Short-term disability replaces income for weeks or months; long-term disability takes over when an absence lasts longer and can pay for years. Most BC employers need LTD. Whether you also need STD depends on whether EI sickness benefits are an acceptable front end for your team. Industry context in this article draws on the Government of Canada's EI sickness benefit rules.
What is the difference between short-term and long-term disability?
Short-term disability (STD) pays a weekly benefit for a limited period, usually beginning within the first week of an absence. Long-term disability (LTD) pays a monthly benefit after a longer elimination period and can continue for years, sometimes to age 65. STD bridges shorter absences; LTD protects against the absences that change someone's financial life.
The two are designed to hand off. STD — sometimes called weekly indemnity — begins after a short waiting period and pays for a set number of weeks. LTD's elimination period is normally chosen so that LTD starts about when STD or EI ends, so an employee who remains disabled moves from one to the other without a gap in income.
The definition of disability also changes over time. LTD contracts typically start with an own-occupation definition — the employee cannot do their own job — for an initial period, often two years, and then move to an any-occupation definition based on work the employee is reasonably suited for by education, training or experience. That change is where many long claims are reassessed.
| Feature | Short-term disability (STD) | Long-term disability (LTD) |
|---|---|---|
| When benefits start | Usually within the first week; often day 1 for accident or hospitalization | After an elimination period, commonly around 17 weeks |
| How long it pays | Commonly 15 to 26 weeks | Can pay for years, often to age 65 while disability continues |
| Payment frequency | Weekly | Monthly |
| Typical benefit | A percentage of weekly earnings, to a maximum | A percentage of monthly earnings, to a maximum |
| Definition of disability | Unable to do your own job | Own occupation at first, then usually any occupation |
| Public alternative | EI sickness benefits, up to 26 weeks | CPP disability, with a much stricter test |
| Offsets | Commonly coordinated with EI and workers' compensation | Commonly reduced by CPP disability and WorkSafeBC payments |
Do you need short-term disability if employees can claim EI sickness benefits?
Not always. EI sickness benefits can pay up to 26 weeks at 55% of earnings, to a weekly maximum, so some employers use EI as the front end and buy LTD only. An insured STD plan pays more, starts sooner and is easier for employees, and a qualifying plan can reduce the employer's EI premiums.
Relying on EI is the lower-cost choice. It works best when earnings are close to or below the EI maximum, because the cap on EI sickness benefits is where higher earners lose most. EI also requires a medical certificate and an application, and benefits are paid by the government rather than the plan.
An insured STD plan is the stronger employee benefit. It typically replaces a larger share of earnings, pays from the first week and is handled by a carrier the employee already deals with. For groups with salaries well above the EI maximum, the difference in income during an absence is substantial.
Some employers self-fund STD rather than insure it, paying benefits directly as a salary continuance policy. It can work for stable, well-capitalised groups, but it puts the claims cost and the adjudication decisions on the employer. If you go that way, have the plan terms in writing.
STD is usually worth adding when
- Many employees earn well above the EI weekly maximum
- You want income replacement to start in the first week, not after an EI claim is processed
- Your LTD elimination period is longer than EI's 26 weeks would comfortably cover
- You want to qualify for the EI Premium Reduction Program
- You want absences handled by one carrier from the first week through to LTD
How do STD and LTD work with CPP disability and WorkSafeBC?
Group disability plans are usually coordinated with public benefits rather than stacked on top of them. LTD benefits are commonly reduced by CPP disability payments, and work-related injuries in BC are normally handled by WorkSafeBC, which group plans commonly exclude or offset. The contract defines exactly how each offset works.
CPP disability benefits are for people aged 18 to 65 whose disability stops them working at any job on a regular basis and is long-term, and who have made enough CPP contributions. Most LTD contracts require a claimant to apply for CPP disability and reduce the LTD benefit by the amount awarded — the LTD offset. The total income does not fall, but the carrier's share does, which is part of how LTD is priced.
WorkSafeBC covers injuries and occupational diseases that arise from work, and usually pays about 90% of calculated net earnings, with long-term benefits available if the condition keeps a worker off for more than 10 weeks. Group STD and LTD are designed around that system, so they generally respond to non-occupational illness and injury.
Should the employer or the employee pay for STD and LTD?
It is a trade-off between visible employer generosity and after-tax income on claim. CRA treats employer contributions to a wage-loss replacement plan paying periodic benefits as non-taxable to the employee, but benefits received are then taxable. If the employee pays the entire cost of the plan, the benefits they receive are not taxable.
