Short-term disability

Definition:

Short-term disability (STD) insurance is a form of income protection that provides employees with a percentage of their regular wages if they are unable to work due to temporary, non-work-related medical conditions. This includes health issues such as illness, surgery recovery, pregnancy, or mental health disorders. The benefit is paid weekly and is designed to help individuals maintain financial stability during periods of medical absence.

How It Works

Short-term disability insurance varies by provider and employer policy. Coverage plans typically fall under one of four types: employer-paid plans, contributory plans shared between employer and employee, core buy-up plans where employees can purchase additional coverage, and voluntary plans fully paid by employees. Once enrolled, eligible employees receive wage replacement benefits that usually range from 40% to 70% of their weekly earnings, subject to a monthly benefit limit. Payments usually begin after an elimination period, often seven days after the disability begins, unless otherwise specified.

Eligibility and Coverage

Employees may qualify for benefits if they are temporarily unable to perform their job due to non-work-related medical reasons. Common qualifying conditions include recovery from surgery, pregnancy or childbirth, injury from an accident, mental health issues such as anxiety or depression, and illnesses like digestive or joint disorders. Some plans also support partial disability, allowing employees to work part-time while receiving benefits. Rehabilitation support, such as return-to-work plans or job modifications, may also be included.

What’s Not Covered

Exclusions often include pre-existing conditions, injuries sustained during criminal activity, self-inflicted harm, substance abuse involving illegal or non-prescription drugs, injuries related to protests or riots, cosmetic procedures without medical necessity, and claims without adequate medical evidence. Pregnancy-related conditions may also be excluded if pregnancy began before enrollment in the plan.

Short-Term vs. Long-Term Disability

Short-term disability is designed for temporary conditions and typically provides weekly payments for a defined period (13 to 52 weeks). Long-term disability insurance is for more permanent or prolonged impairments and offers monthly payments that may continue for several years or until retirement age, depending on the policy. Short-term disability generally covers the inability to perform one’s current job, while long-term disability covers the inability to perform any job due to a medical condition.

Mental Health Coverage

Short-term disability often includes coverage for mental and behavioral health conditions. Claims for stress, anxiety, or depression are generally eligible, though they may be subject to stricter scrutiny and require comprehensive medical documentation. Approval depends on the severity of the condition and its impact on the employee’s ability to work.

Duration and Extension of Benefits

Short-term disability coverage typically lasts 13, 26, or up to 52 weeks, depending on the plan. Extensions may be granted with ongoing medical evidence, compliance with treatment, and periodic re-evaluation. If recovery is not achieved within the short-term coverage window, employees may transition to long-term disability if available. Additional support may be accessible through government programs such as Social Security Disability Insurance for those who qualify.

Payment and Taxation

Benefits are usually paid directly by the insurance provider through direct deposit, debit card, ACH, or check. Payments begin after the elimination period and continue until the employee returns to work or the benefit period ends. Whether benefits are taxable depends on how the premiums were paid. If premiums were paid with pre-tax dollars, the benefits are taxable. If paid with post-tax dollars, benefits are not taxed. Mixed funding results in proportional taxation, calculated based on prior-year contributions.

Repayment Conditions

Employees are generally not required to repay short-term disability benefits unless overpaid or in specific scenarios. These include transitioning to Social Security disability payments, returning to work earlier than expected, or violating income limits under partial disability terms. Repayments may be made through reduced future benefits, payroll deductions, or lump-sum reimbursement.

Employer Value and Use

Offering short-term disability insurance can help employers attract and retain talent, promote employee well-being, reduce financial stress, and support productivity. Employers should ensure the plan is both affordable and accessible to encourage participation and maximize its positive impact on morale and engagement.

State-Mandated Coverage

While short-term disability insurance is optional in most states, several jurisdictions require coverage. These include California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico. In these locations, employers may need to coordinate with state-run programs or offer supplemental private coverage to meet legal requirements.