Short-Term Disability for Employers: What You Need to Know

When an employee faces a non-work-related illness or injury that keeps them off the job for weeks, the lost paycheck strains their finances, and the absence strains your schedule and the rest of your team.

Short-term disability insurance keeps part of that employee's income coming while they recover. How you set it up shapes what it costs your business and how it works alongside the leave and health coverage you already offer.

SurePayroll By Paychex calculates payroll, withholdings and deductions, and completes direct deposit, and calculates, submits and files payroll taxes.

What is short-term disability insurance?

Short-term disability (STD) insurance covers temporary conditions an employee is expected to recover from, such as recovery from surgery, an injury, or a serious illness that isn't job-related. In some cases, it also covers pregnancy complications and recovery from childbirth. Work-related injuries and illnesses are generally covered by workers' compensation instead.

Benefit payments generally start after a waiting period, also called an elimination period, and continue until the employee returns to work or reaches the plan's maximum benefit period. Short-term disability plans generally provide benefits for six to 12 months, although the specific benefit period is set by the plan.

Short-term and long-term disability insurance both provide income replacement, but for different stretches of time. Long-term disability insurance is designed to begin after short-term disability benefits end and is meant for more serious or lasting conditions that keep someone out of work for an extended time.

How does short-term disability work?

Coverage works through a claim. A covered employee files when a qualifying medical condition temporarily keeps them from working, and submits a diagnosis and supporting documentation from a healthcare provider to the insurance company for review.

If the claim is approved, payments usually don't begin immediately. The plan's waiting period comes first, and during that time employees may use paid time off (PTO) or sick leave, if available, to cover the gap in income.

After that period, the employee receives a percentage of their pre-disability earnings, often 50% to 70%, depending on the terms of the policy. Short-term disability benefits continue until the employee returns to work or benefits run out under the policy.

Who pays health insurance while on short-term disability?

In most cases, whether benefits continue depends on the employer's policies. Many employers choose to keep employees on their health plan during the leave. The employee's share of the cost still has to be paid, and because the insurer typically pays the disability benefits directly, that share may not come out of a regular paycheck, so decide in advance how employees on leave will pay it.

If an employee loses health coverage because of a COBRA qualifying event, such as a reduction in hours, they may be eligible to continue coverage at their own expense through COBRA. COBRA generally applies to employer health plans sponsored by employers with at least 20 employees, while state continuation requirements may apply to smaller employers.

If the short-term disability leave also qualifies for protection under the Family and Medical Leave Act (FMLA) — a federal law that provides eligible employees with up to 12 weeks of unpaid, job-protected leave — the rules are different. Under FMLA, employers are required to maintain group health insurance coverage during the leave, as long as the employee continues to pay their portion of the premium, if applicable, and under the same terms as if they were working.

For private-sector employers, FMLA generally applies when the employer has 50 or more employees. Employees must also meet length-of-service and hours-worked requirements and work at a location where the employer has at least 50 employees within 75 miles.

What qualifies for short-term disability?

Policies typically cover temporary physical and mental health conditions that keep an employee from performing their job duties, as long as the condition meets the criteria in the employer's policy and a medical provider certifies it.

Common qualifying conditions may include:

• Injuries from accidents (such as car crashes or serious falls)
• Recovery from surgery (e.g., orthopedic, abdominal, or cardiovascular procedures)
• Pregnancy and childbirth-related recovery
• Acute illnesses that require extended rest or treatment (like pneumonia or severe infections)
• Musculoskeletal disorders such as back pain, joint issues, or repetitive strain injuries
• Digestive conditions that significantly impact function or require hospitalization (e.g., Crohn's disease flare-ups)
• Mental health conditions, including severe anxiety, depression, or post-traumatic stress disorder (PTSD), when they temporarily prevent someone from working

Specific covered conditions and the required documentation vary by insurance policy.

What employers should know about offering short-term disability

Short-term disability is less common at small businesses than at larger ones. In March 2026, 30% of private industry workers at establishments with fewer than 50 workers had access to short-term disability plans, according to the U.S. Bureau of Labor Statistics (BLS), compared with 44% of private industry workers overall. That gap makes the benefit one way for a small employer to round out its employee benefits package.

Is short-term disability insurance required?

Federal law doesn't require private employers to offer short-term disability insurance. California, Hawaii, New Jersey, New York, and Rhode Island, along with Puerto Rico, require some form of temporary disability coverage for private-sector employees. These programs are often called temporary disability insurance (TDI), and each one sets its own rules for who provides the coverage and who pays for it.

