As an employer, you recognize that your employees contribute to smooth business operations. What happens if an employee gets injured or ill and can’t work for an extended period of time? You and your employees need to know about short-term vs. long-term disability insurance.
You can offer short-term and long-term disability insurance options for your employees. With these insurance policies, employees don’t need to worry about being on leave from your company without pay when they are sick or injured.
Short-term vs. long-term disability coverage
Deciding to offer short-term and/or long-term disability coverage can greatly benefit employees. And, disability coverage is an attractive small business employee benefit that draws candidates during the hiring process.
Short-term and long-term disability coverage protect employees when they are off the job for a period of time due to illness or injury.
With these insurance plans, you or your employees (or both) pay the premium. If the employee must use it, their coverage will pay them a percentage of their regular wages even though they are not working. In most cases, taxes are withheld from an employee’s disability payments.
In 2014, almost 40% of private industry workers participated in short-term disability programs and almost 35% participated in long-term disability programs, according to the Bureau of Labor Statistics.
The cost of disability insurance ranges. One estimate from the BLS calculated that an employer-sponsored disability program would cost you $624 per year for a full-time worker. You can require employees to pay the whole cost of this insurance. Or, you can pay a portion and have employees pay a portion.
Disability insurance is not the same thing as workers’ compensation insurance — with workers’ compensation, the employee is injured at your business.
The difference between short-term and long-term disability insurance is the length of time an individual has coverage. Read on to learn more.
What is short-term disability coverage?
Short-term disability (STD) is coverage that pays a percentage of an employee’s salary when they are not able to work as a result of injury or illness. Employees can receive up to 60% of their regular wages (typically 40-60%) through short-term disability insurance.
The employee must elect to receive STD insurance before they become unable to work. They cannot sign up for the insurance after they are unable to work.
How long is short-term disability coverage?
An employee receives short-term disability coverage for 9-52 weeks. The length of coverage is based on the policy the employee has.
The coverage kicks in sometime between 1-14 days after the employee is unable to work. To bridge the gap between the employee’s inability to work and the short-term disability coverage, the employee can use sick days.
If an employee’s injury or illness extends beyond the time frame of their short-term disability coverage, they can use their long-term disability coverage.
Who qualifies for short-term disability insurance?
Employees with short-term disability insurance are eligible to use their coverage when they suffer from an illness or injury for an extended period of time.
You might require records from the employee’s doctor(s) that confirm their situation. And, employees might need to work for you for a certain amount of time before they can use their coverage.
California, Hawaii, New Jersey, New York, and Rhode Island have statewide short-term disability programs. This means that employees living in these states automatically have access to benefits after they have worked for a company for a certain amount of time.
What does short-term disability insurance cover?
- Back problems
- Arthritis
- Injuries from an accident
- Childbirth
What is long-term disability coverage?
Long-term disability (LTD) coverage pays 50-70% of an employee’s salary when the employee is unable to work due to injury or illness.
How long is long-term disability coverage?
An employee receives long-term disability coverage for 5-10 years or as long as they are disabled until the age of 65. Like short-term disability, the duration of coverage depends on the employee’s policy.
LTD coverage kicks in sometime between 10-53 weeks after the employee is first unable to work. Their short-term disability coverage should cover them during this time.
Who qualifies for long-term disability coverage?
If an employee has LTD insurance, they are eligible to receive coverage when they are unable to work.
What does long-term disability cover? The following are examples of illnesses and injuries that might prevent an employee from working, according to the Council for Disability Awareness:
- Cancer
- Musculoskeletal disorders
- Nervous system disorders
- Injuries from an accident
- Mental health problems
Pre-existing conditions, meaning illnesses or injuries that were found before long-term disability coverage began, are typically not covered.
| Short-term Disability | Long-term Disability | |
|---|---|---|
| Coverage Time Period | 9 – 52 weeks | 5 – 10 years, or as long as employee is disabled until the age of 65 |
| Provided Wages | 40% – 60% of employee’s regular wages | 50% – 70% of employee’s regular wages |
| Coverage Start | Coverage begins 1 – 14 days after employee is unable to work | Coverage begins 10 – 53 weeks after employee is unable to work |
| Examples | Back problems, arthritis, injuries from an accident, childbirth | Musculoskeletal disorders, nervous system disorders, cancer |
The importance of short and long-term disability insurance
It’s important that employees have a plan in place. One in four people in their 20s will become disabled before they turn 67, according to the Social Security Administration.
Providing short-term and long-term disability insurance at your business is a great benefit. Dealing with an illness or injury for an extended period of time is stressful on its own before factoring in the loss of wages.
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This article has been updated from its original publication date of September 27, 2017.
This is not intended as legal advice; for more information, please click here.