Employee income protection against short-term disabilities Essay

The vast majority of workers in medium and large firms are protected
against loss of income during temporary absences from work due to
nonoccupational sickness or accident. However, degree of protection and
duration of coverage vary widely. Short-term disability protection was
provided to 94 percent of these employees in 1983 in the form of paid
sick leave plans, or sickness and accident insurance benefits, or both.



Data on short-term disability protection are from the 1983 Bureau
of Labor Statistis survey of the incidence and characteristics of
employee benefits. The survey provides information on the amount of
income protection available to employees, but not on the actual usage of
this benefit. Data were tabulated for all full-time employees and for
three employee groups: professional-administrative, technical-clerical,
and production employees. In this article, the first two groups are
frequently combined and labeled white-collar workers, in contrast with
production or blue-collar workers. Short-term disability protection
provided white-collar workers differs considerably from that provided
blue-collar workers. Just over 90 percent of the white-collar employees
were covered by sick leave plans in 1983, more than double the
percentage of blue-collar employees. Conversely, two-thirds of
blue-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 practices
for white- and blue-collar employees. The former typically are
salaried, and their regular weekly or monthly pay can be continued
during periods of disability. Pay continuation who usually receive a
rate per hour worked rather than a fixed salary; in such instances,
sickness and accident insurance provides an alternative vehicle for
income protection.


Paid sick leave plans



Sick leave, available to two-thirds of all employees covered by the
survey, virtually always continues full pay for at least part of the
duration of disability. Sick leave is always financed entirely by the
employer out of operating funds, rather than through insurance carriers.
Full-pay benefits may be accompanied by benefits at less than full pay
for some additional period, and duration of benefits may vary by length
of service or remain constant over the worklife of an employee.
Benefits are seldom subject to a waiting period, but may require medical
proof of illness. Although sick leave provisions are generally spelled
out in formal plans–giving employees reasonable assurance of receiving
benefits under the stipulated conditions–some plans are informal, with
benefits at the discretion of a supervisor. Only formal plans were
included in the survey.



Sick leave plans provide benefits for a maximum number of days per
year (annual plans), for a maximum number of days per illness
(per-disability plans), or “as needed.” A small number of
establishments provide employees with both annual and per-disability
sick leave benefits, each intended for specific purposes. The following
tabulation distributes participants in sick leave plans in 1983 by these
approaches to granting sick leave: Percent of participants All sick
leave plans 100 Annual plans 72 Per-disability plans 20 Annual and
per-diability plans 6 “As needed” plans 2



Annual plans. For nearly three-fifths of the workers under annual
plans, the number of sick leave days available per year was uniform,
regardless of seniority. For the remaining workers, benefits varied
with seniority. Duration generally increased rapidly in the early years
of service, with increases slowing after 5 or 10 years. (Maximum
benefits were generally reached by 15 years of service.) Average
available sick leave benefits reflect this gradation. The average
number of days at full pay for all employees under annual plans rose
rapidly from 17 days at 1 year of service to 40 days at 15 years of
service; then they increased more slowly to 46 days at 30 years to
service.



At all seniority levels, the average duration of benefits available
per year to professional and administrative employees was more than
double those available to production workers. (See table 2.) The
average duration of benefit for technical and clerical employees equaled
that for production workers at 6 months of service, but rose more
rapidly thereafter. For all three groups, however, the rates of change
were substantial. The increase in duration of average benefit between 1
and 15 years of service was 111 percent for professional and
administrative employees, 117 percent for production employees, and 171
percent 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 of
sick leave days per illness are most beneficial to employees with a
recurring illness because the full amount of the benefit is available
for each new spell of illness. In such cases, a new benefit period will
begin after an employee has not used sick leave for a specified period,
such as 60 days. Per-disability plant typically tie benefits to length
of service.



