Once you have suffered injuries as a result of an accident, your ability to return to work right away is likely to be limited, particularly if your injuries are severe.
Generally, most injury victims will lose some amount of time from work due to being unable to do the required job while they recover. For injury victims, this time out of work can be a setback not only for their future but also for their daily life.
This is why the law allows injury victims to recover for what is referred to as “lost wages”. This is a type of damage, and lost wages are often one of the more easily overlooked types of damage; or one that is least understood.
It is important for injury victims to understand lost wages and the ramifications it could have on their potential compensation in their injury case.
What are lost wages?
Lost wages correspond to income a claimant did not receive because they could not work due to the incident that is the subject of the claim.
In personal injury and medical negligence actions, plaintiffs could seek recovery of lost income in relation to their injuries and ongoing medical treatment. Likewise, in wrongful termination cases, plaintiffs could seek recovery of income they would have received but for the wrongful termination.
When determining the value of lost income, the following aspects will be considered: regular pay (hourly or salary), guarantee of overtime, and lost income possibilities (raises, bonuses, commission), health benefits, retirement contributions and more.
When courts award lost income, the entity responsible for making payments is the defendant and/or their insurance company, in addition to whatever amount they would have to pay for other damages, such as medical expenses.
Is there a formula to calculate lost wages?
The formula that expert forensic economists use to calculate lost wages is not complicated. Simply take the plaintiff’s annual income, as earned, prior to the incident and then multiply it by the period of time that they could not work.
If the claimant has lost a significant amount of time, then their earnings must be adjusted for time (inflation or growth in wages). The general formula can simply be stated as conjunction with adjustments.
Lost wages = (Annual Earnings prior to the incident) x (Portion of years lost) + (Other factors)
However, if the plaintiff is self employed, calculating lost wages becomes a much more complex endeavor. Similarly, situations resulting in extended periods of time and loss of earning, or lack of earning opportunities indefinitely, become complex as well.
As such, the best approach is to employ a personal injury lawyer and forensic economist to help determine appropriate and fair calculations.
Checklist of Items to Obtain Prior to Calculating Lost Wages
Prior to getting into the actual process for calculating lost wages, you will need to obtain some documents. The documents you will collect serve as a record of your lost income, and help substantiate your lost wages claim. The following is a list of items which you will need to collect:
- Documents Showing You Could Not Work: These documents could include a disability slip (i.e. doctor note that lists the date you were unable to work) which creates the record of the time you were unable to work based on the injuries you sustained in the car accident.
- Pay Stubs: Pay stubs provide proof of the normal income you earned prior to the accident and will be a basis for calculating the income you were lost.
- Tax Returns or W-2’s: Tax returns or W-2 documentation gives you a better view of your annual income in the event your income fluctuated throughout the year.
- Letter from your Employer: A letter from your employer documenting your employment, the lost wages, and the time you took off work for the injury.
- Journal: A post-accident journal to document all the days you missed of work due to your car accident and related medical treatments. This could be a good reference when calculating the lost wages.
It’s very helpful to simply have the above documents and information organized to make the calculations, and to help substantiate your claim for lost wages.
How to Include Lost Benefits in Your Lost Wages Claim
When preparing your lost wages claim, don’t forget about the value of lost benefits. Lost benefits may account for a substantial portion of your overall damages and may include performance bonuses, lost vacation days, lost sick days, lost paid-time-off (PTO), fringe benefits, and more.
If the injury that caused you to make this claim caused you to lose out on these benefits, they should be included in your claim.
Performance Bonus Pay
Performance bonuses are a little trickier to calculate because they are based on multiple factors like your performance, quotas, or sales. However, if you regularly get performance bonuses and your injury caused you to lose out on performance bonuses, you should include these in your lost wages claim.
First, calculate your average performance bonus. You can determine your average performance bonus by taking the total amount of bonus pay you received for a defined time period, (the longer the better, I suggest a year), dividing by the number of bonuses you received or earned. This will give you an average bonus amount.
