Who Pays State Disability Insurance?
An employer may provide state disability insurance (SDI) as part of its group benefits program. In this case, the employer isn’t required to offer the insurance, but it may do so to remain competitive.
A few states, however, have their own disability insurance programs, which are mandatory and funded by payroll taxes. As of 2018, California, New York, Rhode Island, New Jersey, and Hawaii all had SDI programs that partially replace the wages of workers who cannot work for a short period of time as a result of off-the-job illness or injury.
Each state has its own eligibility standards. Among other things, the employee must have a qualifying medical condition that hinders him or her from performing his or her duties at work and must be under the care of a licensed health-care professional.
SDI is paid for by either the employee or the employer, or both. Following are two examples.
California: Employees alone contribute to California’s SDI program, via payroll deductions, at the rate of 1 percent, up to the annual taxable wage limit of $114,967 (for 2018).
California’s SDI program offers two benefits: short-term disability, which covers off-the-job sickness or injury, pregnancy, or childbirth; and paid family leave, which lets employees take time off to bond with their new child or care for a family who is very ill. Employees can receive up to 52 weeks in SDI benefits, and up to 6 weeks for paid family leave.
New York: Employees are not required to make SDI contributions in New York; the employer alone can pay for the insurance. The employer is allowed, however, to withhold one-half of 1 percent of each employee’s wages, up to $0.60 per week per employee, to help offset the cost of providing the insurance. If certain conditions are met, the employer can withhold more than the statutory rate from employees’ wages.
Recipients of New York’s disability insurance are entitled to cash benefits of up to 26 weeks for a non-work-related illness or injury or disability resulting from pregnancy.
New York also started offering paid family leave in 2018, giving employees eight weeks at half pay. (The length of the leave and salary percentage both increase in future years.) Employers can deduct 0.126 percent of an employee's weekly wage, and the total is capped at an annual maximum of $85.56.
Contribution rules vary by state, so consult your state’s workforce agency for specifics.
Employers must report SDI contributions to the state workforce agency by filing the required form.
For example, nonhousehold employers in New Jersey must file quarterly using Form NJ-927 or Form NJ-927-W to report state income tax withheld plus contributions for workforce development, state unemployment insurance, health-care subsidy, SDI, and paid family leave. The report is due by the 30th day of the month that comes after the end of the quarter.
The state workforce agency may impose penalties on employers who violate the SDI laws. For example, in New York, failing to provide SDI is a misdemeanor that comes with a fine of no less than $100 but no more than $500 or imprisonment of up to one year, if it’s a first offense. As the number of violations increase, so does the fine.
Are you familiar with your state’s options and requirements? And how do you handle SDI if you have offices in multiple states? Contact us today so that we can help you with your specific situation.