Short-Term Disability Insurance Requirements for Employers by State

Jul
15
Thu

According to the Council for Disability Awareness, almost 6% of American workers will experience a short-term disability (defined by six months or less) due to illness, injury or pregnancy on average every year.

While most states don’t require short-term disability insurance, most employers offer it as a benefit to their employees, should a non-work-related issue keep an employee from being able to work. 

Today, we cover what short-term disability is, which states require it and other commonly asked questions.

What Is Short-Term Disability Insurance?

Short-term disability insurance pays a percentage of an employee’s income when a non-work-related illness or injury leaves them unable to work for a limited time period. 

Typically, most short-term disability plans will cover 40-70% of lost wages. There is usually a weeklong waiting period between when a claim is made and when payment starts going to an employee. During this waiting time, employees not able to work typically use sick leave, vacation time or personal time off.

How Long Does Short-Term Disability Last?

The current industry standard for short-term disability periods is 26 weeks, though every plan is slightly different. If an employee is still disabled when their short-term disability benefits run out, they may begin to collect long-term disability benefits.

Is Disability Insurance a Popular Employee Benefit?

While not required in most states, employers typically offer their employees some type of short-term disability insurance. Short-term disability insurance is typically offered by employers because it entitles the company to a federal tax deduction. 

If a company doesn’t offer short-term disability insurance, individuals can still purchase an insurance policy privately, but the cost is usually prohibitively high. 

Which States Require Short-Term Disability Insurance? 

Currently, five states have short-term disability insurance requirements:

  • California

  • Hawaii

  • New Jersey

  • New York 

  • Rhode Island

While not currently a state, Puerto Rico also requires short-term disability insurance.

Each of these states have individual rules that an employer has to follow as well as state-managed programs. If the state provides a state-sponsored disability plan employers can use that plan, or can purchase one through a private carrier.

If an employer elects private coverage, the purchased plan must meet state requirements regarding coverage, contribution amounts, eligibility and be approved by employees.

State Disability Plans

These state plans serve as a supplement to federal social security disability benefits, since social security doesn't cover the first six months of the disability. 

Much like unemployment benefits programs, businesses located in states with regulated short-term disability are required to make contributions to the programs. These funds are financed by employees' payroll deductions, and in some states, employers are also required to contribute. 

Employee contributions to the fund are based on the employee’s pay and are always withheld by the employer before being transferred to the state fund. As you might expect, there are significant penalties for employers who fail to withhold contributions, though every state’s penalty is different.

That is why it is important to understand each individual state’s plan and governing rules.

The Rhode Island Exception

Oddly enough, Rhode Island is the only state that does not allow employee contributions to a private plan. Employers are required to use the state sponsored plan.

California Requirements

  • The State of California requires all employees to pay into its short-term disability insurance (SDI) program through payroll deductions.

  • California State Disability Insurance is funded through employee wage deductions.

  • Deductions are set at 1.2% on the first $128,298 in taxable wages.

  • Maximum Weekly Benefit is set at $1,357

  • Employees who have received at least $300 in wages during their "base period" are eligible for SDI payments, assuming SDI deductions have been taken out of this pay.

  • A doctor must certify an employee is unable to return to work.

Hawaii Requirements

  • Requires employers to provide temporary disability insurance (TDI) or payments to workers who suffer short-term, non-work related illness or injuries, including pregnancy.

  • Employers can deduct up to 0.5% of employees’ weekly wages, with maximum deductions up to $5.51 per week.

  • Employees must have worked at least 14 weeks in the state of Hawaii and work at least 20 hours in each of those weeks.

  • Employees must earn at least $400 dollars from working during the 52 weeks before the day to become eligible for benefits.

  • Hawaii requires employers to insure employees or pay temporary disability benefits for up to six months.

New Jersey Requirements

  • Funded by both employee and employer contributions.

  • The employee contribution is 0.47% on the first $138,200 and up to a maximum of $649.54 annually.

  • The employer contribution varies from 0.1% to 0.75% of taxable wages earned by each employee. 

  • Taxable wage is defined at $36,200, up to a maximum of $271.50.

  • Maximum payout is set at $903 per week.

  • The Temporary Disability Benefits Law allows employers the option of choosing to establish a private plan for the payment of temporary disability benefits in place of paying benefits under the State Plan.

  • Employees must have earned $7,300 or more during a "base year” to be eligible. A base year is defined as the 52-week time period immediately prior to the week the disability started.

New York Requirements

  • Employers are required to provide partial wage replacement for up to 26 weeks.

  • Different requirements based on for profit, not for profit or independent contractors.

  • The maximum benefit allowance is up to $170 per week.

  • Insurance policies can be obtained through several methods including a private insurance carrier, State Insurance Fund, or becoming self-insured.

  • Employees must work at least 4 weeks with the covered employer to be eligible for TDI.

  • Employers may collect a small amount from employees to help fund their insurance obligation; however, this amount may not exceed $.60 cents per week.

Rhode Island Requirements

  • Private plans are not allowed.

  • Employers must deduct TDI tax from employees' wages and send the tax to the Employer Tax Unit quarterly.

  • TDI is entirely financed by payroll deductions.

  • Employee wage deductions are set at 1.3% of the first $74,000 in wages

  • There is no waiting period in Rhode Island, but an employee must be unable to work due illness/injury for at least 7 days.

  • Weekly maximum benefit is capped at $887.

  • To be medically eligible for TDI benefits, a Qualified Healthcare Provider (QHP) must certify the employee is unable to perform their customary and regular work duties and provide the length of time the employee is expected to be unable to work.

Curious to see if companies in your industry, region and similar employer size are offering short-term disability insurance? Download your custom benefit benchmarking report to see how your benefits package compares. 

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