Californians do not always stay active on the job. An injury or illness that happens outside of work can keep them out of work for a period and stop them from earning income.

The insurance payments that give them an income during the days off work cost money paid from a fund funded by the State Disability Insurance (SDI) Tax.

A Backup Plan

During the time a Californian recovers from an injury or illness, the disability insurance payments cover the costs of living. Employers take in payroll money deducted from each worker's pay to pay for the tax. The lawmakers that set up the disability insurance (DI) program used an insurance fund to give workers a guaranteed income during their unproductive days. Paid Family Leave (PFL) was added to the insurance coverage. Workers that have an seriously ill family member and want to spend time off work taking care of them or that need time off to go through a pregnancy and childbirth will still have financial support.

The Mandatory Tax

Employers that hire employees pay the payroll tax. It is mandatory. The state disability insurance fund is the standard fund that employers pay the tax into. But, the money withheld from worker pay can also get paid into a private fund. Employers can choose to set up a Voluntary Plan that give workers better benefits and does not cost them more. The employee contributions can be lower. If an employee does not choose to participate in the voluntary plan, they will get covered by the state plan.

Employers take a percentage out of each paycheck given to each employee during the year. Though not all income earned gets taxed. There is a maximum limit set at a high income well above the median income in the state. The income is near twice the median. No dollars earned above this amount are taxed. The California legislators can change the percentage each year.

In 2011, the tax rate was set at 1.2 percent.

Holding The Full Balance Steady

California legislators keep watch over the state fund balance and do not let it drop too low. When the fund is fully funded, they can drop the rate as low as 0.1 percent, but not lower. During times the funds get spent on disabled workers and the balance falls to a low level, they can raise the rate to as high as 1.5 percent.

Tax on Full Earnings

There is a limit to how much money and benefits an employer gives their worker is taxed. Wages get taxed. Earned income, that can include bonuses and commissions, gets used for the tax payments so the workers pay into the taxes taken by the company. The employers do not draw money out of payments for business expenses or dependent care assistance.

Extra payments that do not count for work compensation, such as gifts and school tuition assistance, have no part in the worker's earned income. The value is not taxed. Neither are stock options given to employees to own.

Sick pay is a kind of earned income paid at the time the worker gets sick so it gets taxed. Tips totaling $20 or more in a month also count as taxed earned income. Using an employer's car is a fringe benefit that is taxed.

Employers cover meals and lodging as a basic part of keeping workers fully supported at work. These payments are not kept separate from taxable income.

A Deal for All Workers

The typical California worker can get payments in their hands. Any worker in the covered work fields can count on the disability insurance and paid family leave. There are however a number of types of employed workers that do not get covered. Real estate salespersons are one of these groups of workers.

Employees hired by family members are also not covered by the insurance.

The workers that fill up the fund accounts with money deducted from their pay get the other end of the deal in return. Insurance payments when they do not have earned income.

Source:

California Employment Development Department, California Employers Guide 2011 (Internet, January 2011).