OBJECTIVES:  The impact of adherence to hypoglycemic agents on the medical/pharmacy costs of diabetes patients has been examined frequently in the literature, but the analogous impact on disability costs is not well-documented. This study assesses the relationships between medication adherence and short-term disability costs in a large manufacturing company.  METHODS: A retrospective analysis of pharmacy claims was conducted to identify individuals within a large manufacturing company who were continuously eligible for a three-year time frame (between 2001 and 2007) and who received a prescription for an oral hypoglycemic during that time; in those cases where an individual’s eligibility spanned a longer time period, the most recent three-year span was chosen. Individuals on insulin were excluded from the study population. The resulting sample included both treatment-naïve and treatment-experienced patients, reflective of real-world employer experience. Medical, pharmacy, and short-term disability costs were calculated for a one year follow-up. Adherence was measured using proportion of days covered (PDC), where a PDC≥80 was considered adherent.  Multi-variable linear regression was used to examine the relationships between cost and adherence, controlling for patient demographics (age, gender, and job type) and Charlson co-morbidity score. RESULTS: Among the 4978 individuals included in the study, the average adherence to oral hypoglycemic agents was 72.7%, and 56.6% (N=2820) of the study population had a PDC≥80. The mean total medical/pharmacy costs were similar for both the adherent and the non-adherent. Individuals who were adherent to their diabetes medications, however, had significantly lower short-term disability costs ($1161/year) than did the non-adherent ($1840/year). CONCLUSIONS: In general, diabetes patients who adhered to their treatment regimen had much lower short-term disability costs when compared to the non-adherent. This result carries special implications for employers concerned with the total costs associated with diabetes in their employee populations.