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Workers Comp vs Disability Insurance?
Written by: BIS Benefits
What is Workers' Compensation Insurance?
Workers' compensation insurance is a type of coverage that protects employees in a few different ways. If someone becomes sick or injured while on the job due to the requirements of their position, that is where workers' comp comes into play.
If they are forced to take time off of work for recovery or rehabilitation, a workers' comp policy can cover not only their healthcare costs but, in some cases, lost wages, too.
What is Disability Insurance?
Disability insurance also provides someone with financial support when they are unable to work, although the type of coverage typically varies depending on the role someone plays within a company. It's available in two different versions: short-term and long-term.
A short-term disability plan typically provides benefits for a duration ranging from three to six months. This coverage is commonly included in employers' standard group insurance plans, with employees contributing through monthly premiums.
Long-term disability insurance provides coverage over an extended period, often spanning several years. It is designed for scenarios involving prolonged or permanent disabilities. Individuals can acquire this type of insurance through their employer, where the cost is either fully borne by the employee or the employer. In the former case, the employee covers 100% of the cost, while in the latter, the employer assumes the full financial responsibility.
Workers' Comp vs. Disability Insurance
The major difference between
workers’ comp and disability insurance is that the former is for work-related injuries or sickness but disability covers injuries or sickness outside of work.
Given the nature of workers' compensation, this makes sense. If you own a roofing business and part of an employee's job description requires them to climb up a ladder onto the roof of a home, and one day they fall off that ladder and seriously injure themselves, this is something that happened as a direct result of the job you are paying them to do.
Disability insurance, on the other hand, is paid through private insurance policies, employer-sponsored plans, or government programs (ie. Social Security Disability Insurance).
The nature of what is covered is another major difference between workers' comp and disability insurance. In workers' comp situations, the policy offers compensation in situations where the employer would ultimately be found liable. Again — if someone's normal job duties lead to them getting injured, that would be covered. If someone just generally becomes injured and cannot work (like if they get into a car accident that is totally unrelated to their job), that is where disability benefits would be useful.
Just a few of the other differences between workers' compensation and disability insurance include but are not limited to ones like:
- Coordination with other benefits differs as workers' compensation may be adjusted based on receipt of other public disability benefits, such as Social Security Disability Insurance, while disability insurance benefits are typically independent and can be received concurrently with other forms of assistance without substantial modifications.
- While disability benefits are typically taxable, the tax treatment varies based on factors like the source of benefits and premium payment methods. Workers' compensation benefits are often tax-exempt, but tax implications for disability insurance depend on whether premiums were paid with pre-tax or after-tax dollars.
- With a workers' compensation policy, oftentimes payments will continue even after someone has returned to the job. This is because they may still need physical therapy or other forms of rehabilitation to get back “up to full speed,” which can take a significant amount of time even after someone is capable of working again. With disability benefits, all payments usually stop the moment an employee gets back to work.
Finally, one of the biggest ways in which workers' compensation and disability benefits differ is that the former is dictated by law. While the requirements of a compliant policy will vary depending on where in the country a business is located, some type of coverage must still be offered to employees.
Disability insurance, on the other hand, will vary wildly in coverage based on the provider someone works with, the type of policy they get, and more. Because of this legal requirement, there are also consequences of not getting workers' compensation insurance where there will not be disability insurance.
Assessing Your Business Needs
As stated, your business is legally required to offer some form of workers' compensation coverage to employees. Typically, this only varies based
on who must be covered — some states do not require seasonal or migrant workers to be covered, for example. This is why it's important to find a partner who understands not only workers' compensation insurance but all compliance-related matters in the specific part of the country you're operating in.
Having said that, it's likely still a good idea to offer disability insurance to employees— even if you aren’t necessarily legally required to. It's no secret that a significant number of people would have trouble paying for basic expenses if they were to become injured and have to take time off work. Adding disability insurance to your existing benefits package is a great way to make it more robust, while also cementing a legitimate competitive advantage for yourself at the same time.
The more attractive your employee benefits offerings are, the easier it will be to both attract and retain top talent.
Can an Injured Employee Collect Both Disability
and Workers' Comp?
Yes — but when it comes to Social Security Disability Insurance, in particular, there are rules that must be followed. If someone is getting workers' compensation and SSDI payments, the combined total cannot be more than 80% of their average current earnings.
Along the same lines, you cannot file for short-term disability insurance when you should be getting workers' compensation benefits. Some of the short-term disability benefits will likely have to be repaid.
Buy Insurance from a Trusted Benefits Broker like BIS
If you'd like to find out more information about the major differences between workers' compensation and disability insurance, or if you'd just like to discuss your organization's own benefits needs with someone in a bit more detail, please contact the team at BIS Benefits today.
