Which States Require Disability Insurance for Employees?
When putting together a benefits package for your employees, you may be wondering whether disability insurance should be part of the mix. After all, it’s a great way to provide them peace of mind should they get injured and be unable to work. And if you’re an employee looking for a job, seeing disability insurance as an offering can help you feel appreciated.
While there are only five states that require this kind of coverage, that doesn’t mean it’s something you should skip out on. After all, having disability insurance may be a lucrative incentive for top candidates joining your company. Let’s take a closer look at the states that require disability coverage and why it’s beneficial to have even if you don’t live in one of them.
What Is Disability Insurance?
First and foremost, just what is disability insurance? It’s a type of coverage that can provide reimbursement for employees who cannot work because of an injury or illness. This isn’t the same as worker’s comp — that covers on-the-job injuries. Disability insurance is specifically for sicknesses that happen outside of work but prevent a person from working.
Disability insurance won’t cover a person’s full wages, but it should give them enough to live on while they’re recovering. It won’t cover medical bills or prescriptions, but a person could obviously use the money they receive to foot these costs. Usually, the amount a person receives is a percentage of their usual salary.
Most disability insurance plans are short-term in nature, meaning they have a set limit for how long they’ll provide coverage. The states we talk about below all mandate short-term disability insurance. Long-term disability insurance is more comprehensive, covering a worker until they are completely healed. It’s generally only used for long-term problems like cancer, arthritis, lupus, and more.
The States That Require Disability Insurance
Right now, there are only five states that require employers to provide short-term disability insurance:
- New Jersey
- New York
- Rhode Island
While it’s not a state yet, Puerto Rico also carries mandatory disability insurance requirements that employers have to meet.
Let’s take a closer look at each state’s requirements so you can have a better idea of what kind of coverage you will need.
In California, you’ll need to follow the rules of the California State Disability Insurance (SDI) program. The SDI requires employees to pay into a state fund that provides coverage for employees who cannot work due to disability or injury. The SDI rate for 2021 is 1.20%, with a maximum withhold amount of $1,539.58 for each employee.
While you can opt to use the state plan for your coverage, you also have the ability to choose a voluntary plan from a private insurer. That way, you’ll have more control over the coverage you offer as well as what your employees have to pay into the program. If you decide to go this route, you’ll need to make sure most of your employees agree to the plan to have it go into effect.
Hawaii’s short-term disability program is called the Hawaii Temporary Disability Insurance (TDI) law. It offers partial wage replacement to help employees who are sick or suffering from an injury. It also covers pregnancy. Just keep in mind, TDI only covers paid leave from work — it doesn’t include medical care.
Not every Hawaii worker qualifies for the TDI benefit, either. Your employees must have been employed for at least 14 weeks and worked for at least 20 hours. They also need to have earned at least $400 in the year before their disability claim.
You have three ways you can provide short-term disability insurance for your employees:
- Choosing a plan from an authorized carrier (don’t worry, some of our insurance partners are on the list)
- Creating a self-insured plan that pays out its own benefits when employees can’t work
- Making a collective bargaining agreement that defines sick leave benefits that satisfy TDI law
You also have the choice of paying for TDI on your own or splitting the cost with your employees. If you choose the latter, employees can only contribute up to 0.5% of their weekly wages.
The New Jersey Unemployment Compensation Law protects workers in New Jersey. The Temporary Disability Insurance (TDI) program is a part of that. It covers all employees who have become disabled within 14 days of their last day of work in the state.
As with the other states, you have a couple of options as an employer for how to set up this coverage. One option is the state plan, which requires employees to pay 0.47% on the first $138,200 in wages during the year. That makes the maximum contribution per year set at $649.54. You’ll pull these contributions from every paycheck rather than taking the lump sum all at once. Participants in this plan will receive 85% of their average weekly wage, up to a maximum of $903 per week.
The other option is a private plan, which is less regulated and allows you more control over your employees’ contributions and benefits. That said, the TDI program does require private coverage to be at least as robust in benefits, eligibility requirements, and duration of payments as the state-managed plan. Additionally, all private plans must be approved by the Division of Temporary Disability Insurance.
New York’s disability benefits program is meant to provide coverage to employees who experience an off-the-job illness or injury. Employees just need to work 30 days a year to get coverage, and these days don’t need to be consecutive. As an employer, you have three options for getting coverage:
- Enroll with a private insurance carrier. As long as the insurance carrier is certified by the New York State Department of Financial Services, you are good to use it for your disability insurance coverage.
- Join the New York State Insurance Fund (NYSIF). You also have the choice to purchase a policy through the NYSIF, a not-for-profit agency that pays out disability benefits.
- Create your own self-insured fund. If your company is large enough, you can create a self-insurance fund that will pay employees directly.
Naturally, there are contribution limits. An employee can only contribute 0.50% of their weekly wages, up to $0.60 a week.
Rhode Island boasts the first TDI program in the United States. The program protects workers who are unable to come to work because of a temporary injury or disability. There is only the state program in Rhode Island, meaning all of your employees will have to pay into it.
As of January 1, 2021, the current withholding rate is 1.3% of the employee’s first $74,000 in earnings. That works out to a max contribution of $962 a year. When employees go on TDI, they will get 4.62% of the wages from their highest-paid quarter that year. However, there are weekly maximum and minimums. Employees can get up to $887 a week, and they can’t get less than $107 a week.
Because the process is state-managed, as an employer, you only have to fill out a form to verify the last day an employee worked for you.
Should You Get Disability Insurance If You Live in a State That Doesn’t Require It?
You might be thinking — is disability insurance really worth it if the law doesn’t require it? In our opinion, it’s an invaluable expense that can protect your workers in the event of a catastrophe. Even as an individual seeking coverage on your own, disability insurance provides peace of mind should you ever be unable to work. Just think — do you have enough savings to protect yourself and your family if you suddenly lost all of your income?
You also need to consider the low cost of a disability insurance policy. It’s low enough that even if you never need to use it, you won’t notice the missing income. Because most policies cost just 1% to 3% of your income, it’s a small price to pay for knowing you’ll be financially secure if you can’t keep working.
Choose Quality Disability Insurance From InsureOne
When you’re ready to get disability insurance for your employees or yourself, make sure to choose a reputable insurance company like InsureOne. Get your free disability insurance quote today to see just how affordable our coverage is.