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Should Your Small Business Offer Voluntary Disability Insurance?

Should Your Small Business Offer Voluntary Disability Insurance?

As a small business owner, it's difficult to find the right balance between a competitive benefits package and your budget. Fortunately, offering voluntary disability insurance is one way to support employees without breaking the bank.

In 2020, the Bureau of Labor Statistics (BLS) found that short-term disability (STD) was available to only 40% of civilian workers, while long-term disability (LTD) was only available to 35%. While most employees don’t have disability insurance, it does create an opportunity for employers.

Do you want to stand out from competitors and provide employees with a way to protect their income? Offering short and long-term disability insurance is a more cost-effective way to recruit and retain top talent. Read more about how voluntary disability insurance works and the benefits of providing your employees with this benefit.

What Is Short-Term And Long-Term Disability Insurance?

Short-term and long-term disability insurance helps answer the difficult question, "How much do I pay an employee who has suffered from an illness or injury after they've exhausted their sick leave?"

Short-term disability benefits are calculated as a percentage of weekly wages (up to 60% or 2/3 of weekly income) and usually have a maximum benefit of $1,500 to $2,000 weekly. It pays an employee a portion of their salary in situations when they experience a non-job-related illness, injury, or medical issue that stops them from working for a limited time. Long-term disability is similar, but provides financial benefits over longer periods of time.

What's The Difference Between Short-Term And Long-Term Disability?

Short-term and long-term disability follow the same calculation: employees receive up to 60% or 2/3 of their weekly income. The main difference between STD and LTD is the waiting period and how long it lasts. LTD's waiting period can take anywhere between three to six months, and coverage typically doesn't last any longer than three years.

How Much Does Disability Insurance Cost?

In 2022, the BLS reported that, on average, hourly costs per hour worked for STD was $0.08, while LTD was $0.05. Those hourly costs are a notable decrease from years past, making disability insurance more cost-effective than before. These estimates allow employers to estimate how much offering voluntary disability insurance will cost their business.

For example, let’s calculate the estimated disability insurance costs for a full-time worker. Someone working 40 hours per week for 52 weeks will work an estimated 2,080 total hours in a year. We can use these hours to determine a potential annual cost for STD, LTD, and a combination of both benefits:

  • STD = 2,080 hours x $0.08 per hour = $166.40 annually
  • LTD = $2,080 hours x $0.05 per hour = $104 annually
  • STD and LTD combined = $270.40 annually

This is an estimate for one full-time employee, so you’ll need to do the math to calculate costs for your entire eligible workforce. For that equation, you can use a total annual hour estimate for any employees eligible for voluntary disability insurance. The resulting number will give you an idea of how much this benefit would cost your business.

A woman with an injured arm signing up for voluntary disability insurance.

Does Offering Voluntary Disability Insurance Benefit Small Businesses?

While voluntary disability insurance is an additional expense, that extra money is a good investment. There are plenty of ways that offering voluntary disability insurance benefits employers, such as attracting new employees, enhancing current employee loyalty, and helping employees return to work.

Attract new employees

STD and LTD fall under "voluntary disability insurance" because only California, Hawaii, New Jersey, New York, and Rhode Island require that employers offer STD and LTD by law. However, MetLife’s annual report on workplace trends found that 51% of employees see disability insurance as a must-have. That desire for disability benefits means that offering STD and LTD can help you attract more talented employees than before.

Enhance current employee loyalty

Employees like working for places that support their overall wellbeing. The Council for Disability Awareness (CDA) reported that 62% of employers care that their jobs offer them more financial security through their benefits package. In addition, the CDA reported that 64% of employees would be more loyal to their current employer if they had benefit choices. An extra show of support can help keep your employees happy, which means they’re more likely to stay and be productive.

Additionally, an Aflac study revealed that 59% of individuals working at small companies are willing to accept slightly lower pay with better benefits. If you’re brainstorming how to keep employees engaged without increasing wages, offering STD and LTD might be an option. Since the average cost per full-time employee is $270.40 a year, it might be more cost-effective to offer employees disability insurance versus increasing wages.

Help employees return to work

Poor employee retention hurts your business’ bottom line. If an employee ends up out of work because of a disability, they may leave for a job that offers them insurance in case of a future issue. Replacing lost workers is quite an expense when the Society of Human Resource Management (SHRM) reports that the average cost to hire a new employee is $4,638.

Certain disability insurance options offer rehabilitative programs to help employees heal sooner. When an employee prematurely returns to work with an unhealed injury, they won’t be as productive or may create additional issues. These programs can help workers heal properly and get back to full strength more quickly.

GMS Offers Comprehensive Supplemental Benefits

Supplemental benefits are a strategic tool that help you keep and attract valuable employees. The need for competitive benefits is why GMS partners with small businesses to manage their benefits administration.

GMS partners with credible health insurance companies to provide you and your team with supplemental benefits that can complement a traditional group health plan. Contact GMS today if you're looking for PEO experts to help you find the best and most affordable supplemental insurance plans for your employees.



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