The average number of sick leave days allowed under per-disability
plans was greater than under annual plans and tended to increase sharply
with length of service up to 25 years. (See table 2.) The average
limit on paid sick leave days under such plans rose from 46 days at 1
year of service to 111 days at 15 years. Unlike annual plans,
significant increases continued after 15 years, reaching more than 150
days after 25 years of service.



Variations among occupational groups in allowable days of
per-disability sick leave were not as pronounced as in annual plans. At
short-term service, the sick leave duration was greater for white-collar
employees, but after 20 years of service, blue-collar workers could
receive benefits for longer periods. (This result, and much of the data
on per-disability plans, was influenced largley by one nationwide plan
that covered 45 percent of all production employees in per-disability
plans.) The increase in average duration of per-disability sick leave
days between 1 and 25 years of service ranged from 163 percent for
professional and administrative employees to 300 percent or more for
technical and clerical and production employees.



Other sick leave arrangements. Six percent of the participants in
sick 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. For
example, a single unexpected sick day would be covered by the annual
plan, while an anticipated absence, such as a hosptial stay, would be
covered by the per-disability plan. Annual plans also covered the
waiting periods which occasionally occurred in per-disability plans.
Also included in the estimates for combined plans are the less than .5
percent of participants in plans that provided sick leave on an annual
basis to employees with short-term service and on a per-disability basis
to longer-term employees.



Two percent of the participants in sick leave plans were eligible
for benefits “as needed.” Such plans were mostly available to
professional and administration employees. As with all sick leave
arrangements included in this survey, “as needed” sick leave
was under an established formal plan, rather than a discretionary action
by a supervisor.



Other sick leave features



About one-fourth of the participants in the sick leave plans
analyzed in 1983 were provided benefits at partial pay after exhaustion of available full-pay days. These partial pay provisions were more
common for workers in per-disability plans (58 percent of participants)
than for workers in annual plans (18 percent). For example, a plan
might provide benefits for up to 130 work days (6 months) per
disability, with the number of days at full pay and at half pay varying
with years of service. At 1 year of service, the employee would receive
10 days at full pay and 120 days at half pay. Each yea thereafter, the
plan would increase full pay benefits by 10 days while decreasing half
pay benefits by 10 days. After 13 years of service, the employee would
received all 6 months of sick leave at full pay. (Two percent of sick
leave plan participants were covered by partial pay provisions only.)



More than two-thirds of all sick leave plan participants were
required to complete a service requirement before becoming eligible to
receive benefits. Of this group, half had short eligibility periods,
generally 3 months. The remaining half had to wait either 6 months or 1
year. Production employees generally had longer eligibility periods
than white-collar workers.



After attaining eligibility, participants may be required to wait a
short period (usually 1 to 3 days) before receiving benefits for any
absence. At 1 year of service, 16 percent of the participants had a
waiting period, which often decreased–or was eliminated–as years of
service increased. Waiting periods were more common among
per-disability plans and occasionally varied by the nature of a
disability. A limited number of plans waived the waiting period when an
employee was hospitalized.



Unused sick leave policy. Forty-three percent of all participants
in annual sick leave plans could carryover some or all of their benefits
to succeeding years, or could cash in unused benefits at the end of the
year. The distribution of participants in these plans by unused sick
leave policy was as follows: Percent of participants All annual sick
leave plans 100 Carryover 31 Cash-in 8 Carryover and cash-in 4 Unused
benefits lost 57



Carryover provisions greatly affect the number of sick leave days
made available to employees. Annual plans that allow the carryover of
unused 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 to
provide protection for a disability of several weeks. For example, at 1
year of service, cumulative plans averaged a maximum benefit of 9 days a
year, while noncumulative plans averaged 22 days. The cumulative
plans’ average rose to 15 days at 25 years of service, while the
noncumulative plans’ average nearly tripled to 62 days. (See table
3.) Per-disability sick leave plans, which renew benefits for each
spell of illness, and “as needed” sick leave arrangements do
not provide for carryover or cash-in of benefits.



