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Short Term Disability in Your Group Benefits Plan

Group Benefits Guide

What is Short Term Disability?

Short-Term Disability (STD) provides income replacement when an employee is unable to work due to a non-work-related illness or injury.

If the disability continues, Long-Term Disability (LTD) benefits typically take over. Despite being one of the most commonly used benefits, disability coverage is often misunderstood.

Above El rate

60-70%

Income Replaced

Pays 60–70% of weekly earnings while an employee can’t work — significantly more than EI’s 55% cap.

LTD Handoff

17-26 wks

Benefit Period
Coverage runs 17–26 weeks, timed to hand off directly to Long Term Disability with no gap.
Not WCB

Covered

What It Covers
Any illness or injury outside of work — WCB covers workplace accidents, STD covers everything else.
The Default Safety Net

The Default: EI Sickness Benefits

If an employer offers no STD coverage, the federal Employment Insurance (EI) sickness benefit is the safety net. Most working Canadians qualify since they pay EI premiums through payroll.

The catch is that EI sickness benefits replace only 55% of income, up to a federal weekly maximum. As of 2026, that maximum sits around $729 per week, or roughly $3,160 per month. An employee earning more than ~$68,900 a year is capped at that maximum.

Healthwise – EI Scoreboard Stats
55%
EI Replacement Rate
of insurable earnings
$729
Weekly Maximum (2026)
per week · ~$3,160/month
$68.9K
Income Threshold
annual salary cap
Healthwise – Callout Box
💡

A real example: An employee earning $80,000/year normally brings home about $6,667 gross per month. On EI sickness, they'd receive about $3,160/month — a roughly $3,500 monthly drop, happening at exactly the moment when medical costs are likely to rise. This is the gap that STD coverage is designed to close.

Plan Structures

Your Three Main Options

There isn’t one “right” structure for short term disability. The right answer depends on company size, claims history, cash flow, and how much risk the employer wants to carry.

Healthwise – STD Timeline Learn More
01
Fully Insured STD Carrier pays directly — EI is bypassed entirely
Most Common
Day 0 Employee becomes ill or injured A non-work illness or injury prevents the employee from working. A short waiting period begins.
Day 1–7 STD claim filed directly with the carrier No EI application needed. The insurer reviews and approves the claim. EI is bypassed entirely. No EI wait period
Week 1 onward 60–70% of weekly income paid directly Fixed, predictable payments. Return-to-work case management starts immediately. Above EI's 55% cap
Weeks 4–17 Active return-to-work support The insurer coordinates a safe return — modified duties, reduced hours, and medical coordination included. Included in most plans
Week 17–26 Seamless handoff to Long Term Disability STD ends and LTD begins — no gap when the plan is designed correctly.
02
SUB Plan EI does the heavy lifting — employer fills the gap
Option 2
Day 0 Employee becomes ill or injured A non-work illness or injury prevents the employee from working. The employee must first apply for EI before any payments begin.
Day 1–7 Employee applies for EI sickness benefits first EI pays 55% of insurable earnings up to $729/week. A standard EI processing delay applies. EI processing delay applies
Week 1 onward Employer tops up income to ~70% The employer pays only the gap above EI — reducing direct cost while still delivering solid employee protection. Lower employer cost
Week 17–26 Handoff to Long Term Disability EI sickness and SUB payments end. LTD takes over when the plan is coordinated correctly.
03
Self-Funded STD Employer funds claims directly — no fixed premiums
Use With Caution
Day 0 Employee becomes ill or injured A non-work illness or injury prevents the employee from working. The employer's self-funded plan activates after the waiting period.
Day 1–7 Claim reviewed by third-party adjudicator The employer's hired adjudicator approves or denies the claim. The employer pays all approved costs directly — no fixed premium. Variable cost from day one
Week 1 onward Employer funds every week of approved leave One long claim can quickly exceed what years of insured premiums would have cost — especially for small groups. High exposure for small groups
Week 17–26 Handoff to Long Term Disability Self-funded STD ends. LTD takes over — usually insured separately even when STD is self-funded.
Under-Explained but Important

The EI Premium Reduction Program

When an employer offers a qualifying short term disability plan, the federal government reduces the employer’s EI premium rate. The savings can be substantial — often several thousand dollars per year for a small or mid-sized employer.

