Is There an Alternative Plan for Employers?
As an alternative to the SDI program, some employers (especially those with many workers earning more than $153,164) may consider opting out of the state-run program and implementing a private Short-Term Disability plan or Voluntary Plan (VP).
A VP may be able to reduce or eliminate the adverse financial impact on higher earning employees, while continuing to provide the same benefit payments as the SDI program to all eligible employees when they are unable to work.
VPs offer a degree of flexibility and can be structured to provide higher benefits or lower employee contributions than required by the state program. For example, the VP can set a maximum annual wage limit that puts a ceiling on the total contribution amounts that employees must pay into the disability plan. Additionally, employers may have some flexibility on how to structure the employee contributions so that future disability payments are not subject to taxes for the recipient.
VPs can be fully insured or self-insured, but they must be pre-approved by the state. To receive state approval, the VP must do the following:
- Offer all the same benefits with at least one better benefit than the state program
- Cost employees no more than the state program
- Offer benefits to all eligible California employees of the employer
- Match any future benefit increases SDI implements due to new regulations.
It’s also important to note that a majority of employees must consent to the VP in writing, and even when VPs are offered, employees will maintain the right to reject the VP and instead participate in the state SDI.
1Acronym for California’s State Average Weekly Wage
2“May 2023 Disability Insurance (DI) Fund Forecast,” Employment Development Department of the State of California, Page 6, available here.
3Contribution and maximum benefit estimations based on the “May 2023 Disability Insurance (DI) Fund Forecast,” Employment Development Department of the State of California, Page 6, available here.