For example, you received 4 bonuses last year totalling $6,000. Your average performance bonus would be $6,000 divided by 4 = $1,500. Now include that average performance bonus in your calculation for lost wages.
If we take our previous example of a salaried employee whose lost wages were calculated at $2,500, and we include the missed bonus, the total lost wages claim will therefore be $4,000 ($2,500 + $1,500).
Fringe Benefits
Fringe benefits, such as health insurance, mobile phones, gym memberships, or transportation from your employer, are worth a significant amount of your total compensation. If your injuries prevented you from receiving these benefits, including them in your lost wages claim is then important.
To assess your lost fringe benefits claims you will have to calculate the value of each benefit you lost during your time off work of the injury. For health insurance, you would need to know how much your employer contributes to your health insurance.
If your employer contributed $200 a month on the health insurance benefit and you were off work for three months, then you would have a loss of $600 ($200 x 3 months) in health benefit insurance.
Vacation Days, Paid Time Off (PTO), and Sick Days
You will also want to calculate any lost vacation days, paid time off (PTO), or sick days in your total lost wages calculations. Vacation days, PTO, and sick days are a part of your compensation. If your injury has prevented you from taking full advantage of these benefits, then you have to account for lost vacation days.
To begin to assess lost vacation days, you will have to compute how much a day off is worth before calculating your accounts of days missed due to your injury.
This is calculated by taking your yearly salary and dividing it by the number of workdays in a year. If you are earning $ 60,000 a year, and take into account weekends and holidays off or 240 workdays per year, then $ 60,000 ÷ 240 = $250 (a day off).
This means you would have a value of $250 (each day off). If you find out that you lost 5 vacation days due to the injury, your amount for lost vacation days would be $1,250 (5 days x $250).
401(k) Benefits
401(k) benefits are an important component of an employee’s compensation and retirement plan. If your injury has caused you to lose contributions to the company’s 401(k), this must be calculated and included in your total lost wages lost claim.
You would first want to state the usual contribution that you would make along with your employer contribution to the 401(k) per pay period. Let us say you contribute 3% every pay period. If your bi-weekly salary is $2,000, this is 3% each pay period for both you and your employer, or $60 each for a total of $120.
If we also state that you were out of work due to the injury for 3 months (6 pay periods), then the amount you would have lost in your 401(k) contributions would be $720 ($120 x 6 pay periods).
Types of Lost Wages
In the context of a personal injury claim, lost wages refers to money that you did not earn because of an injury, or injuries, resulting from the negligence of another party. It is important to correctly calculate these lost wages.
Immediate Lost Earnings
These wages are essentially the wages you lose from the time you are injured until the time of settlement of your claim, or trial. By way of example: Perfect
- For hourly wage employees: the number of hours lost due to the injury, which will be multiplied by your hourly wage.
- For salary employees: Find your daily rate by dividing your salary by the number of work days in a year (this can vary in number, based on holidays, sick days, etc.) and multiplied by the number of work-days lost.
Example:
- Hourly wage: $20/hour
- Hours missed: 100 hours
- Immediate lost earnings: $20 x 100 = $2,000
Lost Overtime and Bonuses
Many times the injured party is a diligent employee that has always performed overtime in excess of 40 hours per week, or a person that earns bonuses. Lost overtime and bonuses need to be calculated.
The injured party may be required to provide proof of prior hours worked and/or bonuses. This evidence could be pay stubs or employer records.
Example:
- Average overtime hours per week: 5 hours
- Overtime rate: $30/hour
- Weeks missed: 4 weeks
- Lost overtime: 5 x $30 x 4 = $600
Loss of Benefits
In some cases, employees lose employee benefits, such as employer contributions towards retirement plans, health benefits, stock options, etc. In those cases, those lost benefits will also be included in lost wages.
