Employee income protection against short-term disabilities Essay

The vast majority of workers in medium and large firms are protectedagainst loss of income during temporary absences from work due tononoccupational sickness or accident. However, degree of protection andduration of coverage vary widely. Short-term disability protection wasprovided to 94 percent of these employees in 1983 in the form of paidsick leave plans, or sickness and accident insurance benefits, or both. Data on short-term disability protection are from the 1983 Bureauof Labor Statistis survey of the incidence and characteristics ofemployee benefits. The survey provides information on the amount ofincome protection available to employees, but not on the actual usage ofthis benefit.

Data were tabulated for all full-time employees and forthree employee groups: professional-administrative, technical-clerical,and production employees. In this article, the first two groups arefrequently combined and labeled white-collar workers, in contrast withproduction or blue-collar workers. Short-term disability protectionprovided white-collar workers differs considerably from that providedblue-collar workers. Just over 90 percent of the white-collar employeeswere covered by sick leave plans in 1983, more than double thepercentage of blue-collar employees. Conversely, two-thirds ofblue-collar employees had sickness and accident insurance plans,compared with only one-third of the white-collar workers. This difference partly reflects contrasting wage payment practicesfor white- and blue-collar employees. The former typically aresalaried, and their regular weekly or monthly pay can be continuedduring periods of disability. Pay continuation who usually receive arate per hour worked rather than a fixed salary; in such instances,sickness and accident insurance provides an alternative vehicle forincome protection.

Paid sick leave plans Sick leave, available to two-thirds of all employees covered by thesurvey, virtually always continues full pay for at least part of theduration of disability. Sick leave is always financed entirely by theemployer out of operating funds, rather than through insurance carriers.Full-pay benefits may be accompanied by benefits at less than full payfor some additional period, and duration of benefits may vary by lengthof service or remain constant over the worklife of an employee.

Benefits are seldom subject to a waiting period, but may require medicalproof of illness. Although sick leave provisions are generally spelledout in formal plans–giving employees reasonable assurance of receivingbenefits under the stipulated conditions–some plans are informal, withbenefits at the discretion of a supervisor. Only formal plans wereincluded in the survey. Sick leave plans provide benefits for a maximum number of days peryear (annual plans), for a maximum number of days per illness(per-disability plans), or “as needed.” A small number ofestablishments provide employees with both annual and per-disabilitysick leave benefits, each intended for specific purposes. The followingtabulation distributes participants in sick leave plans in 1983 by theseapproaches to granting sick leave: Percent of participants All sickleave plans 100 Annual plans 72 Per-disability plans 20 Annual andper-diability plans 6 “As needed” plans 2 Annual plans. For nearly three-fifths of the workers under annualplans, the number of sick leave days available per year was uniform,regardless of seniority. For the remaining workers, benefits variedwith seniority.

Duration generally increased rapidly in the early yearsof service, with increases slowing after 5 or 10 years. (Maximumbenefits were generally reached by 15 years of service.) Averageavailable sick leave benefits reflect this gradation.

The averagenumber of days at full pay for all employees under annual plans roserapidly from 17 days at 1 year of service to 40 days at 15 years ofservice; then they increased more slowly to 46 days at 30 years toservice. At all seniority levels, the average duration of benefits availableper year to professional and administrative employees was more thandouble those available to production workers. (See table 2.) Theaverage duration of benefit for technical and clerical employees equaledthat for production workers at 6 months of service, but rose morerapidly thereafter. For all three groups, however, the rates of changewere substantial. The increase in duration of average benefit between 1and 15 years of service was 111 percent for professional andadministrative employees, 117 percent for production employees, and 171percent for technical and clerical employees. Over the next 15 years,increases averaged about 1 percent a year for each occupational group.

Per-disability plans. Plans which provide a specified number ofsick leave days per illness are most beneficial to employees with arecurring illness because the full amount of the benefit is availablefor each new spell of illness. In such cases, a new benefit period willbegin after an employee has not used sick leave for a specified period,such as 60 days. Per-disability plant typically tie benefits to lengthof service. The average number of sick leave days allowed under per-disabilityplans was greater than under annual plans and tended to increase sharplywith length of service up to 25 years. (See table 2.

