Short Term Disability: What Is It & How Does It Work?

The State Disability Insurance program in California provides short–term Disability Insurance (DI) and Paid Family Leave (PFL) wage replacement benefits to eligible workers who need time off work. The weekly benefit amounts are the same for Parental Family Leave and Disability Insurance claims. For calendar year 2023, the Disability Insurance Elective Coverage minimum weekly benefit amount is $50, and the maximum weekly benefit amount is $1,620.

Disability benefits are a significant part of any employee benefits strategy. Employers can offer many types of disability benefits, all of which will be discussed in this article. Some of these include:

• Short-term disability benefits
• Long-term disability benefits
• Income replacement
• Leave benefits
• Disability accommodation

This article will also discuss HR’s role in administering disability benefits and their impact on employers and employees.

1. How to Define Disability

Some disability benefits may have a different definition of what constitutes disability to others.

The ADA defines disability as a mental or physical impairment significantly limiting major life activities. It also includes anyone who has a record of an impairment or is regarded as having an impairment. Many benefits will follow the ADA’s definition; others will have a less restrictive definition. Some disability benefits cover all medical conditions, leading an employee to be incapacitated for a long time. This includes outpatient surgery and pregnancy. While these are not considered a disability under the ADA, these will receive some benefits.

2.  What Are Disability Benefits?

A disability benefit provides job protection or income replacement to employees who cannot work due to an accident or illness. Disability benefits can cover short-term or long-term effects of the accident or illness. They may also substitute for a permanent disability.

3. Why Should a Company Provide Disability Benefits?

Disability benefits can give an employer a competitive advantage when hiring top talent. As base salaries have not grown much in the last decade, employees often compare employers based on the benefits they offer.

A short or long-term disability can financially devastate an employee if they cannot work. Disability benefits alleviate this potential financial devastation and can be attractive to potential employees. The U.S. Bureau of Labor Statistics shows that disability insurance is only 1% of compensation costs. Consequently, it is a very low-cost way to be competitive.

4. What Is HR’s Role in Disability Benefits?

A disability benefits program needs to meet the needs of both the employee and the employer. HR, as the middle ground between the employee and employer, is thus an essential part of administering benefits.

HR will usually be responsible for the following steps in administering disability benefits:

• Identifying which disability benefits the law requires
• Understanding the objective of the employer in providing benefits
• Reviewing benefits programs and deciding which ones to offer
• Negotiating with insurance brokers
• Establishing eligibility for each type of disability benefit
• Providing guidelines on the length of available benefits
• Providing guidelines on the length of disability leave available to employees
• Creating processes for requesting and scheduling disability leave
• Creating a policy or FAQs that address any issues that may arise
• Communicating the disability benefits policies to all staff
• Updating the staff on any changes to the disability policy
• Educating employees about the new policies and why disability benefits are important

5. Types of Disability Benefits

There are several different disability benefits an employer could offer depending on their industry and their objectives. Here are some of the most common disability benefits employers may provide employees with.

• Short-Term Disability Insurance

Short-term disability insurance plans will cover part or all of an employee’s income if they cannot work due to a temporary disability. There is no job protection included with a short-term disability insurance plan. Job protection is regulated by state and deferral laws such as ADA and FMLA and any internal policies the employer has. Paid time off programs usually cover the waiting period for short-term disability insurance to start. The waiting period ensures the insurance is not abused and that insurance is not collected when paid-time-off can cover the absence.

In most cases, short-term disability insurance covers only part of an employee’s pay, usually 60-75% of the base pay. It is at the employer’s discretion whether they allow employees to coordinate the insurance with other benefits so employees can ensure maximum compensation.

The median length of short-term disability insurance payments is 26 weeks. In California, employers are legally required to have short-term disability insurance for their employees.

• Long-Term Disability Insurance

Alongside short-term disability insurance, many employers also offer long-term disability insurance. This covers employees with more prolonged or permanent disabilities once their short-term disability insurance ends. The length of long-term disability insurance depends on the plan; some plans will pay the employee until their retirement date or when they are eligible for Social Security disability benefits. Other plans have a maximum length of benefits, such as 24 months.

Approximately 72% of U.S. employers offer long-term disability insurance. On most plans, employees are eligible for long-term disability insurance after the waiting period. Depending on the plan, the waiting period could be three to six months.

Long-term disability insurance does not provide job protection for employees; this is determined by state and federal laws, such as FMLA and ADA, and the employer’s policies.

