Talking to Employees about Disability Premiums

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Advising your employees of a mandatory payroll deduction is not an easy task, even when it is for their own benefit. This article will help you in communicating to your employees why your organization has made the decision for Short and/or Long-term Disability (STD / LTD) premiums to be 100% employee paid.

The short answer is taxes. If the employer pays the premium the benefit is considered taxable, if the employee pays the premium then the benefit is considered non-taxable.

The long(er) answer - Short and long-term disability insurance protects your employees earnings should they become disabled and unable to work. The benefits provided during the time of disability would be considered income, and therefore subject to income tax.

Below is a simplified scenario with the outcomes of employer paid vs employee paid premiums on a disability claim.

John makes $100/week, and as per the group benefit plan John is eligible for 67% of his weekly earnings through his LTD coverage. 
Since John paid 100% of the LTD premiums, he will receive $67.00/week for the benefit term, tax-free.
If John's employer paid for the LTD premium, he would receive $67.00/week lesstaxes, which would leave him with even less money to cover his expenses while he is off work. 

It is also beneficial to note that many people opt to purchase STD and LTD on their own if their group benefits plan does not include this coverage. In these cases the premiums can be incredibly high as they do not have the "buying in bulk" pricing advantage of group benefit plans. 

Too much insurance jargon? Check out our glossary to expand your benefits vocabulary!  

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