Short-term disability

Unforeseen illness or injury may lead to an extended period of leave from work for an employee, which may have multiple negative consequences for the employee, as well as the employer. The employee can incur financial hardship and experience lost wages, while the employer suffers from disruption in workforce productivity. A solution to address this problem is short-term disability benefits.

What is short-term disability insurance?

Short-term disability refers to when an employee takes a temporary leave from work due to illness, injury, or other physical conditions. In such cases, employers may offer short-term disability insurance as part of the employee’s extended health benefits package. Employees may also purchase this insurance by themselves from a third-party insurance company.

Depending on each employer or the insurance policy, employers can pay set amounts of disability insurance. These amounts may vary based on the insurance policy and the duration for which the employee will be away from work, and they typically cover the portion of the employee’s income for when they are unable to work due to a temporary physical condition.

How does short-term disability insurance work?

How short-term disability insurance works depends on how it is covered – whether personally or through the company. With some employers and insurers, employees may be required to work for a certain period before they become eligible for disability insurance. The employer generally also provides details regarding conditions that qualify for the benefit and the necessary documents required for the claim. In cases where an individual purchases disability insurance personally, they may need to take note of the policy’s expiration date  and ensure to renew it upon expiration, so it is valid when needed. Furthermore, this type of insurance typically does not cover pre-existing conditions and may only apply to disabilities/ injuries/ illnesses that occur after the policy is purchased.

What conditions qualify for short-term disability?

Various health conditions may or may not qualify for short-term disability benefits. It is important to verify your policy information and consult your healthcare practitioner. The following is a short list of examples from Indeed Canada:

1. Cognitive issues: These are conditions that may affect brain function. They may include symptoms such as memory loss, inability to concentrate and make decisions, identity confusion, or delirium. These conditions may be temporary, but they may affect a person’s ability to perform daily functions.
2. Hearing issues: These can often result from factors such as aging, underlying diseases, or exposure to loud noises for a prolonged period of time. Impaired hearing may also occur in cases where employees who work in a company’s factory/manufacturing unit and are exposed to loud noise from machines.
3. Breathing difficulties: Often caused by lung diseases such as asthma, lung cancer, tuberculosis, influenza, or pneumonia. These conditions can develop suddenly or over a period of time and make it difficult for an employee to work.
4. Chronic pain: Pain or discomfort that is persistent and lasts for an extended time period to the point where an employee struggles to perform daily tasks such as moving, sitting, walking, or eating. These are commonly seen as back pain, arthritis, or pain caused by cancer that persists even after recovery, which makes an employee unfit to perform at work.
5. Post-surgery rehabilitation: For instance, stiffness and weakness which require physical therapy and exercise therapy to aid in recovery. An employee who undergoes surgery may use their short-term disability insurance to cover the period of their rehabilitation.
6. Digestion issues: Diseases related to the digestive system, including irritable bowel syndrome, gastroesophageal reflux disease, and cancer.
7. Restricted body mobility: Impairment in mobility such as in the upper body when a person has limited or no use of the hands; or in the lower body when a person requires a wheelchair, cane, or walker.

How long do short-term disability benefits last?

The duration of the benefits depends on the provider and usually may be anywhere from a few weeks to several months, depending on the policy and the province or territory.

If an employer does not provide short-term disability insurance, employees may be eligible for Employment Insurance (EI) sickness benefits, which provide up to 26 weeks of financial benefits.

Short-term vs long-term disability

Short-term disability benefits can be weekly benefits, with a maximum duration of several months, depending on the policy and province or territory. On the other hand, long-term disability plans may sometimes involve monthly payments, starting at the end of short-term disability coverage, and depending on the plan, may pay up to an employee’s retirement age. An employee may also qualify for  Canada Pension Plan (CPP) disability benefits if they are unable to work because of a long-term disability that may be of indefinite duration or may result in death.

Types of short-term disability plans

To be eligible for short-term disability benefits in Canada, an employee must be covered in one of following types of plans:

• Group insurance plans
  Some companies provide group benefits such as medical, dental, and drug coverage for employees. Occasionally, this includes short-term disability benefits as well.
• Employer-funded plans
  These plans are when an employer directly pays out short-term disability benefits to employees. They may also include rehabilitation protocol provided by the employer.
• Employee Insurance (EI) sickness benefits
  If the employee does not have short-term disability coverage through their employer, they may be eligible for Employment Insurance (EI) sickness benefits. These benefits can provide up to 26 weeks of financial benefits if an employed person is unable to work for medical reasons such as illness, injury, or quarantine. The employee claiming EI sickness benefits is required to present a medical certificate stating that they are unable to work and for approximately how long.

How much does short-term disability insurance pay?

The payout from short-term disability benefits depends on the employee’s coverage policy and compensation. In 2024, employees receiving benefits from Employment Insurance (EI) sickness benefits can receive up to 55% of their earnings, with a maximum of $668 per week.

Are short-term disability benefits taxable?

Taxation of disability insurance benefits depends on who paid the disability insurance premium. If an employee pays the entire amount themselves, the disability benefits will not be taxable. However, if the employer pays the disability premium in part or full, the disability benefits will be subject to income tax.

How long is short-term disability coverage in Canada?

The time period for short-term disability coverage is often six months. Employers who offer short-term disability insurance will be able to provide details on the plan. Moreover, some employers may offer paid sick leave as well.

How to extend short-term disability

While there is no way to extend short-term disability once the benefit period ends, if the disability persists and continues to prevent the employee from returning to work, they may be eligible to apply for long-term disability.

The eligibility criteria and payout policy of long-term disability benefits are different from those of short-term disability benefits, and it is important for the employee to read their group benefit policy to see if they qualify.

Benefits of short-term disability insurance

Offering short-term disability insurance can be beneficial for employers, provided they are able to balance the upfront costs with the long-term benefits. Employers who can balance costs vs. benefits may be able to:

• Attract new talent
• Retain high-potential employees
• Improve employee engagement
• Enhance employee financial wellness

Frequently asked questions

Who pays for short-term medical disability insurance?

Companies that provide short-term disability insurance benefits usually pay for it in one of these ways: through the self-funded method, or through the insurance method. In the self-funded method, the employer provides the benefits by themselves, with no external involvement, whereas in the insurance method, the employer partners with an insurance company to provide the benefit.

How do you apply for short-term medical disability?

Depending on the type of short-term disability coverage provided by the employer, a claim can be applied for by an employee either directly with the employer, or with the insurance company. An employee is generally required to fill the claim forms, submit medical reports, and gather other documents and signatures. It is important for the employee to confirm that the condition qualifies for short-term medical disability and that they are eligible for the benefits before filing the claim.

How long does it take for short-term disability insurance to begin?

Insurance coverage may commence instantly upon filing a claim or there may be a waiting period. In situations where there are serious injuries that require immediate attention, some insurance companies may begin coverage right away while simultaneously processing the claim.

What are the eligibility requirements?

The eligibility requirements to receive short-term disability benefits depend on the employer and the insurance company. Most employees may generally be eligible for this benefit; however, common eligibility requirements include full-time status, minimum wage earnings, and established insurance coverage before the claim is filed. Employees may also consider Employment Insurance (EI) sickness benefits if they do not qualify for their company’s short-term disability benefits.

Learn More

Managing the benefits and administration process can be difficult and time-consuming for employers. At ADP, we strive to help you attract and retain top talent while staying in control of your costs. ADP Workforce Now offers you a simple and engaging benefits platform.

To learn more, call 866-622-8153 or start a quote to get started.

This guide is intended to be used as a starting point in analyzing short-term disability and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.