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State disability insurance replaces wages for sick or injured employees that miss work.

What Is State Disability Insurance?

Some states provide insurance to employees that are temporarily disabled because of illness or injuries. These states offer reimbursement for lost wages during time off. The coverage is called state disability insurance (SDI) or temporary disability insurance (TDI).

A temporarily disabled worker’s wages are partially reimbursed. The health condition must not have occurred on the job.

State disability insurance is funded by deductions from payroll. Covered employees contribute a part of each paycheck towards the insurance. In areas that don’t provide coverage, employees need private disability insurance for reimbursed wages.

Private vs. state disability insurance

In states that offer disability insurance, employees may choose between a private employer plan or SDI. Employees can compare both the plans and choose the most suitable option.

Many employers offer private disability insurance plans as a part of a benefits package. Just like SDI, private plans are funded by payroll deductions. Instead of submitting the funds to the state, the money is kept within the firm in case of a private plan.

States with disability insurance

The following states currently require employers to purchase disability insurance:

California

  • You can get state disability insurance or insurance through a private company.
  • The majority of your employees must agree with your decision to if go through a private carrier.
  • You must withhold wages and inform employees of disability benefits.

Hawaii

  • Coverage is called temporary disability insurance (TDI).
  • You can buy an insured plan from an authorized carrier, adopt a sick leave policy (self-insured plan), or use a collective bargaining agreement that contains sick leave benefits.
  • You can pay the whole amount or equally share withholdings with employees.

New Jersey

  • You are automatically covered under a New Jersey state plan unless workers are covered under a private carrier.
  • You must give employees a written notification of temporary disability benefits at the time of hire, when when they take time off for eligible SDI reasons, and whenever they request one.
  • Employees get up to 26 weeks of partial wage replacement.

New York

  • You can pay premiums or share payments with employees.
  • Employer contributions are tax deductible.
  • You must buy insurance through private carrier.

Rhode Island

  • The insurance is called temporary disability insurance (TDI).
  • Temporary disability insurance is financed entirely by employee payroll deductions.
  • You must give all employees information about TDI and display a notice in the workplace.

Note: Puerto Rico employers are also subject to state disability insurance.

Long-term disabilities

Employees suffering from long-term disabilities may be eligible for benefits services beyond SDI. State disability insurance can help as employees wait for other benefits eligibility confirmation.

The Department of Labor website offers a significant collection of resources on disability benefits. The Social Security Administration also provides an overview of state disability programs.

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This article was updated from its original publication date (6/17/2012).

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