Short-term disability insurance provides financial assistance when an unexpected illness or off-the-job injury prevents an employee from working. Businesses can offer this coverage through voluntary payroll deductions or fully cover the cost as a company perk.
What you’ll learn
What you’ll learn
Key takeaways
- Short-term disability provides temporary income replacement for employees who are unable to work due to off-the-job injuries, illnesses, or qualifying life events like childbirth
- Employers may fund the coverage or offer it as a voluntary benefit, where employees pay the premiums through automatic payroll deductions
- While not federally required, some states and Puerto Rico mandate state disability insurance, meaning employers must manage specific payroll withholdings in those jurisdictions
- Unlike workers’ compensation, which covers on-the-job incidents, short-term disability acts as a financial safety net for certain incidents that happen outside of the workplace
Whether you are looking to fully fund a policy or simply offer it as an employee-paid voluntary benefit, this guide breaks down everything you need to know about short-term disability in 2026.
What is short-term disability insurance?
Short-term disability (STD) provides temporary income replacement for employees who are unable to work due to an illness, injury, or life event outside of work. Sometimes referred to as “sick pay,” it ensures that employees still receive a percentage of their regular income while they focus on getting better and are unable to perform job duties.
It’s important to understand how short-term disability differs from other common types of workplace coverage:
- Workers’ compensation: This coverage is strictly for injuries or illnesses that happen on the job. Short-term disability covers events that happen outside of work.
- Long-term disability (LTD): Long-term disability provides monthly payments for extended periods of time, usually lasting more than six months or even up to retirement age. Short-term disability acts as the bridge that covers those first few weeks or months.
The table below breaks down how these policies compare so you can see the differences at a glance.
| Type of coverage | How it works |
| Workers’ compensation | This coverage is strictly for injuries or illnesses that happen on the job. |
| Short-term disability | Acts as a financial safety net for certain incidents that happen outside of the workplace. It bridges the gap for the first few weeks or months. |
| Long-term disability (LTD) | Provides monthly payments for extended periods of time, usually lasting more than six months or even up to retirement age. |
What conditions does short-term disability cover?
It helps to know some common life events that typically qualify for coverage. Generally, short-term disability policies cover:
- Illness: If an employee becomes ill with a condition that requires prolonged treatment or recovery, short-term disability can kick in after the employee exhausts their paid time off (PTO).
- Injury or accident: Policies cover non-work-related accidents, such as a severe sports injury, a fall at home, or an auto accident.
- Pregnancy and childbirth: Short-term disability may provide coverage for workers who need time away due to pregnancy-related complications or standard recovery from childbirth.
- Surgery and recovery: If an employee needs time away from the workplace to heal after a surgical procedure, these policies often provide coverage during that downtime.
- Mental health: In some situations, policies may provide coverage if someone is unable to work due to severe mental health conditions, like debilitating anxiety or depression.
While it helps to know what general life events qualify for coverage (such as severe illnesses, non-work-related accidents, pregnancy, or major surgeries), coverage isn’t necessarily about what condition the employee has — it’s about how long they are unable to work.
Instead of focusing on specific diagnoses, employers and employees should look at the timeframe of the recovery:
- Elimination period: Short-term disability does not kick in the moment an employee calls in sick. Most policies have an elimination period (usually around 7 days) before benefits begin. For example, a procedure such as gallbladder removal might keep an employee out of the office for only three to four days. Because of the elimination period, short-term disability wouldn’t apply.
- The 2-to-10-week rule of thumb: If that same gallbladder surgery results in complications that keep the employee out of work for several weeks, there’s a chance short-term disability will cover it (though the employee will need to speak with the insurance company). As a general benchmark, if an unexpected health event keeps an employee out of work for between 2 and 10 weeks, the policy is designed to step in. Most short-term disability policies cap out at around 10 to 12 weeks of coverage.
- Income replacement: It’s also important to note that short-term disability is not designed to replace a person’s entire salary or serve as long-term income. On average, these policies pay around 60% of an employee’s weekly salary while they recover.
How long does short-term disability last?
Short-term disability generally covers an employee for any downtime lasting between a couple of weeks up to 90 days (and then long-term disability would kick in). However, benefits do not begin the moment an employee calls in sick.
