We have come across recent examples of continuation pay offsets (or lack thereof) having big impacts on claims. It may seem like a small contractual feature, but it can mean a lot depending on the situation.
What constitutes continuation pay?
Employer payments after date of disability including but not limited to regular wages, sick pay, vacation pay, or pension payments.
Why is it important?
While it seems logical to have STD benefit payments integrated with or limited by continuation pay, several carriers do not build this in as a standard offset (and has to be proactively added as an optional offset). Therefore, claimants may be entitled to STD benefits plus continuation pay. This can create over insurance issues and discourage return to work.
How does this compare to state disability policy?
NJ TDB builds in a standard offset known as “Limitation H” that does not allow the combination of disability benefits and continuation pay to exceed 100% of pre-disability earnings. NJ employers with STD policies could have situations arise where the NJ TDB benefits and STD benefits are being paid out differently based on offset language. Most groups would prefer the offsets to be consistent.
Can you give an example of how continuation pay may create a problem?
Employee A files a claim and is entitled to a $1,500/week disability payment and also has a bank of sick days equating to $2,250/week. The STD policy does not include an offset for continuation pay so the employee collects $1,500/week plus $2,250/week for a grand total of $3,750/week- 167% of pre-disability earnings! The employer assumed an offset was built into the contract to limit payment but that was not the case. We worked with the in-force carrier to amend the contract to include an offset moving forward.
What is the solution?
Every group is going to have a different opinion. Some may have internal policies that require employees to exhaust sick pay before collecting disability payments. For those that don’t, it makes sense to review the offset language in the contract with the group. More often than not, employers do not want employees making more money on claim than at work.