full at $300 weekly. So, while your employee may not bring home a regular, full paycheck weekly, he or she will still receive some income while unable to work.

Example weekly salary #2: $2,500. 60% of $2,500 is $1,500. Because $1,500 is more than the maximum benefit of $1,000, benefits will paid to your employee only at the limit of $1,000 weekly. So, while your employee may not bring home a regular, full paycheck weekly, and the benefit is paid out at less than 60% of his or her weekly income, he or she will still receive some payment while unable to work.

Benefits are often payable weekly for 12–26 weeks, depending how the plan is set up; however, benefits will only be paid out while a claim is active. For example, if an employee were unable to work due to an injury that his or her doctor reports will keep him or her out of work for a maximum of eight weeks, the coverage would stop after eight weeks.

Why Add Short-Term Disability to Your Benefits Package?

Considered an appealing ancillary benefit, short-term disability is quite popular for women who are planning on getting pregnant in the near future, and also anyone who knows they will need surgery that requires a short recovery time.

However, all employees can benefit from short-term disability. If an employee is injured in a motor-vehicle accident, for example, he or she may be unable to return to work while healing. Short-term disability benefits will cover a portion of the employee’s income while he or she is unable to work. As we all know, accidents of any kind can happen at any time, and your employees will want to protect their incomes.

Keeping employees’ income secure (and in turn keeping them happy) is just one reason to add short-term disability benefits to your benefits package. Another reason is for recruitment and talent management. A robust employer benefits package is a huge motivator to keep qualified employees as well as attract talent to your business.

Finally, a short-term disability benefit can help your business in other ways. If your employees are receiving income-replacement benefits, you’ll be paying out a smaller lump sum of sick benefits or personal leave at one time. Also, aligning short-term disability with your sick-leave policy can help you determine rules to set for medical leaves.

First, and most important, make sure you adhere to any state and federal leave legislation. After you’ve done that, create a policy which clearly defines how long employees are allowed to be out of work before their position can be replaced. This policy should also dictate how personal/sick leave time will be paid out during the absence.

Is Short-Term Disability a Required Benefit?

In most states, short-term disability is a voluntary benefit that employers can add as enhancements to their benefits package. However, there are six states and territories that require employers to provide partial-wage disability coverage to their employees who become sick or injured in a way that is not work-related. The required coverage is only for benefit-eligible employees. Those locations are: California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island. All other states consider short-term disability to be a voluntary benefit.

While short-term disability isn’t required in most states, it may be a welcome addition to your benefits package. Not only will your employees be grateful that you’re enhancing your current benefit offerings, but they’ll know you have their best interests in mind when making business decisions.

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