Employees must first go through an elimination period. This is the waiting period an employee must complete before they can file a benefits claim. For a short-term policy, this waiting period is often as short as seven days. During this time, employees might use their accrued PTO to cover the gap.
As an employer, the elimination period you choose for the policy will impact the premium costs. A shorter elimination period means employees wait less time to get paid, but the policy will cost more.
What varies is the cap for reimbursement — there are different levels — costs vary depending on what the reimbursement amount is going to be.
Is short-term disability insurance required?
While there’s no federal law requiring employers to offer short-term disability insurance, a handful of states do mandate it. These are typically referred to as State Disability Insurance (SDI) or Temporary Disability Insurance (TDI).
In these states, SDI is generally funded through a mandatory payroll tax. As an employer, you’re responsible for withholding the correct amount from employee wages and submitting it to the appropriate state agency.
Here is a quick look at the 2026 SDI requirements by state:
- California: The 2026 employee contribution rate is 1.3 percent with no taxable wage limit. This covers both disability and paid family leave.
- Hawaii: Employees contribute up to 0.5 percent of their weekly wages (capped at $7.50 per week in 2026), and employers are responsible for the remaining premium cost.
- New Jersey: Workers contribute 0.19 percent of the first $171,000 in covered wages earned.
- New York: The employee contribution rate is 0.432 percent of wages, but employers can only withhold up to a maximum of $0.60 per week to help offset the cost.
- Rhode Island: TDI is funded entirely by employees, who pay 1.1 percent of their wages into the fund (up to a $100,000 wage base).
- Puerto Rico: The SDI tax rate is 0.6 percent, which is split equally between the employer and the employee (0.3 percent each) on the first $9,000 of annual wages.
Read this next
While we’ve listed the states with mandates above, you can see more on exactly how state disability insurance tax works in our employer’s guide.
Even in states where it’s not law, roughly half of employers choose to offer a private short-term disability policy. Providing access to this coverage brings several advantages to your business:
- Boosts retention: Providing peace of mind prevents valuable employees from leaving due to financial hardship.
- Bridges the gap: It seamlessly connects sick leave to long-term disability coverage.
- Supports health plans: As healthcare deductibles rise, this coverage helps employees manage their finances while they handle out-of-pocket medical expenses.
Who pays for short-term disability?
One of the biggest misconceptions about private short-term disability is that the business must always absorb the cost. Employers have options when it comes to funding.
- Employer-paid: You can choose to fully fund the policy as a perk to attract job seekers or to encourage long-standing employees to stay with your organization.
- Voluntary benefit: You can offer short-term disability as a voluntary benefit. This means that you sponsor the plan, so your team gets access to lower group rates. Employees who choose (since it’s optional) to enroll pay 100 percent of the premium through automatic payroll deductions.*
Other factors that will influence premium costs include the length of the elimination period, the percentage of income the policy covers, and your workforce’s general demographics (such as age). There are too many to list here, so it’s always good practice to speak with your Broker of Record about what influences rates.
* Sometimes these rates are exactly the same, and if they vary, it could be a fraction of a penny – employers typically pay for this. Note that it’s not a cost that can be split between the two parties – it is one or the other.
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The claims process varies
While it helps to know the general claims process, there’s no single, step-by-step timeline because each insurance carrier has its own forms and filing systems. A standard claim will require completed paperwork from the employee, their doctor, and your business to verify wages. Because missing documentation is often the biggest cause of delays, the first step is to contact your benefits broker. They’ll know your carrier’s exact requirements and direct you to the right portal so your employee’s claim is processed without a hitch.
Setting up a policy for your team
Adding short-term disability to your overall compensation package is surprisingly simple. If you decide to go the voluntary route, employees simply check a box during open enrollment, and the premium is automatically deducted from their paycheck moving forward. Business owners can usually add themselves to their company’s group disability policy as well. Keep in mind that adding an owner may raise the policy premiums, as owners tend to skew slightly older and earn a higher income, meaning the carrier would have to pay benefits based on a larger salary.
If you want to help your team protect their paychecks without stretching your budget, OnPay offers an array of employee benefits, and our team can walk you through your options. We can help you compare plans and set up a benefits package that makes sense for your unique business. We look forward to hearing from you!
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.