Uniform and graduated sick leave



Sick leave plans may provide either uniform benefits for all
employees or benefits that increase with seniority. These two
approaches were about equally popular in 1983–49 percent of
participants in annual or per-disability plans were under arrangements
providing uniform benefits, and 51 percent had graduated provisions.
However, uniform benefits occurred more often in annual plans, while
graduated benefits were more common in per-disability plans. Fifty-six
percent of the participants under annual plans had uniform benefits; 44
percent had graduated benefits. In contrast, only 27 percent of the
per-disability plan participants had uniform benefits, while 73 percent
had graduated benefits.



The following tabulation shows separately the average number of
days allowable at full pay in plans with uniform and graduated
provision: Plans providing uniform benefits averaged 33 days of
allowable sick leave per year or per disability at 1 or more years of
service. Plans with graduated benefits averaged 20 days at 1 year of
service and 106 days at 30 years’ service.



Sickness and accident insurance



Sickness and accident insurance, which is provided through an
insurance company or a trust fund, replaces only part of earnings, and
requires a waiting period before benefits begin. Maximum duration of
benefits is specified for each successive disability, thereby resembling
provisions of perdisability sick leave plans.



Nearly half of the employees covered by the 1983 survey had
sickness and accident insurance; two-thirds of the blue-collar employees
participated, which was double the while-collar rate. Benefits were
almost equally split between plans that paid a specified percent of the
employee’s earnings (generally 50 to 70 percent), and plans that
provided a flat dollar amount per week, either fixed or varying by
salary. Typically, white-collar workers were under plans paying a
percent of earnings, while production workers were covered by scheduled
dollar benefits. Plans commonly limited the amount of the weekly
benefit, often by providing a dollar cap on the yield from a



percent-of-earnings benefit formula. Slightly more than half the
participants could receive benefit payments for a maximum of 26 weeks.
(See table 4.)



Payments under sickness and accident insurance commonly are based
on an employee’s current hourly rate, multiplied by regularly
scheduled weekly hours. Alternative bases include the highest or
average weekly rate over a specified period.



As noted earlier, sickness and accident insurance benefits for an
illness do not begin until completion of a waiting period. Insurance
plans are not designed for illness lasting a few days, but are for
disabilities of longer duration. Medical proof of disability is often
required before payments begin. A typical plan would provide benefits
beginning the eighth calendar day for illness and on the first day for
accidents and for conditions requiring hospitalization. Retroactive payments may cover the waiting period once an employee is off the job a
specified number of days, but such provisions are rare.



Three-fourths of the participants in sickness and accident
insurance plans were required to complete a minimum service period
(usually 3 months or less) before they were covered by the plant. In
most cases, the employer paid the full cost of the insurance; 17 percent
of the participants contributed toward the cost of their plan. Most
employee 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 survey
participated in both sick leave and sickness and accident insurance
plans. Such combined benefits were available to 27 percent of
white-collar employees and 18 percent of blue-collar employees.
Provisions of each combination plan specified how the amount and
duration of payments from each type of benefit worked in tandem.



One approach used to link sick leave and sickness and accident
benefits is the “offset” method; that is, benefits received
simultaneously are coordinated so that the total benefit does not exceed
full salary. In a typical case, sick leave benefits begin immediately
and provide full pay; insurance benefits begin after a waiting period
and overlap the sick leave benefits schedule. Consequently, sick leave
benefits are reduced by the amount of the insurance payment during the
period when both benefits are paid. In other words, the insurance
payment and the reduced sick leave payment together equal the original
sick leave payment, which generally is full pay. Benefits from each
source continue for their specified durations.



Another approach is the “combined” method, whereby
insurance benefits do not begin until sick leave benefits have ended.
In this case, insurance begins after its waiting period or immediately
after sick leave benefits run out, whichever is later. The duration of
benefits (the sum of each plan’s schedule of payments) extends
beyond the limits of either insurance or sick leave alone.



