When an injured worker receives short-term disability (STD) or long-term disability (LTD) payments after a workplace injury, defendants often argue that those payments should reduce what they owe in temporary disability (TD) benefits.
This issue frequently arises during settlement negotiations, particularly when a lien claimant appears late in the case or when plan documents are incomplete.
The key point to remember is this: offsets are not automatic.
Whether STD or LTD payments reduce TD benefits depends on three primary factors:
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The language of the disability plan
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Who funded the benefit(employer or employee)
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Whether the payments overlap the same wage-loss period
Understanding these distinctions can significantly affect settlement value and lien exposure.
Wages vs. Disability Plan Benefits
The first step in analyzing offsets is distinguishing between salary continuation and disability-plan benefits.
Salary Continuation or Wages
If an employer continues paying an injured employee full wages under a qualifying salary continuation plan, temporary disability benefits may not be payable for those weeks.
This principle is incorporated into California Labor Code § 4650(g).
https://app.sullivanoncomp.com/external_resources?type=LAB&number=4650
Additional guidance appears in Sullivan on Comp, Section 9.31:
https://app.sullivanoncomp.com/soc/index/title/9.31?anchor=header2-9.31-2
Even outside strict salary continuation programs, the Workers’ Compensation Appeals Board (WCAB) may allow a credit to prevent double recovery of both wages and TD benefits.
See Herrera v. WCAB (1969) 34 Cal.Comp.Cases 382, discussed in Sullivan on Comp:
https://app.sullivanoncomp.com/soc/index/title/9.31?anchor=header1-9.31-1
STD and LTD Disability Benefits
Short-term and long-term disability benefits operate differently. These benefits are typically paid through:
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Insurance policies, or
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Employee welfare benefit plans, often governed by ERISA
Whether workers’ compensation receives a credit or offset for these payments generally depends on:
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The intent of the parties, and
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Whether the benefit functions as the equivalent of workers’ compensation wage replacement
Sullivan on Comp emphasizes that employers are not automatically entitled to credit for benefit-plan payments. Instead, the WCAB has discretion under Labor Code § 4909.
Labor Code § 4909:
https://app.sullivanoncomp.com/external_resources?type=LAB&number=4909
Sullivan on Comp, Section 9.32:
https://app.sullivanoncomp.com/soc/index/title/9.32?anchor=header2-9.32-1
Workers’ Comp Coordination Language and LTD Liens
Many group LTD policies contain clauses stating that LTD benefits will be reduced by workers’ compensation wage-loss benefits.
This coordination language is significant because California law recognizes a specific statutory lien related to employer-provided group LTD plans.
Under Labor Code § 4903.1, a lien may be permitted when:
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The employer secured the group LTD policy, and
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The plan provides for reduction, exclusion, or coordination of benefits based on workers’ compensation payments.
Importantly, this statute generally applies only to temporary disability benefits, not permanent disability.
Labor Code § 4903.1:
https://app.sullivanoncomp.com/external_resources?type=LAB&number=4903.1
Discussion in Sullivan on Comp, Section 9.32:
https://app.sullivanoncomp.com/soc/index/title/9.32?anchor=header2-9.32-5
Why Defendants Often Use the Lien Approach
Procedurally, filing a lien can be advantageous.
Sullivan on Comp describes situations where a defendant failed to raise LTD credit during trial but later filed a lien and still recovered payment.
Example:
Stanton v. WCAB (1994) 59 Cal.Comp.Cases 801 (writ denied)
See discussion here:
https://app.sullivanoncomp.com/soc/index/title/9.32?anchor=header2-9.32-5
STD Offsets Are Often the Weakest Claims
Short-term disability offsets frequently fail because defendants cannot produce the underlying plan documents.
It is common to see only:
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Payment ledgers
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Check stubs
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Benefit summaries
However, proof of payment is not proof of an offset right.
Sullivan on Comp explains that credit requires evidence of both plan terms and intent, including whether the disability payments were meant to replace workers’ compensation benefits.
See Sullivan on Comp, Section 9.32:
https://app.sullivanoncomp.com/soc/index/title/9.32?anchor=header2-9.32-1
If the defense cannot produce the STD plan document or summary plan description, the offset claim may fail.