) The averagelimit on paid sick leave days under such plans rose from 46 days at 1year of service to 111 days at 15 years. Unlike annual plans,significant increases continued after 15 years, reaching more than 150days after 25 years of service. Variations among occupational groups in allowable days ofper-disability sick leave were not as pronounced as in annual plans. Atshort-term service, the sick leave duration was greater for white-collaremployees, but after 20 years of service, blue-collar workers couldreceive benefits for longer periods. (This result, and much of the dataon per-disability plans, was influenced largley by one nationwide planthat covered 45 percent of all production employees in per-disabilityplans.

) The increase in average duration of per-disability sick leavedays between 1 and 25 years of service ranged from 163 percent forprofessional and administrative employees to 300 percent or more fortechnical and clerical and production employees. Other sick leave arrangements. Six percent of the participants insick leave plans were under combined annual and per-disability plans.In such arrangements, the annual plan covered incidental illnesses,while the per-disability plan was available for longer absences. Forexample, a single unexpected sick day would be covered by the annualplan, while an anticipated absence, such as a hosptial stay, would becovered by the per-disability plan. Annual plans also covered thewaiting periods which occasionally occurred in per-disability plans.Also included in the estimates for combined plans are the less than .

5percent of participants in plans that provided sick leave on an annualbasis to employees with short-term service and on a per-disability basisto longer-term employees. Two percent of the participants in sick leave plans were eligiblefor benefits “as needed.” Such plans were mostly available toprofessional and administration employees. As with all sick leavearrangements included in this survey, “as needed” sick leavewas under an established formal plan, rather than a discretionary actionby a supervisor.

Other sick leave features About one-fourth of the participants in the sick leave plansanalyzed in 1983 were provided benefits at partial pay after exhaustion of available full-pay days. These partial pay provisions were morecommon for workers in per-disability plans (58 percent of participants)than for workers in annual plans (18 percent). For example, a planmight provide benefits for up to 130 work days (6 months) perdisability, with the number of days at full pay and at half pay varyingwith years of service. At 1 year of service, the employee would receive10 days at full pay and 120 days at half pay. Each yea thereafter, theplan would increase full pay benefits by 10 days while decreasing halfpay benefits by 10 days. After 13 years of service, the employee wouldreceived all 6 months of sick leave at full pay. (Two percent of sickleave plan participants were covered by partial pay provisions only.

) More than two-thirds of all sick leave plan participants wererequired to complete a service requirement before becoming eligible toreceive benefits. Of this group, half had short eligibility periods,generally 3 months. The remaining half had to wait either 6 months or 1year. Production employees generally had longer eligibility periodsthan white-collar workers. After attaining eligibility, participants may be required to wait ashort period (usually 1 to 3 days) before receiving benefits for anyabsence. At 1 year of service, 16 percent of the participants had awaiting period, which often decreased–or was eliminated–as years ofservice increased.

Waiting periods were more common amongper-disability plans and occasionally varied by the nature of adisability. A limited number of plans waived the waiting period when anemployee was hospitalized. Unused sick leave policy. Forty-three percent of all participantsin annual sick leave plans could carryover some or all of their benefitsto succeeding years, or could cash in unused benefits at the end of theyear. The distribution of participants in these plans by unused sickleave policy was as follows: Percent of participants All annual sickleave plans 100 Carryover 31 Cash-in 8 Carryover and cash-in 4 Unusedbenefits lost 57 Carryover provisions greatly affect the number of sick leave daysmade available to employees. Annual plans that allow the carryover ofunused sick leave from one year to the next (“cumulative”plans) generally make fewer days available each year than noncumulative plans; in effect, employees must rely on accumulated sick leave toprovide protection for a disability of several weeks. For example, at 1year of service, cumulative plans averaged a maximum benefit of 9 days ayear, while noncumulative plans averaged 22 days.

