Why Should I Offer My Employees Short Term Disability Insurance?
Short Term Disability (STD) is one of the fastest-growing benefits. It’s critical to the financial health of the family, and less expensive than you think!
In honor of Saint Patrick’s Day, with everything possible being turned green, let’s focus on a product that brings us some “green”—money that is, when we need it most. I’m talking about wage replacement money, when an employee cannot work due to illness or has to miss work as a result of an accident.
Short Term Disability (STD) is one of the fastest-growing ancillary benefits being offered by employers. From an employer’s perspective, it eliminates the need to have to make a very difficult decision: when to stop paying an employee after sick pay runs out, if you don’t know when the employee will return to work. From an employee perspective, Short Term Disability is a very popular benefit for expectant moms, employees who suffer a debilitating accident, and employees who need a few weeks to recover from surgery or illness.
How Short Term Disability Works
The typical Short Term Disability plan is very inexpensive (usually less than 25 cents monthly premium per $10 of protected wages). Benefits are calculated as a percentage of weekly wages (up to 60% or ⅔ of weekly income) and have a weekly maximum benefit amount of $1,500 to $2,000 per week. Short Term Disability benefits usually start on the first day of an accident or the eighth day of an illness (including maternity leave in this context) with some variations from different plan designs. Benefits are typically payable weekly for 12-26 weeks, depending on the plan design selected by the employer (longer benefit periods being more expensive). If an employer also offers Long Term Disability (LTD), the length of the Short Term Disability benefit period will align with the elimination period of the LTD plan.
Short Term Disability claims are handled on a weekly renewable basis after the initial claim is made. Covered employees must submit regular claim forms and proof from their doctor that they’re still unable to work. Checks are mailed or directly deposited into a covered employee’s account for the duration of the disability, or until the term of the policy is met.
If an employee pays the Short Term Disability premium with pre-tax dollars, or the Short Term Disability plan is employer-paid, then the benefits are considered taxable income to the employee, and the employee will receive a W-2 form at the end of the year in which the claim occurs. If the Short Term Disability plan is paid for with after-tax dollars, then the benefits are tax-free.
Who Pays for Short Term Disability?
Three out of four Short Term Disability plans are paid in full by employers as an employee income protection mechanism. In cases where an employer can’t afford or won’t pay for the Short Term Disability benefit, Short Term Disability should still be offered on a voluntary or employee-paid basis. The bottom line is that this benefit is important to the financial health of the family unit, and employees should have access to the product regardless of whether the employer or the employee pays for it.
As an employer, if you’ve ever had to make the difficult decision to stop paying employee wages because you don’t know when or if an employee is going to return to work, you’ll immediately know where I’m coming from. I’m sure you’ll agree that having an Short Term Disability plan in place would certainly make the situation more beneficial and easier for everyone concerned.
Ask your broker to get you some competitive Short Term Disability quotes to review. Rates vary greatly from carrier to carrier. Some of the largest Short Term Disability carriers are Principal, Mutual of Omaha, MetLife, Lincoln Financial, Unum, and many of the medical carriers. I think you’ll be surprised how inexpensive the benefit is. I know it will be a great addition to your employee benefit package, and quite possibly, will save you some “green” in the long run.
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