How Does Short Term Disability Work? Who is Eligible?

When you get injured at work, workers’ compensation will cover expenses related to your injuries until you are able to work again.

 But what happens when you get injured off-the-clock?

 While your health insurance policy will cover its portion for immediate medical needs, there is no payout (unlike workers’ comp) to help cover your everyday expenses. What can you do to keep expenses from piling up when you are injured and unable to work?

 The answer: short-term disability insurance.

What is Short-Term Disability (STD)?

Short-term disability insurance is a plan option that provides income protection if you are unable to work due to an injury or illness that occurs outside of work. You receive a weekly payout at a percentage of your income (typically 40%-70%) to help you remain financially stable while you recover from the injury or illness.

What is the difference between Short-Term Disability (STD) and Long-Term Disability (LTD)?

Both short-term disability and long-term disability insurance plans provide a payout when you have lost wages due to an injury or illness, but the difference lies in their names: short-term and long-term.

Short-term policies have a shorter waiting period and shorter duration, whereas long-term plans have a longer waiting period and longer duration. The exact amount of waiting period, disability insurance coverage duration, and pay-out depends on the coverage procured in your policy. The more attractive the plan, the higher the premium.

How long does short-term disability coverage last?

 Whether you’re an employer procuring group coverage for employees or an individual wanting to create your own policy, you get to choose the details of your plan. As an employer, this includes the length of waiting period (if any) for a new employee to enroll and how long the injured person must wait after an injury occurs to begin receiving payment.

Typical short-term disability insurance plans have a waiting period anywhere from 1-15 days after an injury occurs and last anywhere from 10 weeks up to 24 months, depending on the provider and plan details.

How long does long-term disability coverage last?

Long-term disability insurance (LTD) is the coverage that kicks in once short-term disability (STD) ends. LTD plans have a waiting period of at least 90 days before taking effect and typically have benefit periods of 2, 5, or 10 years, or until retirement.

Similar to STD, the longer your LTD coverage lasts, the higher your premium is.

Do I have to offer short-term coverage to offer long-term disability?

Although short-term disability insurance is intended to bridge the gap between getting injured and long-term benefits kicking in, you do not have to provide short-term disability benefits in order to offer a long-term disability plan. Each disability insurance plan can be offered individually or as a package deal.

How is “disability” defined?

In order to claim benefits for short-term or long-term disability, the term “disability” is typically defined as being unable to perform the duties of your own or similar occupation. It does not necessarily mean that you are physically unable to do any part of your work requirements, but that you are unable to perform the essential duties of your job.

What qualifies for short-term disability?

When you are temporarily disabled from doing your job, as deemed by a medical professional, then you may file a claim with your insurance provider. These are diseases or illnesses that do not have a pre-existing condition and cause you to be temporarily disabled after you have surpassed the initial waiting period from enrolling.

Common medical conditions that qualify for short-term disability pay may include:

•   Car or other major accident
•   Rehab from surgery
•   Severe illness
•   Medical procedure
•   Some mental health conditions
•   Pregnancy/maternity leave*

Review your policy to see more details about which illnesses and injuries qualify as a short-term disability claim.

*If you are pregnant before enrolling in a short-term disability plan, this would be considered a pre-existing condition, meaning benefits for maternity leave would likely be denied. Check with your HR Manager for specific details about your company’s policy and any applicable waiting period.

Are there any illnesses or injuries that are not covered by short-term disability?

Most illnesses and injuries are covered by short-term disability benefits unless you had a pre-existing condition prior to enrolling. However, your policy may deny your claim for any of the following reasons:

•   Pre-existing condition that substantially contributed to the disability
•   Self-inflicted injuries
•   Use of drugs (non-prescription) or other illegal substance
•   Injury that occurred from doing something illegal, such as committing a crime
•   Cosmetic procedures that are not medically necessary
•   Actively serving in any branch of armed forces
•   Work-related injuries or illnesses
•   Fraudulent claims
•   Insufficient medical evidence

Review your policy for more details or contact your HR Manager with specific questions.

How long can an employee be on short-term disability?

The exact length that you can receive benefits depends on your policy. Some policies only last up to 3 or 6 months, while others last up to 24 months.

