Long-term disability (LTD) isn’t the coverage employees line up to ask about. It’s not as visible as mental health support or as tangible as massage, physio, or dental. And for younger tech employees—especially those early in their careers—it barely crosses their radar at all. But that’s exactly where the risk begins.
When employees don’t understand LTD, they decline it. And when they decline it, they unknowingly expose themselves to the biggest financial vulnerability most people will ever face. This isn’t a benefits budget issue; it’s a design issue.
The Rule Everyone Forgets: LTD Must Be 100% Employee-Paid to Stay Tax-Free
The foundation of LTD is simple, but often overlooked: the premium must be 100% employee-paid for the benefit to be tax-free at claim time.
If the employer pays even one dollar, the employee’s disability income becomes taxable. That means a $100,000 earner who expects $5,555 a month from LTD could see that amount shrink by 30–40% once tax is applied. It’s one of the most important compliance rules in benefits—and the easiest one to get wrong if you don’t know it.
Why Younger Employees Decline LTD (and Why It Matters More Than They Think)
Employees in their twenties and early thirties often prioritize short-term wellness benefits over long-term protection. They assume they’re healthy, they assume nothing major will happen, and they assume disability coverage is something they can think about later on. Older employees with mortgages, families, and long-term financial commitments see its value immediately. Younger employees often don’t—until it’s too late.
The consequences of opting out are enormous. Here’s why:
A 30-year-old earning $100,000 who becomes permanently disabled could lose more than $3 million in lifetime income. For a benefit that often costs less than $70 a month, the trade-off is staggering.
The New Solution Employers Are Using: The Salary Top-Up
This is where a simple, modern fix comes in. Instead of not adding the coverage, employers are increasingly using a salary top-up to keep LTD 100% employee-paid while ensuring employees aren’t actually out of pocket.
It works like this: the employer increases each employee’s salary by the amount of their LTD premium, plus the 8% tax on benefits. Employees see the LTD deduction on their pay stub, but the salary increase covers it entirely—so they keep the coverage without feeling the cost.
Example:
For a $100,000 salary with a $40 monthly LTD premium, the employer might top up pay by roughly $45–46. It’s clean, it’s compliant, and it solves the enrollment problem instantly.
Why This Approach Works: Protecting Employees From Themselves
The logic is simple: sometimes you have to protect employees from their own assumptions.
Younger teams don’t feel the urgency around LTD, even though they’re statistically more likely to face an unexpected illness or injury over the span of a 30-year career. A salary top-up removes that barrier and ensures they remain protected through every stage of life and career growth.
It’s also one of the highest-value investments an employer can make. For roughly $40 a month, you’re helping someone secure 25–35 years of income protection up to age 65. When founders see that math, there’s always the same response—a pause, and then the lightbulb moment when the scale of the protection becomes clear.
Why Topping Up Salary for LTD Is a Win-Win
For employers, this approach offers a rare combination of low cost, high impact, and clean compliance. It keeps LTD structured correctly for tax purposes while ensuring employees retain coverage they would otherwise decline. For employees, it removes the financial barrier that often leads them to opt out in the first place. And for HR teams, it’s one of the simplest ways to modernize a benefits plan for a workforce with very different needs and expectations.
The bottom line is that startups don’t need bigger budgets to offer LTD, they just need better design.
If You’re Updating Your Plan in 2026, Start Here
LTD belongs in every benefits conversation, whether your company is two people or two hundred. Not because it’s expensive or complicated, but because it protects the most important asset your employees have: their ability to earn an income.
With salary top-ups, you can offer this protection in a way that’s tax-efficient, employee-friendly, and entirely aligned with how modern tech companies operate.