Both short-term disability (STD) and long-term disability (LTD) have specific nuances that apply to them. See additional details to understand the differences of short-term disability and long-term disability.
What are the differences between short-term and long-term disability?
Both short-term disability (STD) and long-term disability (LTD) have specific nuances that apply to them.
Short-term disability kicks in immediately when an employee is injured, but there is typically a waiting period of up to 7 days before it kicks in for illness. STD coverage lasts the entirety of the established short-term policy which is often under 90 days.
An employee enrolls in a short-term disability plan with an 90-day short-term policy, then gets injured. The employee is entitled to STD coverage for up to 90 days.
Long-term disability typically has a longer waiting period before it begins for both injury and illness. If LTD coverage is paired with STD coverage, the long-term disability will usually kick in when the short-term disability ends. However, for employees who are only participating in LTD coverage, the waiting period can be anywhere from 3-6 months before their coverage kicks in.
Another employee at the same company purchases both short-term and long-term disability coverage. The employee’s disability period lasts beyond the 90-day short-term limit so their LTD coverage begins as soon as their 90 days of STD coverage ends.
How do I calculate benefits and premiums for short-term disability?
STD benefits and premium amounts depend on the weekly salary.
- Benefits are usually up to a fixed maximum set by the plan, for example: 60% of weekly salary, to a maximum benefit of $1500.
- Salary amounts are rounded according to the carrier’s rules, e.g., 52,500 rounded to 52,000.
- Premiums are calculated in two ways, depending on the carrier:
- Benefit amount / (10 * Rate)
- Weekly salary / (10 * Rate)
- Benefits are treated as post-tax by default, but there may be situations where administrators ask their workers if they prefer pre-tax disability benefits.
- The volume in Zenefits is based on the amount of benefits an enrollee will receive, however, the carrier may reflect the full monthly/weekly salary instead of the amount the worker will receive.
Bob earns $52,500 annually. His carrier rounds down to the nearest thousand ($52,000), so his weekly salary (for the purposes of calculation) is $ 1 ,000.
- His plan design is 60% of weekly earnings, up to a $1500 weekly max benefit.
- His rate is .225/10.
According to the plan design:
- His weekly benefit amount is (.60 x $1000) = $600.
- His monthly premium is ($600 x .225 / 10) = $13.50.
Remember that even if the weekly salary exceeds the maximum weekly benefit, their benefits and premium are capped by the maximum benefit. For example, if Bob earned $5000 weekly, but kept the same plan outlined above:
- His weekly benefit is capped at $1500 (the plan’s max benefit is $1500).
- His premium is capped at $33.75 ($1500 x .225 / 10).
How do I calculate benefits and premiums for long-term disability?
LTD benefits and premium amounts depend on an employee’s monthly salary.
- Benefits are usually up to a fixed maximum set by the plan, for example: 50% of monthly salary, to a maximum benefit of $5000.
- Salary amounts are rounded per thousand for insurance carriers that round salary.
- Some carriers will round the final volume and not the salary.
- Premiums are calculated based on total monthly salary, not the benefit amount.
- Benefits are treated as post-tax by default, but there may be situations where administrators ask employees if they prefer pre-tax disability benefits. However, these situations are rare, and paying benefits as pre-tax is not advised.
Bob earns $60,500 annually. His carrier rounds down to the nearest thousand ($60,000), so his monthly salary (for the purposes of calculations) is $ 5,000.
- His plan design is 60% of monthly earnings, up to a $ 6 ,000 monthly max benefit (which corresponds to a maximum monthly salary of $10,000)
- His rate is .30/$100.
According to the plan design:
- His monthly benefit amount is (.60 x $ 5 ,000) = $3000.
- His monthly premium is ($ 5 ,000 x . 30 / $100) = $15.00.
Remember, even if the employee makes more than the maximum benefit, the premium is still limited by the maximum monthly salary. So, if his monthly salary was $13,000, for the same plan:
- His monthly benefit amount is (.60 x $13,000) = $ 6 ,000 (maximum).