Several of these programs are funded at least partly through employee payroll withholding, so the contribution belongs in your payroll setup alongside other state withholding. Some states also run paid family and medical leave (PFML) programs, which are separate from temporary disability coverage and have their own contribution and coverage rules. Rules and rates change, so check your state agency for current requirements. In all other states, offering short-term disability is voluntary.

Employer responsibilities for a short-term disability plan

Even when it isn't legally required, offering short-term disability coverage comes with a few key responsibilities. These might include:

• Choosing a policy that fits your team and budget
• Providing employees with information about their coverage and how to file a claim
• Withholding and remitting employee contributions if employees share the cost
• Coordinating with HR or a third-party administrator to handle claims and documentation

Clear communication and documentation are key, especially around eligibility, benefit duration and how short-term disability interacts with other types of leave, such as FMLA, state and local leave laws, PTO, or other time-off policies.

Short-term disability benefits replace income, but they don't hold an employee's job open on their own. Job protection may come from FMLA or applicable state leave laws. The Americans with Disabilities Act (ADA) may also require an employer with 15 or more employees to provide unpaid leave as a reasonable accommodation for a qualified employee with a disability, unless doing so would cause undue hardship.

Who pays for short-term disability insurance?

Employers can choose how the benefit is funded. The three most common models are:

• Employer-paid: The company covers the full cost of coverage, offering short-term disability as a company-provided benefit.
• Voluntary (employee-paid): Employees can opt into coverage and pay the premiums themselves, often through payroll deductions.
• Shared-cost: Both the employer and employee contribute to the cost of the coverage.

How premiums are paid can affect the federal tax treatment of benefits. Benefits attributable to employer-paid or pretax premiums are generally taxable to the employee, while benefits from coverage paid entirely by the employee with after-tax dollars generally aren't.

Reasons short-term disability claims can be denied

Not every short-term disability claim is approved. Common reasons for denial include:

• Insufficient medical documentation: Claims must be supported by detailed records from a healthcare provider explaining the diagnosis, treatment plan, and how the condition affects job performance.
• Condition doesn't meet the policy definition: If the illness or injury doesn't align with the policy's criteria for a qualifying disability, payments may be denied.
• Pre-existing conditions: Many plans exclude or limit coverage for a pre-existing condition the employee had before enrolling.
• Late filing: Most plans require claims to be submitted within a set timeframe, and missing that deadline can lead to a denial.
• Lack of ongoing medical care: Employees generally must be under the care of a doctor and follow a prescribed treatment plan.
• Incomplete or inaccurate paperwork: Missing, inconsistent, or incorrect information can delay or derail a claim.
• Failure to cooperate: Ignoring insurer requests for information, medical evaluations, or documentation can lead to denial.

If the plan is a private-sector employer plan governed by the Employee Retirement Income Security Act (ERISA), federal rules set the claims timeline. Under ERISA, the plan generally must decide a disability claim within 45 days, with limited extensions, explain a denial in writing or electronically, and give the employee at least 180 days to appeal, according to the U.S. Department of Labor.

How to set up a short-term disability policy

When comparing plans for your business, look at the features that determine what employees receive and what you pay:

• Benefit amount: the percentage of pre-disability earnings the plan replaces, and any weekly maximum
• Elimination period: how long employees wait before payments start
• Benefit period: the maximum length of time the plan pays
• Partial disability benefits: whether the plan pays when an employee returns to work part time during recovery
• Eligibility rules: minimum hours worked, length of employment and any pre-existing condition limits
• Long-term disability plans: whether you'll offer coverage that picks up if a condition lasts beyond the short-term benefit period

Plans can vary widely. For help navigating your options and ensuring compliance, consider consulting with an insurance agent or a qualified HR or finance professional.

Once you choose a plan, make sure employees know what qualifies as a covered disability, how long the waiting period lasts and what documentation they'll need to provide. Establish a consistent internal process for submitting claims, sharing updates and coordinating with HR or your insurance provider, and encourage employees to submit medical documentation early and keep communication open throughout the leave.

How payroll fits into a short-term disability benefit

When employees pay all or part of the cost, their contributions come out of each paycheck, so payroll is part of running the benefit. With SurePayroll, you set up the deductions once, and they're taken out on your pay schedule.