Group short-term disability insurance for Michigan employers

What does short-term disability insurance cover?

Group short-term disability pays a weekly benefit, usually a percentage of the employee’s regular earnings up to a weekly maximum, when an illness or injury keeps them from working. Benefits begin after a short elimination period and last for a limited benefit period set by the plan. Recovery from childbirth is commonly covered as a disability. Most plans cover only non-occupational conditions, leaving work injuries to workers’ compensation.

How does short-term disability work with long-term disability?

Short-term and long-term disability are designed to work in sequence. Short-term disability covers the first weeks or months of a disability. Long-term disability has a longer elimination period that is usually set to begin about when short-term benefits run out, then pays a monthly benefit that can last years. Matching the two plans prevents a gap in income or an overlap that the employer pays for twice.

1. The employee becomes disabled and cannot work.
2. The short-term disability elimination period passes, and weekly benefits begin.
3. Short-term benefits continue until recovery or the end of the benefit period.
4. If the disability continues, long-term disability benefits begin after its elimination period.

• Long-Term Disability — Monthly income when a disability lasts beyond the short-term period

Does short-term disability cover work injuries or overlap with workers’ compensation?

Most group short-term disability plans cover only non-occupational disabilities, so an injury or illness caused by work is handled by workers’ compensation instead. Workers’ compensation pays medical care and wage loss for job-related injuries, and Michigan requires most employers to carry it. Some short-term disability plans cover both on- and off-the-job conditions and then reduce their benefit by any workers’ compensation payment, so it pays to check the plan language.

• Workers’ Compensation — Medical care and wage loss for job-related injuries

How does short-term disability relate to FMLA leave?

FMLA and short-term disability do different jobs. The federal Family and Medical Leave Act gives eligible employees of covered employers up to 12 weeks of unpaid, job-protected leave for qualifying reasons, including their own serious health condition. It protects the job but pays nothing. Short-term disability replaces part of the employee’s income during a covered disability. The two often run at the same time, along with any paid time off.

FMLA generally applies to employers with 50 or more employees, and employees must meet service and hours requirements to be eligible. Your leave policy should explain how paid time off, short-term disability and FMLA work together so employees know what to expect.

Is short-term disability insurance required in Michigan, and are the benefits taxable?

Michigan does not have a state-mandated short-term disability program, so offering group short-term disability is an employer choice. How benefits are taxed depends on who pays the premium and how. When the employer pays, or employees pay with pre-tax dollars, the benefits are generally taxable income to the employee. When employees pay the premium with after-tax dollars, the benefits are generally tax-free.

• Employer-paid. A valued benefit that supports retention; benefits are generally taxable to the employee.
• Voluntary, after-tax. Employees pay the premium through payroll deduction; benefits are generally received tax-free.
• Shared cost. The taxable share of benefits generally follows the share of premium the employer paid.

We help you weigh the cost, the tax treatment and how the plan fits your other benefits. Your tax advisor and payroll provider should confirm the withholding and reporting that apply.