According to the Social Security Administration (SSA), more than one in four of today’s 20-year-olds will become disabled before they retire.1 That’s a shocking statistic.
While many disabilities have long-term effects, short-term disability can create a significant financial burden on employees and force working-age adults out of the workforce. Short-term disability insurance (SDTI) provides partial income replacement, usually 40-70% of an employee’s salary, for a defined period if they cannot work due to a covered condition.3
STD insurance helps employees afford their basic living expenses like rent, groceries, transportation, and child care so they can focus on recovery instead of financial stress. A study by health insurer Cigna said that more than half of those experiencing a disabling event took two years or longer to recover financially.3
Only about 40% of employees have short-term disability insurance coverage through their employer, but it’s a powerful employee benefit.4 Sharon Epperson at CNBC called STDI the most valuable workplace benefit that is most often overlooked.3
Here are the reasons for offering short-term disability insurance benefits for both employees and employers.
Increased Job Satisfaction
For employees, this coverage brings them peace of mind. It provides them with some financial support just in case an unexpected injury or serious illness occurs.
Such benefits are increasingly important for employees when choosing where to work and play a significant role in employee satisfaction. Nearly half of all workers surveyed said the benefits package they receive from the employer is key to them being highly satisfied with their job.5 Many job seekers agree, saying that the benefits package is as important or more important than pay.
Offering short-term disability coverage sends a clear message to employees that their well-being and financial security are valued and prioritized by the organization. It shows that the employer is committed to supporting their employees through difficult times, both on and off the job.
When employees feel that their employer is invested in their well-being, they are more likely to be engaged, motivated, and committed to the organization. That’s especially important when you consider that nearly eight in 10 workers report not being actively engaged at work.6 Offering a robust benefits package can help, leading to increased productivity and performance.
This suggests that investing in short-term disability coverage can offer tangible returns in terms of employee loyalty and commitment.
Attract and Retain Talent
Providing short-term disability coverage can also help to attract top talent, as job seekers increasingly expect employers to offer competitive benefits packages. In today’s tight labor market, having a strong benefits package can be a major differentiator for employers looking to hire and retain the best employees.
Forbes Advisor found that 40% of employers believe workers would leave their job to find a role that offers better benefits. What’s more, 10% of workers would take a pay cut for better benefits.7 A separate survey by the International Foundation of Employee Benefit Plans found that 83% of employees rank disability insurance as a “very important” or “important” benefit.
Help Employees Recover Properly
Unexpected injuries or illnesses can significantly disrupt an employee’s work routine, leading to unplanned absences. Without short-term disability insurance, employees may be tempted to return to work prematurely, risking further health complications leading to a more long-term impact. By providing this coverage, employees can take the necessary time off to recover fully, ensuring they return to work healthier and more productive.
Comply with Labor Laws and Regulations
Depending on the location and industry, there may be legal requirements for providing short-term disability coverage to employees. For example, California, Hawaii, New Jersey, New York, and Rhode Island require most employers to provide short-term coverage. Contributions to the state SDI program in California are mandatory.
Under the federal Family and Medical Leave Act (FMLA), eligible employees are entitled to up to 12 weeks of unpaid leave per year for certain family and medical reasons, including for their own serious health condition.8
Providing short-term disability coverage can help employers satisfy these legal requirements and minimize the risks associated with non-compliance.
STDI can also help to resolve work conflicts that may arise when employees feel a medical condition prevents them from working. STD insurance requires an independent assessment from qualified medical professionals and insurance carriers, removing the business’s responsibility to determine whether someone qualifies for coverage. This can help businesses protect themselves from potential lawsuits or disputes. Thus, if a debate arises about coverage, it will generally stay between the employee and the insurance provider rather than the employer.
Regardless of the type of short-term disability plan you want to offer, it’s always a good idea to check with your labor attorney or professional employer organization (PEO) provider to ensure you comply with all applicable laws.
Enhanced Risk Management
Besides providing some protection from legal claims, offering SDI insurance can also help with an organization’s overall risk management strategy. For example, a strong benefits package can improve an employer’s reputation, helping to recruit and retain top talent.
SDI insurance also helps support workforce stability. It encourages employees to fully recover from any short-term issues before returning to work, reducing the risk of unplanned absences in the future. This may also prevent short-term claims from becoming long-term disability claims or require additional accommodations under the ADA.
Short Term Disability Insurance Options
In most states, employers have options of whether to provide SDI insurance and at what level. Employers may be able to choose the level of financial support employees can get under the plan. They can also decide whether employers pay in full for the benefit, share costs with employees, or make it an opt-in benefit where employees pay the premium costs.
Some employers also offer a buy-up plan where the employer provides a base plan and allows employees to increase their coverage amount with additional contributions. There are also plan options that allow employers to procure insurance that covers the cost of providing reasonable worksite accommodations.
SDI insurance also typically has a waiting period before kicking in. Depending on the plan, there may be options for varying wait periods, such as seven, 14, or 30 days. This helps reduce the potential abuse of benefits. While some employers will allow employees to use PTO or other benefits to bridge the gap, most policies only cover a portion of an employee’s salary, discouraging policy abuse.
Employers may also be able to offer plans that provide coverage for different lengths of time. For example, some plans cover 30, 60, or 90 days while others have coverage options extending to six months, a year, or longer.
Employers typically provide short-term disability insurance along with long-term disability (LTD) plans. Thus, STD insurance covers the period before LTD benefits would start. While there are no federal laws requiring employers to offer LTD plans, about half of mid-sized and large employers offer group LTD insurance. Most fully pay for plans.10
Short-term disability insurance does not provide employees with job protection. Reinstatement or accommodations are generally covered by the employer’s policies in accordance with state and federal laws, such as FMLA and the Americans with Disabilities Act (ACA).
An Affordable and Cost-Effective Solution
Considering all the benefits provided, short-term disability insurance is an affordable and cost-effective option for employers. While most employer plans do not require contributions from workers, the Bureau of Labor Statistics estimates the average cost to provide STDI ranges from six cents to ten cents per hour.9 Often, the costs to fund SDI insurance are bundled with other health insurance plans without adding any additional fees.
Offering short term disability insurance is another way to support your workforce. Plus, it’s a smart investment in your organization’s most valuable asset — your people.
Resourcing Edge Can Help
Resourcing Edge can help. As an industry leader in human capital management solutions, Resourcing Edge helps companies manage the burden of employee administration. We offer professional employer organization (PEO) services to help with payroll, benefits, HR, compliance, technology, and recruiting to help businesses grow.
We can help ease the burden of benefits administration and reduce costs for group policies.
Group Buying Power to Lower Costs
Many individual employers simply do not have the buying power to negotiate significant cost savings with insurance carriers. Resourcing Edge helps employers by pooling together different employers to get better rates. This can include major medical, dental and vision, short-term and long-term disability insurance plans, and other HR benefits such as wellness programs or an employee assistance program (EAP).
To learn more about what Resourcing Edge can do for you, contact our team of professionals at 469-651-1027 or get a quote online.
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