The cumulativeplans’ average rose to 15 days at 25 years of service, while thenoncumulative plans’ average nearly tripled to 62 days. (See table3.) Per-disability sick leave plans, which renew benefits for eachspell of illness, and “as needed” sick leave arrangements donot provide for carryover or cash-in of benefits. Uniform and graduated sick leave Sick leave plans may provide either uniform benefits for allemployees or benefits that increase with seniority. These twoapproaches were about equally popular in 1983–49 percent ofparticipants in annual or per-disability plans were under arrangementsproviding uniform benefits, and 51 percent had graduated provisions.However, uniform benefits occurred more often in annual plans, whilegraduated benefits were more common in per-disability plans. Fifty-sixpercent of the participants under annual plans had uniform benefits; 44percent had graduated benefits.

In contrast, only 27 percent of theper-disability plan participants had uniform benefits, while 73 percenthad graduated benefits. The following tabulation shows separately the average number ofdays allowable at full pay in plans with uniform and graduatedprovision: Plans providing uniform benefits averaged 33 days ofallowable sick leave per year or per disability at 1 or more years ofservice. Plans with graduated benefits averaged 20 days at 1 year ofservice and 106 days at 30 years’ service. Sickness and accident insurance Sickness and accident insurance, which is provided through aninsurance company or a trust fund, replaces only part of earnings, andrequires a waiting period before benefits begin. Maximum duration ofbenefits is specified for each successive disability, thereby resemblingprovisions of perdisability sick leave plans. Nearly half of the employees covered by the 1983 survey hadsickness and accident insurance; two-thirds of the blue-collar employeesparticipated, which was double the while-collar rate. Benefits werealmost equally split between plans that paid a specified percent of theemployee’s earnings (generally 50 to 70 percent), and plans thatprovided a flat dollar amount per week, either fixed or varying bysalary.

Typically, white-collar workers were under plans paying apercent of earnings, while production workers were covered by scheduleddollar benefits. Plans commonly limited the amount of the weeklybenefit, often by providing a dollar cap on the yield from apercent-of-earnings benefit formula. Slightly more than half theparticipants could receive benefit payments for a maximum of 26 weeks.

(See table 4.) Payments under sickness and accident insurance commonly are basedon an employee’s current hourly rate, multiplied by regularlyscheduled weekly hours. Alternative bases include the highest oraverage weekly rate over a specified period. As noted earlier, sickness and accident insurance benefits for anillness do not begin until completion of a waiting period. Insuranceplans are not designed for illness lasting a few days, but are fordisabilities of longer duration. Medical proof of disability is oftenrequired before payments begin. A typical plan would provide benefitsbeginning the eighth calendar day for illness and on the first day foraccidents and for conditions requiring hospitalization.

Retroactive payments may cover the waiting period once an employee is off the job aspecified number of days, but such provisions are rare. Three-fourths of the participants in sickness and accidentinsurance plans were required to complete a minimum service period(usually 3 months or less) before they were covered by the plant. Inmost cases, the employer paid the full cost of the insurance; 17 percentof the participants contributed toward the cost of their plan. Mostemployee contributions were a fixed amount, usually $1 to $2 a month. Coordinating sick leave with insurance plans Twenty-three percent of the employees covered by the surveyparticipated in both sick leave and sickness and accident insuranceplans.

Such combined benefits were available to 27 percent ofwhite-collar employees and 18 percent of blue-collar employees.Provisions of each combination plan specified how the amount andduration of payments from each type of benefit worked in tandem. One approach used to link sick leave and sickness and accidentbenefits is the “offset” method; that is, benefits receivedsimultaneously are coordinated so that the total benefit does not exceedfull salary. In a typical case, sick leave benefits begin immediatelyand provide full pay; insurance benefits begin after a waiting periodand overlap the sick leave benefits schedule. Consequently, sick leavebenefits are reduced by the amount of the insurance payment during theperiod when both benefits are paid. In other words, the insurancepayment and the reduced sick leave payment together equal the originalsick leave payment, which generally is full pay.

Benefits from eachsource continue for their specified durations. Another approach is the “combined” method, wherebyinsurance benefits do not begin until sick leave benefits have ended.In this case, insurance begins after its waiting period or immediatelyafter sick leave benefits run out, whichever is later. The duration ofbenefits (the sum of each plan’s schedule of payments) extendsbeyond the limits of either insurance or sick leave alone. Establishments offering sickness and accident insurance allow fewersick leave days, on average, than those without such insurance. At 1year of service, for example, annual sick leave plans linked withsickness and accident insurance in 1983 averaged 12 days per year, whilethose in establishments without such insurance averaged 21 days.Similar differences occurred at all service intervals, culminating at 25years of service in an average of 26 sick leave days with insurance wasalso provided and 57 days when insurance was not provided.

