Set up third-party disability insurance

If you offer disability insurance through a third party, follow these steps to set up payroll deductions, report the company contribution, and designate which employees are enrolled. 

1. Sign in to your Gusto admin account.
2. Navigate to the Benefits tab.
3. Under the "Financial Health" section, select Disability/Leave.  
4. Select Yes, we currently offer this benefit.
5. Click Next.
6. Name the benefit, select what type of insurance you have, enter the employee deduction and company contribution, and upload your plan document. 
7. Click Save & Continue.
8. Select which employees are enrolled in this benefit.
9. If needed, customize their employee deductions and company contributions.
10. Click Save & Continue.

On the next payroll you run, enrolled employees' paystubs will reflect the employee deductions and company contributions you entered, if applicable. If an employee takes a leave of absence due to an injury or illness that qualifies them to submit a claim to the insurance carrier, follow the steps below to record any payouts so Gusto can ensure the employee is taxed properly. 

If an employee takes a leave of absence that qualifies them to receive payouts from your insurance carrier, you'll need to do three things in Gusto: record the dates of their leave, upload documentation of their payout, and email us from the Help section of your account.

1: Record the dates of an employee's leave

1. Sign in to your Gusto admin account.
2. Go to the People section and select Team members.
3. Click the name of the employee.
4. Go to the Benefits section of their profile.
5. Click Manage Leaves. 
6. Click Add Leave.
7. Fill out the details of the leave:
   • Start date
   • A reason for the leave, for your records
   • End date (you can add this later if the end date is unknown)
8. Click Save.

2: Report an employee's insurance payments during their leave

When your employee submits a claim and receives a payout, you'll receive a distribution report from the insurance company describing the payments received and any taxes withheld. When you receive a distribution report, follow these steps to upload it to the employee's profile. 

1. Sign in to your Gusto admin account.
2. Go to the People section and select Team members.
3. Click the name of the employee.
4. Go to the Benefits section of their profile.
5. Click Manage Leaves. 
6. Next to the leave you're recording a payment for, click Edit. 
   • If you don't see a leave listed for the correct date range, follow the steps above in "Record the dates of an employee's leave" to set it up. 
7. Under "Source," click Select File to upload the payment document from your insurance company.
   • Important: check if the document says that you need to include it on your payroll. If so, finish uploading the document, then contact us from the Help section of your account so we can make sure it's correctly captured in payroll and reports.
8. Click Save.

3: Email Gusto

In order for us to process this document, you'll need to email us from the Help section of your account after you've uploaded the document. We'll then review the payment amounts for you and ensure the employee is taxed properly for them.

Short term disability insurance is complex from a tax perspective. Employee taxes are often managed by the insurer, while company taxes like Social Security and Medicare need to be paid by the employer. The specifics of the taxation will vary based on your plan document and the requirements specified by the insurer.

Please be aware that you may be required to file additional forms depending on your plan:

• If the sick pay will be reported on Forms W-2 under the name and Federal EIN of the insurer or agent: the employer must file Form 8922. Here is a link to the form instructions. This form is not currently supported by Gusto.
• If the sick pay will be reported on Forms W-2 under the name and Federal EIN of the employer: only the insurer/agent must file Form 8922, and the employer does not need to file this form.