Any suggestions on how to coordinate short term disability payments with workers comp ttd payments? Which payment should I use to reduce the other? Since workers' comp ttd is a tax-free benefit, how does this affect our std benefit which is paid via payroll.

Any suggestions are greatly appreciated.

Assuming that you could coordinate the benefits, Why would you be doing this instead of the insurer of the STD?

In any case you cannot coordinate if either the law or the STD insurance policy does not clearly state so. What does the STD policy state? What empowers you to limit the WC benefit, Are you the insurer?

Typically when an employer wishes to allow an employee to receive WC weekly benefits and STD benefits the WC benefits are primary with the STD payments supplementing the WC payments. WC benefits are a legal entitlement and must be paid in accordance with your state’s WC laws; therefore they must be primary in my opinion.

I assume that your STD benefits are self-insured if paid via payroll? If so, you can set your STD plan up to do exactly what you are intending to do. I also am assuming that your WC is provided via an insurer. If so, WC payments are paid by a third party and they will handle the non-taxability of those payments. Any STD payments to off set the WC payments as paid via the payroll system would be subject to W-2 earnings at year-end.

One word of caution, paying additional benefits to a WC claimant can be a disincentive for that person to return to work in a timely manner especially of the combination of WC and STD payments would give the claimant 100% of pre-disability pay.