This study evaluated the relationships between compliance with oral hypoglycemic agents and health care/short-term disability costs in a large manufacturing company. The retrospective analysis used an observational cohort drawn from active employees of Ford Motor Company. The study population consisted of 4978 individuals who were continuously eligible for 3 years (between 2001-2007) and who received a prescription for an oral hypoglycemic agent during that time. Medical, pharmacy, and short-term disability claims data were obtained from the University of Michigan Health Management Research Center data warehouse. Pharmacy claims/refill data were used to calculate the proportion of days covered (PDC); an individual was classified as compliant if his/her PDC was ≥80%. Model covariates included age, sex, work type, and Charlson comorbidity scores. The impact of compliance on disability and health care costs was measured by comparing the costs of the compliant with those of the noncompliant during a 1-year follow-up. Among these employees, compliant patients had lower medical, higher pharmacy, and lower short-term disability costs than did the noncompliant. After adjusting for demographics and comorbidity, noncompliance was associated with statistically higher short-term disability costs ($1840 vs. $1161, P<0.0001), longer short-term disability duration, and an increase in short-term disability incidence (21.5% of the noncompliant had a claim compared to 16.0% of the compliant, P<0.0001). These results suggest that medication compliance may be important in curtailing the rise of health care/disability costs in the workplace. Employers concerned with the total costs associated with diabetes should not overlook the impact of compliance on short-term disability.