A typical argument in that situation is:
The STD offset is unsupported because credit is not automatic, and the required plan intent and terms have not been established.
This issue often surfaces when defendants attempt to deduct an alleged STD overpayment directly from settlement proceeds without sufficient documentation.
Who Paid the Premiums Matters
Another critical factor is who funded the disability plan.
If employees contributed to the plan premiums, the employer generally cannot claim a full credit without raising issues under Labor Code § 3751, which prohibits shifting workers’ compensation costs to employees.
Labor Code § 3751:
https://app.sullivanoncomp.com/external_resources?type=LAB&number=3751
Sullivan on Comp discusses proportional credit principles
when plans are employee-contributory:
https://app.sullivanoncomp.com/soc/index/title/9.32?anchor=header3-9.32-2
When a plan is 100 percent employer-funded, disputes tend to focus less on proportionality and more on:
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Whether the plan language allows coordination
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Whether payments overlap the same time period as TD benefits
The Gap Period Problem: No Overlap Means No Offset
Another recurring issue is the gap between STD ending and LTD beginning.
If there are weeks where the injured worker received no disability-plan benefits, there is nothing to offset against workers’ compensation temporary disability.
The policy behind credits and offsets is to prevent double recovery for the same wage loss, not to eliminate benefits entirely.
See Sullivan on Comp, Section 9.31:
https://app.sullivanoncomp.com/soc/index/title/9.31?anchor=header1-9.31-1
If STD ended and LTD had not yet begun, those weeks often remain eligible for TD benefits.
Settlement Mechanics: Liens and Compromise & Release
Lien disputes frequently intersect with settlement negotiations.
California law generally prevents lien claimants from blocking settlement approval.
Under Labor Code § 4904(e), the WCAB may approve a settlement if the defendant accepts liability for outstanding liens as part of the agreement.
Labor Code § 4904:
https://app.sullivanoncomp.com/external_resources?type=LAB&number=4904
Discussion in Sullivan on Comp, Section 15.93:
https://app.sullivanoncomp.com/soc/index/title/15.93?anchor=header2-15.93-2
However, settlements that fail to address liens clearly may not be approved.
Drafting Tip: List Credits and Deductions Clearly
Post-settlement credit disputes are common. WCAB often rejects attempts to claim additional credits that were not clearly listed in the Compromise and Release agreement.
See Sullivan on Comp, Section 14.77:
https://app.sullivanoncomp.com/soc/index/title/14.77?anchor=header2-14.77-5
When STD or LTD benefits are involved, settlement agreements should explicitly state:
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Whether the defendant will resolve liens separately
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Whether a specific lien amount will be deducted
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Whether liens will be deferred for separate lien proceedings
See Cal. Code Regs., tit. 8, § 10880:
https://app.sullivanoncomp.com/external_resources?type=CCR&number=10880
Additional discussion in Sullivan on Comp, Section 15.94:
https://app.sullivanoncomp.com/soc/index/title/15.94?anchor=header2-15.94-3
Discovery Requests for STD/LTD Offset Claims
If the defense is asserting STD or LTD offsets, important documents to request include:
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Full STD and LTD plan documents
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The summary plan description
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Clauses addressing workers’ compensation coordination or reimbursement
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A detailed payment ledger showing dates and amounts
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Proof of who funded the premiums
Without this documentation, an offset claim may be more assertion than evidence.
Conclusion
STD and LTD issues in California workers’ compensation settlements are rarely simple accounting problems. They are fundamentally issues of proof and documentation.
Key takeaways include:
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LTD offsets are often stronger when the employer can produce coordination language supporting a statutory lien tied to TD.
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STD offsets frequently fail when the defense cannot produce the underlying plan documents establishing intent and coordination.
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Gap periods without disability benefits often support claims for unpaid TD because there is no overlap to justify an offset.
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Settlement agreements must address liens clearly to avoid disputes after approval.
Understanding these factors can make a significant difference in how workers’ compensation cases are evaluated and resolved.
Disclaimer:
This article provides general information only and does not constitute legal advice. Each workers’ compensation case depends on the specific disability plan documents, benefit funding, payment timelines, and procedural posture before the WCAB.