Understanding Workers’ Compensation and Short-Term Disability Insurance 

Many companies face challenges when employees shift between workers’ compensation and short-term disability (STD) programs. This issue often goes unnoticed when there isn’t a strong connection between human resources (HR) and risk management teams. Creating a better alignment between these departments can improve employee health management and reduce costs by addressing common ground.

What is Short-Term Disability (STD)?

Short-term disability is usually an employee benefit offered voluntarily. It provides income replacement for workers who experience an illness or injury outside of work, supporting them during recovery through the company’s disability insurance plan.

Key Aspects of Short-Term Disability

• Benefits typically cover around 60% of the employee’s salary.
• Payments may be taxable, depending on plan structure.
• Employees may need to pay healthcare plan deductibles out of pocket.

What is Workers’ Compensation?

Workers’ compensation, managed by the employer as part of risk management, covers medical bills and lost wages for job-related injuries. This is typically a separate insurance policy designed to handle on-the-job incidents.

Key Aspects of Workers’ Compensation

• Coverage generally equals about two-thirds of the employee’s salary.
• Benefits are usually not taxable.
• Healthcare deductibles are not the employee’s responsibility.

How Do Workers’ Compensation and Short-Term Disability Differ?

When both programs are understood, employees may try to optimize their benefits, leading to crossover between the two. For instance, an employee with a pre-existing, non-work-related back issue may experience further injury at work, potentially qualifying for workers’ compensation instead of short-term disability. This can occur even if the original issue wasn’t job-related.

Encouraging better integration of these programs benefits both employees and employers. For employees, it promotes smoother transitions and potentially reduces the emotional challenges of prolonged work absence. Extended leaves can negatively impact mental health and job reintegration. For employers, these integrations can protect productivity and retain employees’ knowledge, while also reducing overall costs.

Benefits of Aligning Workers’ Compensation and Short-Term Disability

A study by the Integrated Benefits Institute, examining claims data over three years from several large companies, found notable patterns:

• Approximately 30% of workers’ compensation claims for back pain, and 22% for sprains, were followed by short-term disability claims for the same issues.
• The average STD claim costs were $4,200 for sprains and $7,000 for back pain. However, within workers’ compensation, costs for similar cases averaged $21,000 for sprains and $46,000 for back pain.

Workers’ compensation claims often carry higher costs due to increased benefit rates and comprehensive medical coverage.

These findings emphasize the value of coordinated efforts between HR and risk management to support employees’ workplace engagement post-injury, which helps reduce repeated claims and fosters a healthier workforce.

A HUB broker can assist in integrating voluntary benefits, like short-term disability, with workers’ compensation strategies to create a more effective benefits structure.