Is Short-Term Disability Considered Paid Family Leave?
Understand the key differences between short-term disability and paid family leave, including coverage, funding, eligibility, and tax implications.
Short-term disability (STD) and paid family leave (PFL) both provide financial support when employees cannot work, but they serve different purposes. Employees often confuse the two, as both can apply to medical situations. However, their differences affect eligibility, funding, taxation, and compensation.
Understanding these distinctions is important for anyone planning time off due to illness, injury, or family-related needs.
Coverage Distinctions
STD replaces a portion of an employee’s income when they cannot work due to their own medical condition, such as surgery recovery or a serious illness. PFL, in contrast, provides wage replacement for employees who need time off to care for a family member, bond with a new child, or handle certain military-related situations.
The duration of benefits differs. STD typically lasts from a few weeks to six months, depending on the plan. PFL benefits are generally shorter, ranging from six to twelve weeks. For example, California provides up to eight weeks, while New York offers up to twelve.
STD often requires employees to use accrued sick leave or vacation time before benefits begin, while PFL can typically be taken without using other paid time off. Additionally, STD policies frequently have a waiting period of one to two weeks before benefits start, while PFL benefits usually begin immediately once approved.
Employer Funding and Deductions
Funding for STD and PFL varies by state and employer policy. Some employers fully cover STD benefits, while others require employee contributions. PFL is typically funded through mandatory employee payroll deductions in states that administer it as a government program.
In states like California, New York, and New Jersey, employees pay into PFL programs through automatic wage deductions. For instance, in 2024, New York’s PFL contribution rate was 0.373% of an employee’s gross wages, capped at an annual maximum of $333.25.
STD is often provided through private insurance policies purchased by employers, though some companies offer voluntary plans that employees can opt into at their own expense. Employers may either self-insure, paying benefits directly to employees, or purchase group policies from insurance carriers. Self-insured plans reduce costs but require financial planning, while group policies transfer financial risk to an insurer, with premiums based on workforce demographics and claims history.
Tax treatment differs. Employee payroll deductions for state-mandated PFL programs are typically post-tax, meaning they do not reduce taxable income. Employer-paid STD premiums are usually tax-deductible as a business expense. If employees contribute to a voluntary STD plan, their portion may be deducted pre-tax if structured under a Section 125 cafeteria plan. Whether benefits are taxable upon receipt depends on how premiums were paid, affecting net compensation during leave.
Eligibility Criteria
Eligibility for STD and PFL depends on employment status, tenure, and specific program requirements. Many STD policies require employees to have worked for 30 to 90 days before becoming eligible. PFL eligibility varies by state but generally requires employees to have earned wages for a minimum number of weeks or met an earnings threshold. For example, in California, workers must have contributed to the state’s disability insurance program and earned at least $300 in wages during their base period to qualify for PFL.
Employment classification also matters. Full-time employees are usually covered under employer-sponsored STD plans, while part-time or temporary workers may be excluded unless specifically included in policy terms. PFL programs in states like New York and Massachusetts extend coverage to part-time workers who meet minimum work hour requirements. Independent contractors and self-employed individuals are generally not covered unless they opt into state programs voluntarily, as is the case in Washington and Oregon.
Job protection is another key difference. While the federal Family and Medical Leave Act (FMLA) provides unpaid leave with job security, not all STD plans guarantee reinstatement. PFL programs in states such as New Jersey and Connecticut often include job protection, ensuring employees can return to their positions after taking leave. Employers may also have their own policies that extend job security beyond legal requirements.
Tax Treatment of Benefits
The taxation of STD and PFL benefits depends on how premiums or contributions were funded. If an employer pays the full cost of an STD policy, any benefits received are taxable and subject to federal income tax, Social Security, and Medicare withholding. Employees who contribute to STD premiums on a post-tax basis receive benefits tax-free, while pre-tax contributions through a Section 125 cafeteria plan result in taxable benefits.
PFL benefits from state-administered programs are generally subject to federal income tax but may be exempt from Social Security and Medicare taxes. The IRS considers these payments a replacement for lost wages, making them taxable in most cases. Some states exclude PFL benefits from state income taxation. For example, California does not tax PFL benefits at the state level, while New York includes them as taxable income for state purposes.
Impact on Compensation
Receiving STD or PFL benefits affects overall earnings, retirement contributions, and other forms of compensation. Since both programs provide partial wage replacement rather than full salary continuation, employees may experience a temporary reduction in income. The percentage of wages replaced varies by plan or state program. STD typically covers 50% to 70% of pre-disability earnings, while PFL benefits range from 60% to 90%, depending on jurisdiction and income level. For example, California’s PFL program replaces 60% to 70% of wages, while New Jersey offers up to 85%, subject to a weekly cap.
These benefits can also impact employer-sponsored retirement plans and bonuses. Many 401(k) and pension contributions are based on active payroll earnings, meaning reduced wages during leave may result in lower employer matching contributions. Additionally, performance-based bonuses or commissions may be affected if compensation calculations exclude periods of leave. Employees who rely on incentive pay should review their company’s policies to understand how taking STD or PFL might influence their total compensation.