On the other, you can’t afford to open the firm’s wallet any wider than necessary. But is there a magic number for how much short-term leave to cover?

Yes, a new study says. The ideal salary-replacement percentage is 70%.

Not too much, not too little

At 70% coverage, beneficiaries have enough money coming in to tide them over, while still having an incentive to get back to work as soon as they’re ready. What happens if you cover more or less than 70%? The study finds:

• employees tend to return too fast (increasing the risk of long-term disability) as coverage dips below 70% of their income, and
• absenteeism costs (and disability premiums) go up significantly when the employer covers more than 70% of the worker’s income.

Financially speaking, nice guys finish last, according to the study.

The employees of firms that cover 100% of the person’s income stay out on short-term disability 20% longer than those offering 70% coverage.

Won’t your firm make up for the difference with increased loyalty and productivity? Not necessarily.

The increase in retention and productivity is small, and doesn’t add up to enough money to offset the added expense of covering someone’s entire income.

Meanwhile, employers that cover 50% or less of the employee’s income often wind up losing more money than they save. Productivity and retention rates drop, and too many folks come back before they’re ready. The result: Higher long-term costs.

Eight is great

For the same reasons, the ideal take-effect date for disability benefits is the eighth day of leave. If the benefits take effect too soon, people who are well enough to return to work have an incentive to milk the system.

But any later than eight days, and many of the folks in need avoid taking disability for financial reasons.