Healthwise – EI Premium Reduction
0 /12
Returned to Employees
Must be returned in any qualifying form — most commonly through reduced cost-sharing on the benefits plan or enhanced coverage.
0 /12
Net Savings to Employer
The employer keeps the remaining share as net savings — a meaningful offset to the cost of running the STD plan.
The employee share doesn't have to be paid out as cash. The most common approach is to reduce employee cost-sharing on the benefits plan or use it to enhance coverage — a higher benefit percentage or longer duration.
What To Expect At Renewal

How STD Pricing Actually Behaves Over Time

When STD is fully insured, it’s an experience-rated benefit. In plain terms: the premium you pay next year is influenced by the claims your group experienced this year.

  • If your group has few or short claims, rates tend to stay stable.
  • If your group has several claims, or a few long ones, rates can move meaningfully at renewal.
  • STD is a highly utilized benefit — more so than most employers expect.
Healthwise – Pricing Gauge
✓ Low claims Stable rates hold or improve
⇧ High claims 40%+ potential renewal increase
0% 10% 20% 30% 40%+
Low Claims Year Stable years with few claims pull rates back down. Groups with clean history tend to stay flat or improve at renewal.
Claims-Heavy Year A small group with five claims in a year could see a 40%+ increase on the STD line — budgeting for volatility is important.
A Detail That Matters at Claim Time

A Note on Taxability

Whether STD benefits are taxable to the employee depends on who pays the premium — and it’s a design choice worth making deliberately, not by default.

Healthwise – Taxability
Employer pays premium Benefits Are Taxable If the employer pays the STD premium, benefits paid to the employee during leave are taxable income.
Employee pays premium Benefits Are Tax-Free If the employee pays 100% of the premium, STD benefits are received tax-free — more take-home pay during a leave.
For higher-earning employees, an employee-paid STD plan can deliver meaningfully more take-home income during a leave, even at the same coverage percentage.
Our Approach

How We'd Think About It

There’s no single right answer. What’s right depends on the size of the group, the wage profile, the company’s appetite for cost volatility, and how the broader plan is structured. Here’s what we look at when reviewing an STD setup with a client:

Wage Profile

What does the income gap actually look like for the people on this plan? The right design depends heavily on who's covered.

Group Size & Claims History

Based on your group size, we do quick modelling of claims and future projections of rate increases so there are no surprises at renewal.

Who Pays the Premium

We recommend employees pay for this premium and map out exactly what that monthly payroll deduction would be per person.

EI Premium Reduction

We evaluate the cost savings, advise on registering with the CRA, and discuss a plan for distributing the employee savings share.

Communication

Do employees actually know what they have, what the waiting period is, and how to access it? An STD plan that's never explained is a plan that gets resented at renewal and underused at claim time.

Frequently Asked Questions

Common Questions

What's the difference between STD and EI sickness benefits?
EI sickness benefits are a federal program that replaces 55% of income up to a weekly maximum. STD is an employer-sponsored plan that typically pays more (60–70%), often starts sooner, and usually includes return-to-work support. STD is designed to fill the gap that EI leaves, particularly for mid- and higher-earning employees.
How long does short term disability last in Canada?
Most STD plans last between 15 and 26 weeks. The exact duration is set in the plan design, and is usually chosen to line up with the start of Long Term Disability coverage so there's no gap between the two.
Is short term disability taxable in Canada?
It depends on who pays the premium. Employer-paid premiums result in taxable STD benefits. Employee-paid premiums result in non-taxable benefits. For higher-income employees, having the employee pay the premium can mean meaningfully higher take-home pay during a leave.
What is the EI Premium Reduction Program?
It's a federal program that reduces an employer's EI premium rate when the company offers a qualifying short term disability plan. The employer must return at least 5/12 of the savings to employees — often through reduced cost-sharing or enhanced benefits — and keeps the remaining 7/12 as net savings.
Learn More
Can a small business self-fund short term disability?
Technically yes, practically rarely. Self-funding works best for larger groups where claims are predictable enough to budget around. For small groups, a single long claim can become significant exposure. For most small and mid-sized employers, fully insured STD is the more sensible choice.
How much does STD insurance cost for an employer?
Cost varies widely with group size, age and wage profile, claims history, and the chosen benefit design. It's also experience-rated, meaning premiums shift based on the group's actual claims over time. We can usually give a realistic range after a brief review of the group.

Want to See How This Looks for Your Plan?

If you're not sure which structure your business actually has, or whether the EI Premium Reduction is being claimed properly, we're happy to walk through it. No pitch, no pressure — just a clearer picture.

Book a 30-Minute Review
We're Here to Help

Questions?

Not sure which STD structure is right for your team, or want to review what you currently have in place? Reach out anytime — we'll walk you through it clearly and without the jargon.

Katrina Sinclair
Group Benefits Advisor · Healthwise Benefits
778.554.6676