Short-Term Disability

How short-term disability works

When an employee cannot do their job because of a medical condition, they file a claim with the carrier, and their doctor certifies the condition and expected return date. After an elimination period (commonly 0 days for accidents and 7 or 14 days for illness), the policy pays a weekly benefit until the employee recovers or reaches the maximum benefit period, typically 13 or 26 weeks. Pregnancy is the single most common STD claim at many employers; a typical uncomplicated delivery is approved for six weeks, or eight weeks after a cesarean.

Employers buy STD in three ways: as an employer-paid benefit, as a voluntary benefit employees pay for, or as a self-funded salary continuation plan where the employer pays from payroll and often uses a carrier only to manage claims. Policies often exclude pre-existing conditions treated in a set lookback period for new enrollees, so check the clause before promising coverage to a new hire who is pregnant.

State disability programs

Five states and Puerto Rico require short-term disability coverage: California, Hawaii, New Jersey, New York and Rhode Island. California, New Jersey and Rhode Island run state programs funded mostly by employee payroll contributions; New York and Hawaii require employers to provide coverage through a carrier or self-insurance, with limits on how much employees can be charged. Benefit amounts, waiting periods and maximum durations are set by each state and change frequently. Employers in those states often design private STD to top up the state benefit rather than duplicate it. Paid family leave programs in some of the same states are separate and cover bonding or caring for a relative, not the employee's own illness.

Short-term vs long-term disability

Long-term disability (LTD) starts where STD ends. A typical LTD policy has a 90- or 180-day elimination period, matched to the end of STD, and replaces about 50% to 60% of pay until the employee can work again, sometimes until retirement age. Early in an LTD claim the test is usually whether the person can do their own job; after two years many policies switch to whether they can do any job they are suited for.

STD also differs from workers' compensation, which covers injuries and illnesses caused by work and pays medical bills as well as wages. STD policies generally exclude work-related conditions. And it differs from FMLA leave: FMLA protects the job and health coverage, STD pays the income. For an eligible employee, both normally run at the same time, and HR should designate the leave under the FMLA as soon as it knows the absence qualifies.

Taxes on STD benefits

Who pays the premium decides taxation. If the employer pays the premium, benefits are taxable income to the employee. If the employee pays with after-tax money, benefits are tax-free. If premiums are paid pre-tax through a cafeteria plan, benefits are taxable. Taxable sick pay is also subject to Social Security and Medicare tax for the first six months, and the carrier and employer need to agree who withholds and reports it. Some employers deliberately run STD premiums after tax so the benefit arrives untaxed when people need it.

What HR should manage

• Start the claim early. Give employees the carrier's contact details and claim number on the day they report a planned surgery or due date.
• Coordinate PTO and the elimination period so pay does not drop to zero for a week.
• Run job protection and pay as two tracks: FMLA or state leave for the job, STD for the income, tracked in your leave of absence process.
• At return, consider reasonable accommodations under the ADA if restrictions remain.
• Explain the benefit in offers and onboarding. Hourly employees often do not know they have it until they are already out. For new parents, connect it to your parental leave policy so recovery and bonding time are explained together.

State rules and policy terms vary; this is general information, not tax or legal advice.