Example:
- Monthly health insurance contribution: $300
- Months missed: 2
- Lost benefits: $300 x 2 = $600
Future Lost Earnings
If the injury, or injuries, left the injured party with a long-lasting work capacity disability that impairs the injured party’s ability to earn a future income, future lost wages will need to be calculated. Future lost wages will require determining the amount, and manner, in which that injury will influence your future work capacity at various levels.
- Permanently disabled: Calculate the difference between capacity to earn pre-injury and capacity to earn post-injury multiplied by the amount of work-life expectancy.
- Temporarily disabled: Determine how long it will take to return to work encumberment due to the injury and that time multiplied by their normal earnings.
Example:
- Annual pre-injury earnings: $50,000
- Annual post-injury earning capacity: $30,000
- Expected remaining working years: 20 years
- Future lost earnings: ($50,000 – $30,000) x 20 = $400,000
Self-Employed Individuals
For self-employment wage loss, lost wages can be calculated based on lost business opportunities, contracts, income streams, etc. Examples of previous years’ income tax returns and profit and loss statements will be reviewed, as well as the self-employed individual records, invoices, and client files.
Example:
- Average monthly earnings: $5,000
- Months missed: 3
- Lost earnings: $5,000 x 3 = $15,000
Calculating Future Lost Wages
Forecasting future lost earning capacity, or wages, can be difficult, but this has to be done in order to complete this part of your personal injury claim. It is particularly important if your injury is going to affect you in the long-term with your work and ability to earn the same way as you did prior to your injury. Here are some important examples of future lost wages:
- Future Lost Income: This will be the income that you would have earned, had the accident not have taken place. For instance, if your injury has resulted in a long-term disability which prevents you from working in the same capacity, you will have future lost income. The calculation usually consists of predicting your future income situation based on income history and career trajectory.
- Lost Earning Capacity: This refers to a diminished capacity that the person has, in terms of earning income, as a result of the injuries sustained. To calculate the lost earning capacity, you will have to establish the difference between what you were capable of earning before the accident and what you are capable of earning after the accident.
- Lost Promotions: Or if your injury has caused a delay or absence of promotion or career development, you can include any lost promotions as damages in your succession of claims. For example, by comparing current income with income had the lost promotion taken place.
- Pension Benefits Lost: An injury can also affect not only your lost wage but also future pension benefits. If your injury or disability has caused you to stop working early or at all, you would not be contributing to your pension plan and thus the future pension benefits would impact your lost wages.
- Early Retirement: If your injury forced you to retire early, you could claim lost wages for the wages you would have earned had you continued working until you were supposed to retire. This would be calculated based on the number of working years left and the amount you could have earned each year.
Remember, future lost wages can be hard to this calculate, and you may require the help of economic experts or vocational rehabilitation experts. Always consult with a legal professional, to confirm that all future lost wages have been calculated and included in your personal injury claim.
How an attorney can usually get you more
An attorney with experience can often help you receive a higher settlement or award in a personal injury matter than you could on your own.
Insurers know all of the tricks they can use to reduce payouts, and they will often offer so little compensation to start with that it does not fully cover your losses.
You will need an attorney who understand the various tricks insurance companies use against you, and who is experienced in negotiating in your best interests.
Attorneys have the knowhow to evaluate your total loss, like the initial medical bills, any lost wages, and maybe compensation for future medical care, rehabilitation and lost earning capacity.
Attorneys work with medical professionals, economists and vocational experts to demonstrate the total losses incurred. The larger picture is often more than the compensate a claim in and of itself. The more fully developed a case, the more likely you will recover valuable compensation.
Attorneys can also gather important evidence, preserve evidence, maneuver through complex materials and forms, and meet deadlines; each of which can be difficult when you are healing from an injury. If your claim is denied or contested, an attorney will represent you and can take your personal injury case to court.
Jacobs and Jacobs Injury Law Group in Puyallup can maximize your outcome by steering you through the claim process and fighting vigorously on your behalf.