STD Benefit Amount Is a Cost AND a Retention Factor

How generous should your STD benefit amount be?

What percent of earnings should the plan pay to a disabled employee?

Traditionally, the STD benefit amount as a percentage of income has ranged from 50-70 percent, with 60 percent being the most common amount.

STD Benefit Amount Is Always a Trade-Off

The trade-off you make when you select one percentage vs. another is the tradeoff between

treating your employees fairly and
having them be slow to return to work.

Too low a percentage, and they’re in financial trouble and probably looking for another job -- increasing your turnover unnecessarily.

Too much and they’re slow to return to work -- where's the incentive to return when your employee can get almost as much staying home as he can working?

You Benefit From a Speedy Return to Work

You lose, too, when an employee is out.

Someone else has to do her job, and they probably don’t do it as well as she did. Moreover, they're stressed from trying to do two jobs, so they probably don't do their normal job as efficiently as usual.

Or you hire a temporary worker, which is a direct cost.

So set your benefit at some reasonable level… maybe that’s why 60 percent is so common — it’s fair but not excessive.

You can also limit the maximum dollars of weekly benefit. For example, your benefit may be 60 percent of earnings but never more than $500 per week.

This pays the lowest-earning workers (who are most hurt by a disability) a fairly large percentage benefit, but it limits the payment to higher-paid workers.

A $500 benefit represents 60 percent of an $833 weekly salary ($43,000 per year). So everyone up to $43,000 gets 60 percent of her pay when disabled.

Those earning more than that are limited to $500 per week. So the guy earning $1,200 a week also gets $500. But that's only 41.7% of his pay.

Is that fair? Who knows? Everyone has a hard time suffering through a reduction in income. But the presumption is that the guy making $1,200 a week can cover necessities with the $500 and is more likely to have savings to cover the rest of his needs.

Ultimately, the decision is up to you. Do you want to protect your lowest-paid workers, the higher-paid workers, or both?

There’s no right answer; it depends on your company, your industry, and your workers, so select the STD benefit amount that best suits your particular circumstance.

If this is all just too confusing and you'd like some professional opinions, just click here , let us know what you'd like to have us help you with, and we'll come work with you to evaluate your specific needs.

Perhaps what will help most is our benchmark analysis which will give you industry-specific guidelines about what your competitors are doing.

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