For LTD the case for employee-paid premiums is strong. LTD claims can last years, and a claimant receiving a taxable 60–70% of salary may take home much less than they need. Employee-paid LTD costs employees a modest payroll deduction and makes every benefit cheque tax-free, which is why it is common in BC plans.
For STD the answer is less clear-cut. Claims are shorter, the tax cost to a claimant is smaller, and an employer-paid STD plan is a valued, visible benefit — as well as the plan that qualifies for the EI premium reduction. Many employers pay for STD and let employees pay for LTD.
Whatever you choose, be consistent and document it. The tax outcome depends on who actually paid the premium, so a plan that mixes contributions without a clear record can leave the tax treatment of a claim uncertain. Confirm the setup with your accountant.
| Design | Employee cost | Tax on benefits received |
|---|---|---|
| Employer pays STD and LTD | None | STD and LTD benefits taxable |
| Employer pays STD, employee pays LTD | LTD premium by payroll deduction | STD taxable; LTD not taxable |
| Employee pays STD and LTD | Both premiums by payroll deduction | Neither taxable |
| No STD, employer pays LTD | None; EI covers the front end | EI and LTD benefits taxable |
Frequently asked questions
What is the main difference between STD and LTD?
Timing and duration. Short-term disability starts within about a week and pays weekly for a limited period, commonly 15 to 26 weeks. Long-term disability starts after a longer elimination period, often around 17 weeks, and pays monthly for as long as the employee remains disabled under the contract, sometimes to age 65.
Can an employer offer LTD without STD?
Yes, and many do. In that design EI sickness benefits act as the front end, paying up to 26 weeks at 55% of earnings to a weekly maximum, and LTD's elimination period is set so coverage takes over when EI would end. It costs less than insuring STD, but employees receive less income during the early weeks.
How long is the elimination period for long-term disability?
It varies by plan. The elimination period is usually set to match the end of STD or EI, so there is no gap in income; around 17 weeks is a common choice. A longer elimination period lowers the LTD premium but increases how long the employee must rely on STD, EI or savings.
Are disability benefits taxable in Canada?
It depends on who paid the premium. The Canada Revenue Agency says benefits from a sickness, accident, disability or income maintenance plan must be reported as income, but if the employee paid the entire cost of the plan, the amounts received are not taxable. Employer-paid plans therefore produce taxable benefits.
What is the EI Premium Reduction Program?
It is a federal program that lets employers with a qualifying short-term disability plan pay EI premiums at a lower rate than the standard 1.4 times employee premiums. The plan must meet requirements on benefit level, waiting period, duration and eligibility, and employees must receive at least five-twelfths of the savings.
Does LTD pay if I can do a different job?
Possibly not after the initial period. Most LTD contracts pay while you cannot do your own job for an initial period, often two years, then continue only if you cannot do any job you are reasonably suited for by education, training or experience. The exact definition is in the contract and is worth reading before a claim.
Why does my LTD benefit go down when I receive CPP disability?
Because most LTD contracts include a CPP offset. The carrier requires you to apply for CPP disability and then reduces the LTD payment by the amount CPP pays, so your total income stays about the same while the carrier's share falls. The offset is one of the reasons LTD is more affordable.
Do STD and LTD cover injuries at work?
Work-related injuries and occupational diseases in BC are normally covered by WorkSafeBC, which usually pays about 90% of calculated net earnings. Group STD and LTD plans generally exclude or offset those payments and focus on illness and injury outside work. Check your plan's contract for the precise wording on occupational claims.
What to do next
If any of the above applies to a plan you are responsible for, the fastest way to get a specific answer is to have someone read your actual documents. We review current plans and renewal reports at no charge and with no obligation to proceed.
Request a complimentary plan review →References
- EI sickness benefits — Government of Canada
- EI Premium Reduction Program — Employment and Social Development Canada
- Premium Reduction Program — requirements for short-term disability plans — Employment and Social Development Canada
- Premiums under provincial hospitalization, medical care insurance and income maintenance plans — Canada Revenue Agency
- Line 10400 — Other employment income — Canada Revenue Agency
- CPP disability benefits — eligibility — Government of Canada
- Wage-loss benefits — WorkSafeBC
- Insurance Council of British Columbia — Insurance Council of British Columbia
All references verified September 21, 2026. Links are re-checked at each scheduled review.