However, if any of the following conditions occur, your income replacement through short-term disability payments will stop immediately rather than waiting for the maximum benefit period to end:

•   You are no longer disabled
•   You fail to provide proof of disability/medical certification
•   You become eligible for long-term disability benefits
•   Death

Be sure to review the specific terms and conditions of your short-term disability policy or talk with HR.

What is The Role of Short-Term Disability in Employee Benefits?

Nearly 64% of Americans live paycheck to paycheck, meaning the financial strain of being temporarily out of work could have serious impacts on employees and their families. Add to this that more than 25% of all 20-year-olds are likely to be disabled before reaching retirement, and suddenly you have a potential threat to your workforce.

As an employer, offering short-term disability helps you attract top talent by providing a robust benefits package that simultaneously demonstrates a supportive workplace culture. This job-protected support enables employees to maintain financial stability during an unexpected event, which increases loyalty, enhances overall well-being, fosters a positive work environment, and limits stress.

Offering short-term disability also provides protection to employers who may feel obligated to financially support an employee who cannot work temporarily; however, they may get into trouble for not consistently treating all employees the same. For example, if financial support is offered to one employee but not to another in a separate incident, there may be perceived disparity or discrimination based on who does or does not receive financial support, which could lead to legal challenges.

How are short-term disability benefits calculated?

Your short-term disability benefits are calculated as a percentage of your wages. The benefit amount could be anywhere from 40%-100% of your income, noting once again that the richer the anticipated payout, the higher the premiums. 

Who funds short-term disability benefits?

Short-term disability premiums can be funded by either the employer or the employee, or some combination of the two.

Who is Eligible for Short-Term Disability Benefits?

While employers can choose the specifics of the plan, many employer-sponsored plans require eligible workers to be full-time employees who have satisfied a waiting period prior to enrolling in an employer-sponsored short-term disability plan.

As part of your employer’s policy, you may also be required to exhaust all paid leave (vacation, PTO, sick leave, etc.) prior to claiming STD benefits.

What are The Costs Associated with Short-Term Disability Insurance?

Short-term disability premiums are usually the driving factor when deciding plan details such as the waiting periods, benefit payouts, and benefit duration. The richer the plan, the higher the premiums.

From an administration perspective, costs to offer a short-term disability plan depend on the size of your organization and the complexity of the plan. There may be fees based on your plan customization, services provided, claims processing, customer support, and enrollment assistance.

There are also internal costs for providing a short-term disability plan. These come by way of communicating the plan to employees, facilitating the enrollment process, providing materials, helping to process claims by ensuring proper documentation is provided, verifying eligibility, calculating benefit amounts, setting up deductions, and issuing payments. You must also maintain compliance by filing claims reports, staying on top of reconciliations, and adhering to other reporting requirements.

While the administration piece is enough to scare employers away from offering short-term disability, Stratus HR can help. Our benefits experts absorb all the administration headaches, allowing you to offer an attractive benefits package without requiring your internal staff to spend time researching and complying with regulations.

What are The Limitations and Exclusions of Short-Term Disability Insurance?

While each short-term disability policy has its own rules, typical limitations and exclusions may include:

•   Waiting period for enrollment
•   Limit to weekly benefit payout (for example, 66% of wages up to a weekly maximum of $1,000)
•   Ineligibility for benefits due to:
  • Pre-existing condition
  • Self-inflicted injuries
  • Use of drugs (non-prescription) or other illegal substance
  • Injury that occurred from doing something illegal, such as committing a crime
  • Cosmetic procedures that are not medically necessary
  • Actively serving in any branch of armed forces
  • Work-related injuries or illnesses
  • Fraudulent claims
  • Insufficient medical evidence

In addition, employees who claim STD benefits may not be allowed to engage in outside employment or participate in activities that delay their recovery.

Manage Short-Term Disability Efficiently with Stratus HR!

Nearly 75% of disabling injuries occur off the job, making the odds against your favor that one or more staff members will likely be impacted by an injury that occurs off-the-clock. If you have delayed looking into short-term disability plans because of the administrative burden, let Stratus HR help.

Our team of certified experts has established relationships with supplemental plan providers to help you easily customize your own short-term disability plan or simply adopt a plan that works for employers like you. We are familiar with regulations to ensure compliance and absorb the administrative headaches for you so you can offer a robust benefits package without the hassle.

For more information, please book a free consultation and our team will contact you shortly.