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Short-term disability insurance helps replace part of an employee’s income when an illness or injury outside of work keeps them from doing their job. Benefits usually begin after a short waiting period and can last from a few weeks to about six months. If the employee still can’t return to work after that, long-term disability coverage may take over.
Short-term disability, or STD, coverage replaces part of an employee's income when an illness, injury, or other qualifying medical condition keeps them from working. Many plans pay around 60 to 70 percent of the employee's earnings. Work-related injuries are generally handled through workers' compensation instead.
Benefits begin after an elimination period, often 7 to 14 days, and continue for a set amount of time, commonly 13 to 26 weeks. If the employee still can't return to work after STD benefits end, long-term disability coverage may take over. Pregnancy and recovery from childbirth may also qualify for benefits depending on the plan.
Pregnancy disability leave concerns time away from work for qualifying pregnancy-related conditions, while short-term disability insurance concerns income replacement under the policy. Receiving insurance benefits does not, by itself, establish job protection; leave eligibility and protections depend on applicable laws and employer policies.
A handful of states, along with Puerto Rico, have statutory disability programs, while other jurisdictions have their own paid medical leave requirements. Employers operating in these areas may need to coordinate private disability coverage with state or local programs. Elsewhere, STD is generally a voluntary benefit that may be paid for by the employer, the employee, or both.
Taxes depend on how the premiums are paid. Benefits tied to employer-paid premiums or employee premiums paid with pre-tax dollars are generally taxable. Benefits tied to premiums an employee paid with after-tax dollars are generally tax free. Employer-funded benefits may also be treated as wages for Social Security and Medicare tax purposes for a period of time, which is where third-party sick pay reporting comes in. Employers can find more detailed guidance in IRS Publication 15-A.
STD also doesn't replace job-protected leave. If an employee's absence qualifies for FMLA, the two may run at the same time: STD replaces income, while FMLA provides job protection. And when STD benefits end, that doesn't automatically mean employment should end. Depending on the situation, the ADA may require an employer to consider additional unpaid leave or another reasonable accommodation.
It depends on how the premiums were paid. Benefits connected to employer-paid premiums or pre-tax employee contributions are generally taxable. Benefits connected to premiums the employee paid with after-tax dollars are generally tax free. If both the employer and employee contributed, only part of the benefit may be taxable.
It can. When an absence qualifies for FMLA, short-term disability and FMLA may run at the same time. They serve different purposes: STD helps replace income, while FMLA provides eligible employees with job-protected leave. Employers should determine whether an absence qualifies for FMLA and provide the required notices rather than waiting for the disability claim to be resolved.
Not automatically. The end of STD benefits marks the end of wage replacement under that plan, not necessarily the end of the employee's leave rights. Depending on the circumstances, the ADA may require additional unpaid leave or another reasonable accommodation unless doing so would create an undue hardship. Employers should review the situation individually before making a separation decision.