Calculate Short Term Disability for Hourly Employees

How Is Short Term Disability Calculated for Hourly Employees?

Understanding the Calculation Basis

Short term disability (STD) benefits for hourly employees can be calculated in two primary ways. One method involves averaging the earnings from the last few weeks the employee worked. For instance, if STD bases on the last six weeks of earnings, these are summed and averaged. Alternatively, calculation might use annual earnings divided by 52 (for weekly pay) or 12 (for monthly equivalents).

Application of Coverage Percentage

After determining the weekly or monthly earnings, the amount is typically multiplied by the coverage percentage, which ranges from 40% to 70%. For instance, an employee with weekly earnings of $760 and coverage at 70% would receive $532 weekly under STD.

Key Variables and Conditions

Calculations of STD benefits may vary based on factors like provider policies and state requirements. Most STD benefits start from the eighth day of disability but may begin on the first day in cases of accidental injuries. These benefits serve as temporary income replacements for off-the-job injuries or sicknesses, typically for a maximum of one year.

Examples in Action

Consider an example where an hourly employee has an annual wage of $39,520. Dividing this by 52 yields a weekly wage of $760. Applying a 70% coverage rate, the STD compensation would amount to $532 per week.

How is Short Term Disability Calculated for Hourly Employees?

Understanding the Basics

To calculate short term disability benefits for hourly employees, employers typically use one of two common methods. Both methods aim to estimate the employee’s average earnings to approximate possible disability payments.

Method 1: Average Weekly Earnings Calculation

This method involves averaging the employee's earnings over the last few weeks of work. It provides a current and representative figure of what the employee typically earns.

Method 2: Annual Earnings Approach

An alternative calculation uses the employee’s expected annual earnings. First, divide this amount by 12 for monthly earnings or by 52 for weekly earnings. Then, multiply the result by the coverage percentage, which represents the portion of the earnings the disability benefit will cover.

Frequently Asked Questions

It is important to note that to be eligible for benefits, employees must be enrolled in a short-term disability plan and meet specific conditions, such as being unable to work due to illness, injury, or maternity.

Calculating Short Term Disability for Hourly Employees

Example 1: Basic Calculation with Fixed Percentage

An hourly employee earns $20 per hour and works 40 hours per week. Short term disability (STD) pays 60% of their average weekly income. To calculate: 40 hours x $20/hour x 60% = $480 per week.

Example 2: Including Overtime

If the employee works overtime, say 10 hours at time-and-a-half on the base rate, include this in the calculation. Regular pay: 40 hours x $20 = $800. Overtime pay: 10 hours x $30 = $300. Total pay: $1100. STD at 60% would be $1100 x 60% = $660 per week.

Example 3: Varied Weekly Hours

For employees with variable hours, average the hours over a set period, e.g., 12 weeks. If the weekly hours fluctuate between 30 and 50 hours, and the hourly rate is $25, calculate the average earnings: (30+35+50/3) hours x $25 x 12 weeks = $7800 total. Average weekly earnings: $7800 / 12 = $650. Thus, STD payment is $650 x 60% = $390 per week.

Example 4: Deductibles and Caps

Some STD policies have deductibles or caps. If there's a $100 deductible and a cap at $500, and the calculated STD amount is $600, the payment after deductible is $600 - $100 = $500 due to the cap limit.

Example 5: State-Specific Adjustments

In some states, STD benefits may be adjusted by state-specific rules. If the state provides an additional 10% on STD payments and the standard calculation is $450, the adjusted benefit would be $450 + ($450 x 10%) = $495 per week.

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Calculating Short-Term Disability for Hourly Employees

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