California Employers Need to Prepare for Higher SDI Benefits

California employers need to start preparing to deal with increased State Disability Insurance (SDI) benefits in 2018. Return-to-work programs will become more important than ever because employees may have less incentive to come back to work.

Historically, the benefit has been about 55 percent of pay, up to the maximum benefit. For disabilities beginning on and after January 1, 2018, the benefit will be 70 percent of pay for people with wages below one-third of the statewide average and 60 percent for people with higher wages, up to the maximum benefit. The statewide average annual earnings are a little over $60,000, so employees earning less than about $20,000 will receive 70 percent of pay.

Employers that offer short-term disability (STD) benefits should re-evaluate those programs to determine if it still makes sense to offer STD benefits in light of the increased SDI benefits.

Employers that offer long-term disability (LTD) benefits with less than a one-year elimination period (the length of time a person must be disabled before benefits begin) should change those programs to have a one-year elimination period. SDI benefits are available for up to 52 weeks. Most LTD plans have an offset provision, whereby the LTD benefit is reduced by the amount of other benefits, such as SDI. A LTD plan with a 60 percent benefit and a 90-day elimination period would be a phantom benefit until SDI is exhausted. Employers that have employees both in and out of California may want to have a shorter elimination period for employees in other States.

Employers, particularly those with low-income workforces, should consider strengthening their return-to-work programs because employees will have less incentive to return to work because of the higher benefits.

Return-to-work strategies and programs have traditionally been used to reduce workers’ compensation costs; however, they can do much more —they can improve productivity and morale across an organization, they can save organizations time and money and they can protect employers from loss of talent.

Examples of effective return-to-work strategies include:

  • offering the opportunity to work part time
  • telecommuting
  • modifying work duties
  • modifying schedules
  • sending the employee to work at a non-profit while providing wages, if modified work duties are not available with the employer
  • implementing reasonable accommodations to provide employees with the tools and resources they need to carry out their responsibilities

Efforts such as these can help employees return to work sooner, even while still recovering. This allows the employee to protect their earning power while at the same time boosting the organization’s productivity. Furthermore, in many instances, the ability to return to work after injury or illness plays an important role in the employee’s actual recovery process.


John Garner

About John Garner

John Garner has over thirty five years of experience in employee benefits. He specializes in compliance, health care reform, the Health Insurance Portability and Accountability Act (HIPAA), the Consolidated Omnibus Budget Reconciliation Act (COBRA), and the Employee Retirement Income Security Act (ERISA). He helps clients with life, health, and disability benefits, cost containment, flexible benefits, and claim consulting.

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