Short Term Disability Insurance

 
Salary Continuance
 
A salary continuance plan (also known as a sick leave plan) is used by employers to manage short-term absences from work. A salary continuance plan is administered through payroll and there is minimal involvement in adjudicating the claim. The employee usually requires nothing more than a doctor's note to justify the lost time from work.
 
Salary continuance plans are not as common as they used to be but are still used by many organizations to provide coverage usually to their executives in large firms, or for all of their employees in smaller firms. Smaller firms will more often use salary continuance plans because it is more cost-effective than having an insurance carrier administered program.
 
Some common ways that employers use their salary continuance plans are outlined below:
  • Some plans allow employees to accumulate their sick days in a "sick leave bank" (this is considered an accounting liability and must be recorded in the accounting statements)
  • Some plans allow their employees to use their sick days prior to their retirement date
  • Some plans allow employees to "cash out" their sick days before their retirement date
Most salary continuance plans link the benefit payable with years of service.
Because in many cases an employer may not have the internal resources to make decisions on a claim, It is not uncommon, for those employers that provide a salary continuance plan, to have a third party, such as an insurance company, provide advisory services on a claim using their in-house expertise on a fee for service basis.  In many cases, employers may use these services for more complex claims, however it is important that the employer establish the criteria for using these services to ensure consistent application for all claims.
 
Short Term Disability (STD)
 
With the emergence of promoting early intervention in disability claims by qualified adjudicators and rehabilitation consultants, many organizations are amending their disability plans. Many employers are reserving salary continuance for short-term sicknesses only, and in the event of longer term illness or accident, short-term disability plans are used. Short term disability (STD) benefits plans (also known as weekly indemnity or WI for short), can be administered through an insurance company or health management company. By using a third party administrator such as an insurance company or health management company, employers can access additional services and expertise to help them manage, adjudicate and administer the disability claim.
 
STD benefits are structured to begin payment after a specified number of days (known as the qualifying period) usually ranging from 3 to 7 days after the last day worked.  For disabilities resulting from an accident or hospitalization, payment typically starts on the first day.
Under an STD plan the definition of an eligible disability is linked to the employee's inability to perform any or all aspects of their occupation.
Benefit payments received under an STD plan are taxable except for in the following two situations (according to Canada Revenue Agency):
  1. Where the premium is payed entirely by employees
  2. Where the employer pays the premium on behalf of employees, but the amount paid is reported as taxable income to employees
If the STD benefits plan benefit is equal to or better than the disability benefit provided under the Employment Insurance (EI) system, the employer can register the plan and qualify for a reduced EI premium rate. The steps involved in registering the STD plan are:
  • The plan must be registered with the Department of Human Resources and Skills Development (HRSD)
  • Once the plan is accepted the employer's EI contribution rate will be reduced
  • The application for premium reduction must be submitted before September 30th of the preceding year in which the reduction is sought
  • The plan must be in effect before January 15th of the year in which the application is made in order to be eligible for maximum premium reduction
  • If the above requirements are not in effect then a prorated premium reduction will apply
  • EI requires that at least 5/12 of the amount of premium reduction be returned to employees

Category: Group Benefits