Company-paid short-term and long-term disability plans typically provide employees with good basic coverage. However, because the benefit in many cases is taxed when the employee receives it, the net amount they receive (40 – 45% of pay) may not be sufficient to meet their financial needs. In addition, there are gaps and limitations in coverage that exist where employees don’t receive the protection they need. Many times employees are unaware of these issues until they actually go out on leave.
In order to provide employees with more comprehensive income protection, companies are making available supplemental disability plans that employees can purchase. These “employee pay all” plans have become quite popular, as they coordinate and complement well with the company’s core disability benefit plans. The plan design features include:
- A higher level of base salary coverage
- Incentive compensation can be included as eligible compensation
- Disability payments are non- taxable under current tax laws
- Premiums are discounted and remain level throughout a person’s working career
- Employees can take their coverage with them if they leave the company