Short-term disability: Definition and how it works

Employees need to take time off at one point or another, whether that’s due to a sudden illness or an injury that occurred outside of work. However, this can cause financial hardships for employees.

One solution is to offer short-term disability coverage. This lets employees receive a percentage of their income while they recover. It demonstrates to them that the company they work for values their well-being.

In this article, we explain how short-term disability works. We also look at the benefits of and key considerations for offering this type of coverage for your company.

What is short-term disability?

Short-term disability ‌insurance coverage ‌allows employees to receive a portion of their income for a short period. It typically covers illnesses, injuries, and other qualifying conditions.

Employees injured on the job are generally covered by workers’ compensation. Short-term disability covers non-work-related conditions that may temporarily prevent an employee from working. These can include the following:

• Severe injuries from accidents

• Illnesses such as heart conditions or diabetes

• Mental health conditions like depression or anxiety

Employees can pay for short-term disability insurance through a private company, but some employers also offer coverage as an employment benefit. Disability payments are issued directly to employees who qualify, and they can use them however they want.

In the US, providing short-term disability to your employees isn’t mandatory, according to federal law. However, five states in the US mandate that employers provide temporary wage replacement benefits. Here are the states that require short-term disability coverage.

• California

• Hawaii

• New Jersey

• New York

• Rhode Island

How does short-term disability insurance coverage work?

The specifics of a short-term disability plan vary. In some cases, the employer pays the full premium. In other cases, the employee pays for some or all of the plan.

Here are the main types of plans available for short-term disability insurance coverage.

• Traditional: In this plan, the employer pays the full premium. Employers can include a traditional plan in their employee benefits package to make job offers more appealing to potential candidates. 

• Contributory: In a contributory plan, employers and employees contribute to the premium. Employers can save on coverage costs, and employees can invest in their coverage.

• Core buy-up: In a core buy-up plan, employers offer employees short-term disability plans, but they only provide basic coverage. Employees can pay for additional coverage at their own expense.

• Voluntary: Voluntary plans are funded entirely by employees. Their cost depends on the provider.

Benefit amount and length of coverage

The amount an employee can receive for a short-term disability depends on the policy they’re under, but it usually ranges from 40% to 70%. An employee’s income at the time they become disabled is often used to calculate the benefit amount.

In California, the weekly benefits amount (WBA) for short-term disability is based on how much the employee earns per quarter. If they earn less than $929, their WBA is $50. If they earn between $929 and $7,154.32, their WBA is 70% of their wage. And if they earn over $7,154.33,  it’s 60% of their wage.

The length of coverage also depends on the policy, but employees can receive benefits from three to six months (or even up to 52 weeks if they’re in California).

Filing a short-term disability claim

Employees need to provide evidence that shows their condition meets their policy’s criteria for disability. This means they need to have a professional look at their condition and sign a form stating the extent of their injuries before they can file a claim.

Some policies start paying out immediately, while others have what’s called a waiting period — a period of time the individual must be disabled before they can receive benefits. For example, California has a seven-day waiting period for short-term disability claims.

What are the eligibility requirements for short-term disability?

To qualify for short-term disability, an employee must have a condition that makes them unable to work and earn wages. This means they’re not working or they’re working fewer hours. For instance, a driver might have back pain from an injury that makes it impossible for them to operate a vehicle. 

Here are some common reasons for short-term disability claims:

• Pregnancy (22.3%)

• Musculoskeletal disorders (18.5%)

• Fractures, sprains, and muscle strains (11.4%)

• Digestive disorders (7.4%)

• Mental health issues (7.3%)

Eligibility requirements depend on the policy. However, employees usually need to be employed at the time of their disability to qualify. 

The requirements can also depend on where the employee lives. For example, employees in Hawaii must work for at least 14 weeks at 20 hours a week or more to qualify for Temporary Disability Insurance (TDI).

Another note is that policies don’t usually cover pre-existing conditions. This means any disabilities related to a condition an employee had prior to obtaining a policy may not qualify for benefits.

Another factor that can affect eligibility requirements is how a policy defines a disability. Two common definitions are own-occupation disability and any-occupation disability.

Own-occupation disability

An own-occupation disability plan provides short-term disability benefits to policyholders if they’re unable to perform their job duties. However, these individuals can receive benefits even if they work another job.