(See table5.) Variations by industry and region The sample for the Employee Benefits Survey is not designed topermit analysis of data by industry or geographic location. Nonetheless,information from the Bureau of Labor Statistics Area Wage survey doespermit such comparisons on the incidence of short-term disabilitybenefits. These wage surveys provide data on the incidence of benefits(but not detailed provisions) for plant and nonsupervisory officeworkers in six broad industrial divisions: manufacturing;transportation, communications and other public utilities; wholesaletrade; retail trade; finance, insurance, and real estate; and selectedservices. Data are also available for four regions–Northeast, South,North Central, and West. (See table 6.) Nearly half of the firms within the scope of the Area Wage Surveyshave fewer than 100 employees.

Parlty because small firms are lesslikely to provide sick leave or sickness and accident insurance, theoverall incidence of short-term disability coverage is somewhat lower inthe Area Wage Survey results for all metropolitan areas than in theBureau’s national survey of employee benefits in medium and largefirms. Differing approaches to State temporary disability insurancebenefits also contribute to this result. New York and New Jerseyemployees are reported in the Area Wage Survey program as havingsickness and accident insurance benefits only if their temporarydisability insurance contributions exceed State requirements, or ifemployee benefits exceed requirements of the law. Conversely, theEmployee Benefits Survey counts as sickness and accident insuranceparticipants all workers whose employers make any temporary disabilityinsurance contributions. However, these differences are found mainlyamong blue-collar workers, with 82 percent having coverage in the AreaWage Survey establishments, compared with 91 percent in the study ofmedium and large firms.

the corresponding figures for white-collarworkers are 94 percent and 97 percent. Among plant workers, the overall incidence of short-term disabilityplans was highest in public utilities (93 percent of the workers) andlowest in services (53 percent). Sickness and accident insurance wasmost prominent in manufacturing and least likely to be found inservices.

By region, short-term disability protection financed byemployers was more prevalent in the Northeast (84 percent of the workerscovered) and North Central States (91 percent covered) than in the West(74 percent) and South (78 percent). Reflecting the effect ofCalifornia’s Disability Insurance Program, the West had the lowestincidence of employer financed, short-term disability coverage, but thehighest incidence of apparate sick leave plans. Industrial and regional differences were not as pronounced foroffice workers. Sick leave, either alone or coordinated with sicknessand accident insurance, was the predominant benefit for these employees;fewer than 10 percent of the office workers had sickness and accidentinsurance only. Additional disability benefits Occupational disabilities are almost universally covered byworkers’ compensation laws. In the three States (New Jersey, SouthCarolina, and Texas) without compulsory workers’ compensation laws,rejection of coverage is sufficiently difficult to guarantee almostcomplete coverage. Employers may also provide additional coverage tosupplement workers’ compensation. Benefits from thesesupplementary plans were not included in the short-term disabilityanalysis.

Permanents disabilities may be covered by an employer’slong-term disability insurance plan or disability benefits from aprivate pension plan. In addition, social security benefits areavailable to individuals having a specified amount of “coveredemployment” and meeting the prescribed definition of disability.Social security benefits begin after 5 months of disability. Long-termdisability benefits are beyond the scope of this discussion. During the period of nonoccupational short-term disabilitiy,seniority rights continue which may affect such future events aspromotions, layoffs, and retirement benefits. Similarly,employer-sponsored health and welfare insurance benefits generallycontinue during periods of temporary disability; and waiver-of-premiumprovisions are common in group life insurance policies, exempting boththe employer and the disabled employee from paying premiums. Provisionfor continuation of these benefits often is not included in theshort-term disability benefit plan, and is specified only in seniority,health insurance, and pension plan descriptions.

Consequently, it wasnot feasible to review these provisions, because the analysis waslimited to short-term disability benefit plan documents.

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