How long is short-term disability?

Short-term disability (STD) provides an income for an employee who cannot work for a short time due to a nonwork-related injury or illness. STD benefits are paid on a per-disability basis and typically last for less than 12 months. How long short-term disability will last depends on factors including the employee’s length of service with a business, amount of pre-disability wages or duration of the disability.

In five states and Puerto Rico where employers must provide short-term disability insurance, temporary disability insurance is available through government programs.

Eligibility requirements

STD plans come with widely varying stipulations regarding eligibility for benefits. Some call for a minimum length of time that an employee has been working or full-time status. In some cases, employees must use all of their sick days or other paid time off before STD benefits start. They may also need to submit a physician’s note to verify the disability. In addition to general differences between short-term vs. long-term disability, coverage terms may vary by plan and provider.

Long-term disability basics

Long-term disability (LTD) policies are a financial safety net for workers affected by injury or illness for extended periods of time. As with STD, LTD benefits do not pay for work-related disabilities covered by workers’ compensation insurance. When exploring long-term vs. short-term disability plans, you’ll find that most LTD plans fall into two categories: “any occupation” and “own occupation” policies. The first type pays benefits if a worker is unable to perform any kind of work, while the second type will pay benefits if an employee cannot perform the job they held before the disability occurred.

Eligibility requirements

Most LTD policies have a waiting period that’s equal to how long an employee can be paid for STD benefits before receiving LTD benefits. This is also called an elimination period. These policies require detailed medical records from the outset and throughout the duration of the disability. The employee may likely need to apply for Social Security Disability benefits as well.

Return-to-work incentives

An LTD’s plan document will specify if workers can be employed while receiving benefits. Some plans include return-to-work incentives or residual disability benefits. If an employee comes back to their job part-time, their LTD benefits would be reduced if their combined wages and benefits exceed their predisability income. LTD plans can also limit the types of work, hours worked and earnings an employee can get with a part-time work arrangement.

Rehabilitation benefits

Disability insurers often offer rehabilitation services to encourage workers in seeking employment and job training. These supports also include child and elder care and help with other job-related expenses. Major disability insurance companies also include a Reasonable Accommodation Expense Benefit that helps employers install modifications to meet the needs of an employee with disabilities who is returning to work.

The table below summarizes some major distinctions between short-term vs. long-term disability insurance plans.

Short-term vs. long-term disability

Benefits of offering disability insurance to employees

On the surface, it may seem that disability insurance helps only the employees. However, this provision is often an integral part of a company’s comprehensive benefits package for acquiring and keeping a satisfied workforce. It’s a powerful business strategy to:

• Motivate your workforce by investing in their welfare
• Reduce turnover costs
• Reduce additional costs of hiring and training new employees to replace those on paid leave

Tax implications

How your business arranges premium payment for disability insurance impacts your taxes. Whatever amount you pay is considered a taxable benefit, up to 100%. If your plan pays part of your workers’ premiums, they will pay taxes on their percentage. However, if your employees pay 100% of the premiums, the payments will be tax-free.

Short-term and long-term disability FAQs

Are employers required to offer short-term and long-term disability insurance?

In California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico, employers must offer short-term disability insurance. In the other 45 states, companies can participate in STD plans on a noncontributory, partially contributory or fully contributory basis. All small businesses must carry workers’ compensation insurance although stipulations vary by state, industry and other factors.

Although many midsize and large businesses offer long-term disability coverage, no law requires this.

Why do employers offer disability insurance to employees?

Employers offer disability insurance as part of their benefits packages to recruit and retain quality talent. This coverage provides income protection for employees who could face financial peril in the event of a short- or long-term disability. It can prove valuable to almost half of American workers who don’t have enough money saved to pay an unexpected $400 bill or cover three months of living expenses if they can’t work.

Can an employee collect short-term and long-term disability at the same time?

An employee usually cannot collect both full STD and LTD payments concurrently. Most LTD plans are designed to kick in when STD benefits are exhausted. If a worker receives both types of payments at the same time, the LTD will likely offset or reduce an employee’s benefit by the amount they receive from the STD plan.

If any offset-able income exceeds the LTD benefit, most LTD policies will still remit a minimum payment of up to $100 per month to the recipient.