State disability insurance

State disability insurance (SDI) is a program that provides short-term wage replacement benefits to employees who cannot work due to non-work-related illness, injury, pregnancy, or childbirth.

Homebase Team

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What is state disability insurance (SDI)?

State disability insurance (SDI) is a program that provides short-term wage replacement benefits to employees who cannot work due to non-work-related illness, injury, pregnancy, or childbirth. Unlike workers’ compensation, which covers job-related injuries, SDI helps employees recover financially from temporary disabilities unrelated to their jobs.

For small businesses, managing employee leave and ensuring compliance with state-mandated disability insurance can be complex. Homebase helps businesses streamline workforce management, track employee hours, and stay compliant with state regulations.

Which states require state disability insurance?

Not all states have a state-mandated disability insurance program. As of 2025, the following states require employers to participate in SDI programs:

California – California’s SDI program provides up to 52 weeks of wage replacement benefits.
New York – New York State Disability Benefits (NYSDB) provides coverage for up to 26 weeks.
New Jersey – NJ Temporary Disability Insurance (TDI) offers up to 26 weeks of benefits.
Rhode Island – Temporary Disability Insurance (TDI) provides benefits for up to 30 weeks.
Hawaii – Requires employers to provide temporary disability insurance (TDI), but through private insurance rather than a state fund.

Employers in these states must withhold SDI contributions from employee paychecks and, in some cases, contribute to the program themselves.

How does state disability insurance work?

SDI provides partial wage replacement to employees who are unable to work due to a qualifying medical condition. Here’s how it typically works:

Employee becomes disabled – The employee must be unable to perform regular work duties due to a non-job-related medical condition.
Employee files an SDI claim – The employee submits a claim to the state disability program, including medical documentation.
State agency reviews and approves the claim – Once approved, benefits are paid directly to the employee.
Employee receives SDI payments – Payments are typically 60-70% of wages, depending on the state.
Employer responsibilities – Employers must withhold SDI contributions from employee wages and submit payments to the state agency.

Employer responsibilities for state disability insurance

Employers in states with SDI programs must:

Withhold SDI premiums from employee wages – The percentage varies by state.
Submit SDI contributions on time – Failure to do so can result in penalties.
Maintain accurate payroll records – Employers must track SDI deductions.
Provide required notices to employees – Inform employees about SDI benefits and eligibility.

Using Homebase Payroll, businesses can automate SDI deductions, ensuring accurate and timely payroll processing.

Try Homebase Payroll today to simplify payroll tax management and compliance with SDI programs.

How much does SDI cost employers and employees?

The cost of SDI varies by state and may be funded entirely by employees or shared between employers and employees. Here are some examples:

California: Employees contribute 1.2% of wages, with no cap.
New York: Employees contribute 0.5% of wages, with a maximum deduction of $0.60 per week.
New Jersey: Employees contribute 0.47% of taxable wages, with a maximum contribution limit of $649.54.
Rhode Island: Employees contribute 1.3% of wages to fund the program.
Hawaii: Employers must provide coverage through private disability insurance policies.

Employers should check their state’s disability insurance website to ensure they withhold the correct amounts.

How does SDI interact with other leave benefits?

State disability insurance may work alongside other employee benefits, including:

Paid Family Leave (PFL) – Some states offer paid family leave programs funded through SDI (e.g., California, New Jersey, Rhode Island).
FMLA (Family and Medical Leave Act) – Provides unpaid job protection for qualifying medical leave.
Workers’ Compensation – Covers job-related injuries, while SDI covers non-work-related disabilities.

Employers should coordinate SDI benefits with other leave policies to ensure compliance and avoid payroll errors.

Why should businesses care about SDI compliance?

Failing to comply with state disability insurance requirements can result in:

Fines and penalties for missed contributions.
Payroll audits and back payments owed to state agencies.
Employee disputes over missing disability benefits.

With Homebase Payroll, businesses can avoid compliance headaches by automating SDI deductions, payroll tax filings, and reporting.

Sign up for Homebase Payroll today to streamline payroll and SDI compliance.

How Homebase helps businesses manage state disability insurance

Tracking state disability insurance manually can be time-consuming, but Homebase Payroll makes it easier by:

Automatically deducting SDI contributions from employee paychecks.
Ensuring compliance with state disability insurance regulations.
Providing payroll reports to track SDI contributions.
Simplifying payroll tax filings to prevent penalties.

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