Five reasons why short-term disability completes your leave package

Woman touching her pregnant belly while sitting in an office meeting

Paid Family and Medical Leave (PFML) benefits are becoming increasingly common across the country, as more states pass laws requiring employers to provide them for their employees when they need time off for parenthood, caregiving, or to receive medical care.

You may wonder if you still need to provide short-term disability (STD) insurance if many of your employees work in states that offer PFML. After all, don’t both offerings provide the same type of coverage? Well, not exactly. Below are five reasons why you should consider offering STD coverage as part of your employee benefits package, even when a lot of employees are covered by PFML program.


1. Longer coverage period

Many PFML programs provide up to 12 weeks of leave that can be used within a 12-month period for all leave reasons. This overall leave cap means the amount of time available to an individual can be limited under PFML. Short-term disability programs frequently provide up to 26 weeks of coverage for someone’s own medical condition and coverage can be used for multiple instances of injury or sickness, even if more than once in a year. If someone has only PFML coverage and they don’t have access to long term disability until after being disabled for 180 days/26 weeks, they will potentially suffer a gap of coverage and not have income replacement for a period of time.


2. Protection against exhausted PFML time

PFML programs can be used for reasons like bonding with a new child or caring for a family member in addition to time off for someone’s own condition, while short-term disability is there specifically to provide income replacement when someone suffers a disabling condition. With the overall leave caps PFML programs often have, an individual can easily use their PFML time for family leave reasons and then experience a medical issue themselves. If they have used all PFML time for the year, they are potentially left without any coverage or income replacement if they do not have short-term disability.


3. Greater wage replacement

PFML programs are typically structured to provide higher levels of income replacement for lower-paid employees and less income replacement for higher-paid employees. A short-term disability plan, however, provides a set level of income replacement benefits, and the overall percentage does not typically change based on an employee’s earnings level. In addition, PFML states often set a maximum weekly benefit that is a lower amount than what a short-term disability plan may provide. This can mean that even when STD benefits are reduced for the amount someone receives from PFML, there are still STD payments due to provide the full level of desired wage replacement.

As an example, let’s say an employee earned $130,000 in the year before going out on leave for their own medical condition. The employer provides an STD plan that replaces 60% of pre-disability earnings up to a weekly maximum of $2,500 per week, and this employee also works in a state where PFML will provide a tiered benefit calculation up to a maximum weekly benefit of $1,100.

Employer STD Plan

State PFML Plan

$130,000/52 = $2,500 = individual pre-disability earnings

$130,000/52 = $2,500 = individual average weekly wage

60% of $2,500 = $1,500 maximum benefit this individual is eligible to receive

Maximum cap of $1,100 (income replacement of 44%)

When this employee receives both benefits, they would be due $400 from STD in addition to the $1,100 provided by the state plan in order to receive the total 60% income replacement. If they did not have access to STD coverage, they would be limited to 44% income replacement instead of the overall 60% they would have otherwise received.


4. Cost savings and more protection

Because there is potential overlap in using both STD and PFML when someone is out for their own condition in a state with PFML benefits available, this is taken into account when determining the rate charged for STD coverage. When you have many employees working in states with access to PFML, the STD rate is reduced to account for this. This means you can provide this added protection for your employees for even less.


5. Option to offer as a voluntary benefit

If you are concerned about the cost of STD for your organization, you may consider offering it as voluntary coverage for your employees. Employees can then choose if they want this coverage and bear the cost. This format of STD does require enrollment and may require more education and support for employees but may be a better option for your overall employee benefits package rather than not offering STD at all.

By combining STD insurance with state PFML, you create a more comprehensive safety net for your employees during unexpected absences. This not only fosters financial security, but also demonstrates your commitment to their well-being.