• Long-Term Care Insurance

Long-term care insurance assists employees with disabilities and chronic illnesses who need care when they return from the hospital. These may include adult daycare, hospice care, home health care, respite care, or an assisted living facility. This insurance protects the financial future of an employee and their family.

Employers often offer this type of insurance to be competitive when hiring talent. With the rising cost of home health care and nursing homes, aging employees request this benefit.

Long-term care insurance is organized into two categories: qualified and non-qualified. A Qualified plan is not counted as income as they are treated as health insurance and accident contracts. A non-qualified plan is considered a personal expense and is therefore not deductible.

• Critical Illness/ Supplemental Insurance

These policies give employees a fixed, lump-sum payment after they have been diagnosed with a critical illness. The policy will specify which conditions are covered. Many will cover cancer, strokes, and heart attacks as standard. Other plans will provide cover for additional critical illnesses.

Employees may receive additional benefits for specific treatments or hospitalization depending on the employer’s plan.

The critical illness benefit will be paid as a lump sum directly to the employee for use as they see fit. Employees often incur astronomical expenses when diagnosed with a critical illness such as cancer, and many believe they cannot cover these costs on their own.

The employee often pays critical illness insurance policies via payroll deductions. Benefits are tax-free, but premiums are not tax-deductible.

• Employee Support/ Patient Navigators

Employers can provide additional support to employees by offering programs that help them navigate disability benefits, health insurance, and treatments. These programs will answer employees’ questions and guide them through the correct processes.

6. Disability Leave Benefits

Employees with a disability or illness are entitled to leaves of absence, some of which are required by law, and others are voluntary.

• Federal Laws Disability Leave Benefits

The ADA requires employers to give reasonable accommodations to employees with a disability. The accommodations should be reasonable and not cause unnecessary hardship for the employer. This may include leaves of absence.

The FMLA entitles employees to up to 12 weeks of unpaid leave within 12 months. This is for medical reasons, the care of a child, parent, or spouse with severe health conditions, or the birth or adoption of a child.

• State Laws Disability Leave Benefits

States may impose further requirements for people with disabilities or family medical leave. These might be in the form of leaves of absence or paid time off.

• Employer Policies Disability Leave Benefits

Employers can create their policies if they wish as long as they at least have the federal and state requirements covered.

7. Types of Laws on Disability Leave Benefits

• ADA of 1990

The Americans with Disabilities Act was designed to protect those with disabilities and allow society to benefit from their skills. The act covers equal opportunity for those with disabilities in many areas, such as transportation, government services, public spaces, and the workplace.

In Title I, the ADA prohibits employers with more than 15 employees from discriminating against those with disabilities in all employment decisions, including hiring, firing, and promotion.

The EEOC is the government entity that enforces the ADA and provides additional information about policies and compliance.

• FMLA

The FMLA ensures employees with families have sufficient leave to care for their family as required. Employees can take up to 12 weeks of unpaid leave within 12 months. This is for medical reasons, the care of a child, parent, or spouse with severe health conditions, or the birth or adoption of a child.

• State Workers’ Compensation Statutes

All states have workers’ compensation to look after workers with work-related injuries and illnesses. Under these statutes, employees injured at work have benefits for wage loss, medical leave, etc. If an employee’s work-related injury results in disability, they may receive benefits for medical expenses and lost wages.

• State Temporary Disability Benefits Laws

California has enacted state laws for temporary disability benefits.

• Social Security Disability Benefits

Social Security pays disability benefits for medical conditions resulting in death or preventing them from working for at least a year. Social security also incentivizes people with disabilities to continue working. These incentives are:

• • A trial period of at least nine months allows people with disabilities to see if they can work.
  • 36 months allows people to receive benefits if their earnings are insufficient.
  • A five-year period during which disabled people can ask to start benefits immediately if they cannot continue to work.
  • Free Medicare Part A coverage after the trial work period for at least 93 months. After that, disabled individuals can pay a monthly premium to access Medicare Part A coverage.
  • Deductions for any disability-related expenses
• Other Disability Laws

There are provisions for people with disabilities in several other federal and state laws. The purpose of state and federal laws regarding disabilities is to ensure these workers are not discriminated against and can earn a fair income.

8. Communication

Employers should communicate their benefits provisions with employees to ensure they can take advantage of applicable benefits. Here are some tips to assist with communication:

• Develop a communication strategy with a timeline for all communication, the audience, message, and frequency.
• Ensure the communication message relates the benefits policies to the company’s values.
• Develop an overall message or theme to which all benefits offerings can be tied. This could be in the form of a slogan or logo.
• Select employees or managers who can champion the new benefits and provide feedback.