As an employer, you may or may not be required to provide disability insurance to your employees. Although there is no general federal requirement that private employers offer such coverage, several states do impose this obligation. Employers in California, New York, Hawaii, New Jersey, Puerto Rico and Rhode Island are among those with special obligations regarding disability benefits, though the specific programs and requirements differ.
Some state programs impose additional obligations on the employer, such as time-specific notices of possible eligibility for disability benefits if the employee is out sick for a certain period of time, requests medical leave or otherwise triggers the obligation. In addition, companies that voluntarily undertake to provide disability insurance may be required to follow certain procedures in administering the benefits and provide certain information or disclosures to employees.
Disability Benefits Law
If you believe that workplace disability occurs rarely and is not likely to become an issue within your organization, consider this: according to the Council for Disability Awareness, one in eight workers will be disabled for five years or more during his or her working life. Walking through your obligations with regard to employee benefits and proper administration procedures with an experienced labor and employment attorney will help you avoid errors that could be costly.
Types of Disability Insurance
Broadly speaking, there are four basic types of disability insurance:
- Social Security disability
- State disability where offered
- Private short-term disability insurance
- Private long-term disability insurance
Disability Insurance as a Government Benefit
Social Security disability is funded through payroll withholdings, but the employer’s obligation ends with submitting those withholdings. In states offering government-administered disability insurance, additional obligations may be imposed on the employer. If you are doing business in a state offering this type of benefit, it is essential that you educate yourself about your responsibilities with regard to the disability program.
Private Short-Term Disability Insurance
“Short-term” may mean any time period of one year or less, but disability carriers offer different short-term policies that may cover a maximum of 13, 26 or 52 weeks. Private short-term disability insurance can be acquired in different ways.
- The employer may offer such insurance as a partly or fully employer-paid benefit.
- The employer may offer employees the opportunity to purchase such insurance through a group plan.
- The employee may directly purchase such insurance from an outside carrier.
When the employer offers the disability insurance to employees, either as an employer-paid benefit or as an option, the employer’s specific obligations may vary from state to state. This may be especially complicated for employers operating in more than one state, and thus subject to different sets of regulations in different locations.
On first consideration, it might seem that an employer would have no responsibility with regard to a disability insurance policy purchased by the employee through an outside source. However, although the employer has no direct involvement with that policy, the company may under some circumstances have the obligation to provide information to the employee. For example, where short-term disability payments may be impacted by other sources of income, such as worker’s compensation,the employer may be responsible for ensuring that employees have information about that interplay through the employee handbook or some other written policy document.
Private Long-Term Disability
Private long-term disability works in much the same way as private short-term disability from the employer standpoint, and may also be offered as an employee benefit or be purchased separately by the employee. Benefits are typically paid out for as long as the disability endures, up to retirement age, but at a slightly lower percentage of base income than the typical short-term policy.
Tax Treatment of Disability Plans
Deductibility of contributions to an employee disability plan and how those deductions are classified varies depending on the type of the program.
Learn More about Your Employee Disability Obligations
To learn more about whether you are obligated to make payments into a state disability program or to provide disability insurance benefits to your employees, talk to an experienced labor and employment attorney. Our firm can also guide you with regard to your obligations as an employee benefits plan administrator, and ensure that you understand and have the tools to manage the interplay among short and long-term disability plans,workers’ compensation, and other types of legally-mandated and voluntary employee leave.
Compliance errors can be costly. Getting knowledgeable legal guidance from the beginning can be your best defense against costly missteps, and save significant time and stress within your organization.