Buying voluntary short-term disability insurance through your place of employment is often a good idea.

Many organizations do not offer an employer-paid option. Policies that you can purchase privately (outside of work) often cost more, cover less, and have strict underwriting criteria.

Even if your employer does not offer a voluntary option – you can always ask. You and your co-workers will pay the premiums. Why would they say no?

Learn how employee-paid voluntary policies work for pregnancy when making payroll elections, and at employment termination. Find out how insurers handle exempt vs non-exempt variable pay.

Voluntary Short-Term Disability Definition

What is voluntary short-term disability insurance? A few definitions can help you understand why you might want to buy a policy through your employer.

There are four compelling reasons to enroll.

  1. Coverage for normal pregnancy
  2. Employee-paid premiums improve access
  3. Portable coverage you can keep after termination
  4. Complements workers compensation

Pregnancy Leave

Does voluntary short-term disability cover pregnancy and maternity leave?  Yes, it does. In fact, women of childbearing age should definitely enroll at work for this reason. It is clearly worth it when you consider the alternatives.

  • Individual policies bought privately (outside of work) do not cover recovery from labor and delivery after a normal pregnancy. However, they may pay benefits for complications that occur before your due date.
  • Group policies paid by employers cover recovery from normal childbirth. This option is very rare because it increases direct costs to your organization.
  • You may want to supplement what your employer already provide in order to increase maternity leave pay benefits.

Coverage must begin prior to conception. When it does, many women find that the policy is very worthwhile. They often find that the premium cost is far less than what the policy pays when they are unable to work for a covered medical condition.

  • Pregnancy disability before birth
  • Recovery from labor and delivery
  • Postpartum medical complications
  • Accidents and illnesses

Employee Paid

Voluntary short-term disability is employee paid rather than employer paid. This means that organizations can offer an important benefit without adding to direct costs. This improves availability when compared to employer-paid options.

Organizations have just a few minor responsibilities.

  • Support a payroll deduction
  • Remit collected premiums to the insurance company
  • Notify the insurer of changes in worker status
  • Allow trained enrollers to run educational meetings
  • Permit individual meetings to complete policy applications

Employer Doesn’t Offer

If your employer does not offer voluntary short-term disability, it is easy to ask for the benefit when it is employee paid. This is an especially important distinction when the organization has a large workforce of females in the childbearing age range.

Small businesses can offer a valuable paid leave benefit without adding to direct costs. Many issuing companies require that only a small number of workers participate in order to form a group (3 to 5 is common).

Workers can easily band together to approach the owner or human relations department. It is hard to say no when employees pay the premiums themselves and request the benefit.

Pre or Post-Tax

Employees can pay voluntary short-term disability premiums pre-tax or post-tax. Pre-tax payroll deductions save money on the premiums. On the other hand, post-tax deductions mean that the claims payments are tax-free.

The best option depends on your probability of filing a claim. It is better to pay taxes on the smaller figure (premiums or claim payment).

  • Pre-tax works best for people concerned about future unplanned accidents or illnesses. The premium cost is immediate and certain.
  • Post-tax is ideal for women planning to conceive and have a baby. Here the future claim is much larger than the premium with a high degree of probability.

Employment Termination

Voluntary short-term disability policies are portable upon employment termination. The person owns the policy, not the employer. This means that you can keep the coverage in force even if you quit or your organization lets you go.

Simply complete a policyholder service form after employment termination. Indicate that you want to change premium payment from a payroll deduction to direct billing.

Workers Compensation

Voluntary short-term disability fits workers compensation like a glove. The two programs complement each other without any overlap.

  • Short-term disability covers off-the-job (non-occupational) accidents and sicknesses. It replaces a portion of income for covered losses.
  • Workers compensation addresses on-the-job (occupational) accidents and illnesses. It replaces a portion of income for covered losses in addition to medical care and other services.

Short-Term Disability Employee Benefits

Voluntary short-term disability insurance is a viable employee benefit offering for most workers. However, some personnel will have unique experiences due to their job classification, role, industry, or compensation structure.

Exempt

Voluntary short-term disability for exempt employees generates interesting questions and complicated answers. The Fair Labor Standards Act (FLSA) governs whether a worker is exempt from overtime pay.

Exempt employee income does not include overtime but does include salary, and sometimes commissions, bonuses, and other forms of extra compensation. This affects the amount of income to insure.

Salaried

Short-term disability for salaried employees is simple and straightforward. They are exempt from overtime pay. Therefore, the person can insure up to 70% of their salary or the insurer monthly limit – whichever is less.

Most policies will not cover bonuses for salaried earners such as teachers and other school employees, state and federal government workers, etc.

Commissioned

Short-term disability for commissioned employees is more complex. For example, a policy may cover income actually derived from new sales, but excludes commissions earned from renewals. Average qualifying commissions over a 12-month period to determine annual income.

In addition, many compensation plans have target commission earnings for achieving the annual sales quota, with accelerated commissions for achieving above the annual target.

  • A policy may cover the target commissions, as hitting the quota is often the expectation of continued employment.
  • A policy may exclude accelerated commission from coverage and treat these earnings as bonus money.

Non-Exempt

Voluntary short-term disability can also help with some non-exempt employees – but not all. The Fair Labor Standards Act (FLSA) mandates overtime pay for non-exempt workers. Employers must pay time and a half the regular rate when they work more than 40 hours in a given pay week.

Healthcare workers such as nurses and dental hygienists are frequently non-exempt and should pay careful attention to these rules before enrolling in a policy. Postal workers have similar concerns.

  • Policies exclude overtime pay from protected earnings
  • Hourly employees cap earning at or below 40 hours per week max
  • Part-time workers must log at least 25 hours per week to qualify
  • Temporary personnel are ineligible regardless of hours worked
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