For example, a surgeon who injured their hand may not be able to perform surgery anymore. However, they could still teach in the medical field. With an own-occupation disability policy, they can receive full benefits if they choose to work in the same field or even a different field entirely.

Any-occupation disability

Any-occupation disability coverage works differently. This type of policy only provides benefits if the employee is unable to work in any job based on their education and experience.

For example, a factory worker who becomes wheelchair-bound might not be able to work in their current job anymore. However, they could work in a less physically demanding role with some training. Under an any-occupation disability plan, they would not be able to receive benefits since they could still work in a different occupation. 

Regardless of the policy, most exclude the following:

• Self-inflicted injuries

• Workplace injuries

• Elective procedures

• Cosmetic procedures 

Should you offer short-term disability coverage?

In the US, unless your company is based in one of five states that require you to provide short-term disability coverage, you’re not obligated to provide coverage. Still, offering a short-term disability policy can benefit your company in the following ways.

Attract and retain talent

Employee turnover is costly. A high turnover rate not only increases your hiring costs but also affects employee morale. Constantly bringing in new staff can also disrupt workflows and cause your other employees to feel uncertain about their own positions.

52% of employers say that a lack of employee benefits leads to high turnover rates. Including short-term disability coverage on top of a strong health and wellness plan can make your company more attractive to potential employees.

Short-term disability coverage can also help increase retention. It shows the company cares about the well-being of its employees and is prepared to support them if they’re unable to work due to an injury or illness.

Reduce absenteeism

Short-term disability coverage often includes return-to-work programs that provide employees with the resources they need to recover. For example, some programs can connect injured employees to a physical therapist who can help them regain their physical abilities with injury-specific interventions. By helping employees on short-term disability recover faster, you can reduce the cost of absenteeism and minimize lost productivity.

Improve employees’ financial wellness

Sudden illnesses and injuries can happen to anyone. They can cause a great deal of stress for employees who may not be able to afford everyday payments due to missing work. Giving your employees this short-term coverage can provide them with greater peace of mind, as they know that they have financial protections in place.

How to offer short-term disability benefits that work for your company and team 

Employees can get a short-term disability policy through a private company. But offering this type of coverage is a great way to invest in their health and well-being.

Use these tips to implement a short-term disability plan.

Make the process clear to employees

Develop a guide that outlines the reporting process. It should detail how employees should report their disability and who they should inform. It should also explain the eligibility requirements and the required documents. Finally, outline the employee’s rights and responsibilities throughout the process, including their right to privacy.

Define the eligibility criteria and duration of coverage

Indicate what qualifies as a short-term disability. These criteria typically include illnesses, injuries, or non-work-related conditions that could prevent employees from performing their regular duties. 

The criteria should also specify who is eligible for benefits, which may depend on factors like the employee’s job status. 

Clarify how long employees can receive benefits and what percentage of their salary is covered during the disability period. This helps employees understand the kind of financial support they can expect if they’re temporarily unable to work.

Coordinate with other benefits and leave programs

Coordinate your short-term disability program with other benefits and leave programs that the company offers. For your employees to receive comprehensive support during their period of disability, set guidelines.

For example, some policies have a waiting period before employees can start receiving benefits. However, you may allow employees to choose to use paid time off (PTO) before taking other leaves.

Provide resources to employees during their disability period

Dealing with a sudden disability can be difficult. Offer employees a range of support during this difficult time. This can include assistance with claim filing and counseling to help the individual cope with the mental health aspects of dealing with a disability. Giving them resources on physical rehabilitation or adaptive technologies may also be helpful.

Remain compliant with relevant laws

Make sure you understand your legal requirements. Non-compliance can result in stiff penalties and fines.  

For example, California, Hawaii, New Jersey, New York, and Rhode Island mandate that employers provide some type of short-term coverage to their employees. So, if your company is based in any of these states, make sure to meet all compliance requirements.

Create a more competitive benefits package with Remote

Short-term disability coverage can support employees during difficult times. While most plans are available through private providers, you can also offer this coverage to your employees as part of a benefits package. This shows your commitment to employees’ well-being and creating a healthy work environment.

Looking to make your benefits package more competitive? Remote HR Management helps you manage healthcare, short-term disability coverage, PTO, and more. We help you reach global talent and create locally competitive packages while meeting all compliance requirements.

Chat with us today to see how you can use Remote to create competitive benefits packages.

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