Summary: As a result of a law (S.B. 951) signed by California Governor Gavin Newsom in September 2022, changes are coming in 2024 and beyond to California’s State Disability Insurance (SDI) program, which also includes Paid Family Leave (PFL) benefits. These changes include the following:
- The elimination of the SDI taxable wage limit (contribution limit) on individual wages, effective on January 1, 2024. This means all taxable wages will be subject to the SDI tax.
- The increased SDI benefit percentage levels, first commenced in 2018 (up to 60% - 70% of Average Weekly Wages (AWW)), have been extended through the end of 2024.
- The SDI benefit percentage increases up to 63% - 90% of AWW in 2025.
Read on for more information.
SDI Background
The California SDI program provides short-term disability insurance (DI) and PFL wage replacement benefits to eligible workers who need time off work for qualifying reasons.
The DI program is for California employees unable to work due to non-work-related illness or injury, pregnancy, or childbirth. Eligible employees may receive DI benefits for a maximum of 52 weeks.
The PFL[1] program allows California employees to care for a seriously ill family member[2], bond with a new child, or participate in a qualifying event because of a family member’s military deployment to a foreign country. Eligible employees may receive PFL benefits for up to eight weeks.
For both DI and PFL benefits, eligible employees can receive about 60 - 70% (depending on income) of wages earned 5 to 18 months before their claim start date.
California SDI taxes are paid by employees. For 2023, the contribution rate is 0.9% on annual wages up to the maximum wage limit of $153,164, resulting in a maximum employee contribution of $1,378.48.
Voluntary Plans
California employers can apply to the California Employment Development Department (EDD), the state agency administering SDI and PFL benefits, for approval to provide a voluntary plan for short-term disability insurance and family leave.
A voluntary plan must satisfy the following requirements:
- Written approval of the voluntary plan by a majority of eligible employees
- Offer the same DI and PFL benefits to employees as SDI
- Provides at least one benefit that is better than SDI
- Not cost employees more than SDI
- Eligible employees must be given the right to reject the voluntary plan and be covered by SDI
- A security deposit must be posted with the EDD, and the employer must guarantee that the VP will meet all obligations
- Be updated to match any increase in benefits that SDI implements from legislation or approved regulation
Click here for additional resources to learn more about voluntary plans.
Note that voluntary plans are still subject to the elimination of the taxable wage limit in 2024 and the SDI benefit increase changes in 2025, pursuant to S.B. 951.
New SDI Changes for 2024 & Beyond
In 2018, SDI benefits were temporarily increased from up to 55% of AWW to up to 60% - 70% wage replacement rate and scheduled to expire at the end of 2022. Prior to the end of 2022, S.B. 951 was signed by Governor Newson, continuing these benefit increases through the end of 2024. Moreover, beginning in 2025, SDI benefits will increase again up to 63% - 90% of AWW. Employees who earn more than 70% of the AWW will receive a benefit of up to 63% of AWW while those earning 70% or less than the AWW will receive up to 90% of AWW.
These benefit increases, slated for 2025, are funded by the elimination of the taxable wage limit, effective January 1, 2024.
This change for 2024 will result in all taxable wages being subject to the SDI tax, impacting high-wage workers, who will see an increase in their SDI employee contributions. This removal of the taxable wage limit benefits lower-wage workers (those earning 70% or less than the AWW) who will not experience an increase to their SDI employee contributions.
EDD released a forecast report in May 2023 projecting that the SDI employee contribution rate for 2024 will increase from 0.9% to 1.1% and the maximum weekly benefit is projected to increase from $1,620 to $1,698. The final forecast report is anticipated to be released later this year.
Employer Next Steps
Employers with employees in California should take note of these new changes and work with their payroll providers to ensure the required payroll updates with respect to the elimination of the taxable wage limit are in effect for January 1, 2024.
Although employers are not required to notify their employees in California about these upcoming SDI changes, they are still encouraged, as a best practice, to provide clear and concise communications to employees, particularly to avoid high-wage employees being surprised by their increased SDI employee contributions in 2024.
For those employers interested in learning more about voluntary plan options, or have additional questions regarding the CA SDI program, the Risk Strategies Absence Management team is here to help.
[1] California became the first state in the nation to pass PFL in 2002, and the program went into effect on July 1, 2004.
[2] A qualifying family member under PFL is a child, parent, parent-in-law, grandparent, grandchild, sibling, spouse, or registered domestic partner.