Establishments offering sickness and accident insurance allow fewer
sick leave days, on average, than those without such insurance. At 1
year of service, for example, annual sick leave plans linked with
sickness and accident insurance in 1983 averaged 12 days per year, while
those in establishments without such insurance averaged 21 days.
Similar differences occurred at all service intervals, culminating at 25
years of service in an average of 26 sick leave days with insurance was
also provided and 57 days when insurance was not provided. (See table
5.)



Variations by industry and region



The sample for the Employee Benefits Survey is not designed to
permit analysis of data by industry or geographic location. Nonetheless,
information from the Bureau of Labor Statistics Area Wage survey does
permit such comparisons on the incidence of short-term disability
benefits. These wage surveys provide data on the incidence of benefits
(but not detailed provisions) for plant and nonsupervisory office
workers in six broad industrial divisions: manufacturing;
transportation, communications and other public utilities; wholesale
trade; retail trade; finance, insurance, and real estate; and selected
services. 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 Surveys
have fewer than 100 employees. Parlty because small firms are less
likely to provide sick leave or sickness and accident insurance, the
overall incidence of short-term disability coverage is somewhat lower in
the Area Wage Survey results for all metropolitan areas than in the
Bureau’s national survey of employee benefits in medium and large
firms. Differing approaches to State temporary disability insurance
benefits also contribute to this result. New York and New Jersey
employees are reported in the Area Wage Survey program as having
sickness and accident insurance benefits only if their temporary
disability insurance contributions exceed State requirements, or if
employee benefits exceed requirements of the law. Conversely, the
Employee Benefits Survey counts as sickness and accident insurance
participants all workers whose employers make any temporary disability
insurance contributions. However, these differences are found mainly
among blue-collar workers, with 82 percent having coverage in the Area
Wage Survey establishments, compared with 91 percent in the study of
medium and large firms. the corresponding figures for white-collar
workers are 94 percent and 97 percent.



Among plant workers, the overall incidence of short-term disability
plans was highest in public utilities (93 percent of the workers) and
lowest in services (53 percent). Sickness and accident insurance was
most prominent in manufacturing and least likely to be found in
services. By region, short-term disability protection financed by
employers was more prevalent in the Northeast (84 percent of the workers
covered) and North Central States (91 percent covered) than in the West
(74 percent) and South (78 percent). Reflecting the effect of
California’s Disability Insurance Program, the West had the lowest
incidence of employer financed, short-term disability coverage, but the
highest incidence of apparate sick leave plans.



Industrial and regional differences were not as pronounced for
office workers. Sick leave, either alone or coordinated with sickness
and accident insurance, was the predominant benefit for these employees;
fewer than 10 percent of the office workers had sickness and accident
insurance only.



Additional disability benefits



Occupational disabilities are almost universally covered by
workers’ compensation laws. In the three States (New Jersey, South
Carolina, and Texas) without compulsory workers’ compensation laws,
rejection of coverage is sufficiently difficult to guarantee almost
complete coverage. Employers may also provide additional coverage to
supplement workers’ compensation. Benefits from these
supplementary plans were not included in the short-term disability
analysis.



Permanents disabilities may be covered by an employer’s
long-term disability insurance plan or disability benefits from a
private pension plan. In addition, social security benefits are
available to individuals having a specified amount of “covered
employment” and meeting the prescribed definition of disability.
Social security benefits begin after 5 months of disability. Long-term
disability 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 as
promotions, layoffs, and retirement benefits. Similarly,
employer-sponsored health and welfare insurance benefits generally
continue during periods of temporary disability; and waiver-of-premium
provisions are common in group life insurance policies, exempting both
the employer and the disabled employee from paying premiums. Provision
for continuation of these benefits often is not included in the
short-term disability benefit plan, and is specified only in seniority,
health insurance, and pension plan descriptions. Consequently, it was
not feasible to review these provisions, because the analysis was
limited to short-term disability benefit plan documents.