Human Resource Blog

California SDI for Small Business Owners and Independent Contractors

Q: Can independent contractors or small business owners get SDI under the

California short-term disability program?

Independent contractors or business owners don’t qualify for the usual California State Disability Insurance, or SDI. However, there is another program created by the state for those who are self-employed. 

Elective Coverage, or EC, is an SDI program especially for people who are self-employed. This includes, among others, independent contractors and owners or general partners of a business. EC offers different benefits and coverage than SDI. The costs of EC are determined annually by the EDD Employment Tax Office.

Under California law, persons who are employed by relatives in family-owned businesses are not required to be covered by SDI. However, these employees may choose to participate in SDI if they wish. In that case, their benefits and costs are the same as other employees under SDI.

Disability Insurance Elective Coverage or EC is an option for those who are self-employed and for business owners under SDI. Independent contractors usually fall under this self-employed heading. Under this program, self-employed people may elect to pay for disability insurance, at a slightly higher rate. The coverage includes benefits for Paid Family Leave insurance, as well.

EC premiums are based on the net profit reported on the individual’s income taxes for the previous year. Specifically, the net profit on IRS Form 1040 Schedule SE is used.

Small business owners who are not required to file a Schedule SE (such as life insurance salespersons) should us the net profit from IRS Form 1040 Schedule C, line 31.

For 2007, the EC premium is 1.97% on the first $83,389 of net profit. Note that this is 1.27% higher than an employee’s SDI payroll deduction.

Self-employed people should complete the Application for Disability Insurance Elective Coverage to apply for EC. Once approved, they will be sent quarterly statements showing the amount due every 3 months. Premiums are reduced or eliminated while self-employed individuals are receiving SDI benefits or on Paid Family Leave.