- His monthly premium is ($10,000 maximum monthly salary x . 30 / $100) = $30.00.
State Disability Law
State disability insurance (SDI), or “short-term disability coverage,” is required in the states of California, Hawaii, New York, New Jersey, and Rhode Island, and the territory of Puerto Rico. Companies with employees performing work in these states must either provide, or facilitate the procurement of, short-term disability insurance to those employees. The short-termcoverage is required to cover, among other things, non-occupational disabilities and pregnancy.
The rules vary from state to state. In California, SDI is paid for through employee paycheck deductions. In New York, an employer may obtain private coverage or purchase coverage through the state fund to meet the obligation.
Your company may be subject to fines if you do not offer these plans to employees residing in the states mentioned. You can contact the following resources to stay compliant and/or set-up new coverage if needed:
California SDI — State Disability Insurance
English (800) 480-3287
Spanish (866) 658-8846
Hawaii TDI — Temporary Disability Insurance Law
New Jersey TDB — Temporary Disability Benefits Law
New York DBL — Disability Benefits Law
Rhode Island TDI — Temporary Disability Insurance Act
How do I submit a Short Term or a Long Term Disability Claim?
How are deductions handled while on STD or LTD?
Handling medical, dental, and vision deductions while an employee is on STD or LTD is completely dependent on the company-wide policy. If the employee is collecting a benefit from their disability policy they do not have to pay their disability premiums, but their medical, dental, and vision premiums are still subject to be collected. There are 4 options below on how companies can decide to collect premiums while an employee is on leave. Please note, whichever option is selected is required to be a company-wide policy and cannot be changed on an individual basis. (I.e. all employees who are out on disability will have their medical, dental, and vision premiums collected the same way.)
Options for handling deductions while employees are on disability (STD or LTD):
- The employee can pay the deduction amount upfront before going on their STD/LTD.
- The employee can pay during the STD/LTD (if they are still getting paid).
- The employee can provide a check to the company during leave if it is unpaid.
- The employee can pay the amount in bulk or via catch up deductions when they return to work.
Gross up disability plans
What is a gross up disability plan?
Gross up disability plans are set up as basic (employer paid) Short Term or Long Term Disability plans, and look the same in terms of plan details as all other basic STD or LTD policies. What makes them different is that the employer-paid premium is considered taxable income to the employee so that when the benefit is paid through a claim, that benefit is not considered taxable income to the employee.
With traditional STD and LTD policies where the premium is paid by the employer, claims that are paid to the employee through the policy are considered taxable income.
George’s company has a Gross Up STD/LTD policy. They pay his $10 per month basic STD premium. Since it is a gross up policy, George would see a taxable line item on his paystubs of $10/ month. George pays the tax on that $10 as if it were money paid to him (taxable income).
George files a claim for STD, and is paid by the insurance carrier. These funds paid to him are not taxable income, and he is able to pocket the full claim amount.
Joe’s company has a traditional employer-paid STD/LTD policy. Joe’s company has paid his $10 per month basic STD premium and Joe hasn’t paid any tax on that premium. In fact, Joe may not even be aware of what his STD premium is, he just knows that his employer is paying it.
Joe files a claim for STD, and is paid by the insurance carrier. All of the funds paid to Joe are considered taxable wages, and he’s responsible to make sure he declares it as income and pays taxes on those funds. Most employers will coordinate these tax payments in their payroll system when the insurance carrier notifies the employer of claims that have been paid every quarter.
Traditional or gross up STD/LTD plans appear the same way in terms of benefits details in Zenefits. Contact your insurance broker if you have any questions regarding your STD/LTD policy, and if it is structured as a gross up policy. Gross up policy options are only available for STD and LTD, not life insurance.
If a group policy is written as a gross up policy, administrators need to contact their payroll provider to coordinate proper employee taxation of the premium directly in their payroll system. Zenefits does not currently support coordinating payroll taxation of gross STD and LTD benefits.