When it comes to personal injury claims, one of the most critical and challenging aspects is determining the loss of earning capacity. This represents the financial impact of an injury on an individual’s ability to work and earn income.
According to a 2019 study, over 800,000 nonfatal injuries and illnesses in the private industry resulted in at least one day of work missed by the affected worker.
Seeking the expertise of legal and financial professionals can help injured individuals navigate the complexity of calculating lost wages and pursue fair compensation for their damages.
What is Loss of Earnings?
Loss of earnings refers to the financial impact experienced by an individual due to an injury, illness, or other adverse event that prevents them from working and earning income. It encompasses the actual wages or salary that the individual would have earned during a period of absence from work.
In the context of personal injury claims, loss of earnings is a significant component in seeking compensation for damages. It aims to reimburse the individual for the income they have lost or will lose as a direct result of the injury.
Factors Affecting Loss of Earning Calculation
Several factors come into play when calculating the loss of earnings in a personal injury claim:
- Occupation: The type of work an individual does greatly influences their earning capacity. High-paying professions may suffer more significant financial losses compared to lower-paying jobs.
- Earning History: The individual’s past earnings serve as a baseline for estimating future earning potential. This includes factors such as salary increases, bonuses, and overtime pay.
- Extent of Injury: The severity of the injury and its impact on the individual’s ability to work are crucial considerations. A temporary injury may result in short-term loss of earnings, while a permanent disability can lead to long-term or even permanent loss of earning capacity.
- Age and Retirement Plans: Younger individuals may have more years of potential earnings ahead of them, while older individuals may be closer to retirement age, affecting the calculation of future income loss.
- Medical Prognosis: Medical evaluations and expert opinions are essential in assessing the extent of the injury and its long-term effects on the individual’s ability to work.
Calculating the Loss of Earnings
Calculating loss of earnings in a personal injury claim requires careful consideration of the individual’s employment status and income structure. Various factors come into play depending on the individual’s employment status. Here’s a breakdown of how lost wages are calculated for hourly workers, salaried employees, and the self-employed:
Hourly Wages:
For hourly workers, calculating lost wages is relatively straightforward:
- Determine the individual’s hourly wage, which is the amount they are paid per hour worked.
- Assess the number of hours the individual typically works in a week. This includes regular hours as well as any overtime or additional shifts.
- Consider the individual’s work schedule and any paid time off, such as vacation days or sick leave.
- Calculate the total number of hours the individual is unable to work due to the injury.
- Multiply the hourly rate by the number of hours missed to obtain the total lost wages. Adjustments may be necessary for factors such as statutory holidays or irregular work patterns.
Annual Salary:
For salaried employees, calculating lost wages involves a different approach:
- Determine the individual’s annual salary, which is the fixed amount they are paid for their work over a year.
- Assess whether the individual is paid monthly, biweekly, or on another schedule, as this affects the calculation.
- Convert the annual salary into an hourly rate by dividing it by the total number of working hours in a year. This includes regular working hours and any expected overtime.
- Determine the number of days or weeks the individual is unable to work due to the injury.
- Multiply the hourly rate by the number of hours missed to obtain the total lost wages. Adjustments may be necessary for factors such as paid holidays or partial workweeks.
Self-Employed:
Calculating lost wages for self-employed individuals requires a different approach due to the nature of their work:
- Gather documentation such as tax returns, invoices, and financial records to establish the individual’s income from self-employment.
- Calculate the individual’s average monthly income from self-employment over a specified period, such as the past year.
- Determine the number of days or weeks the individual is unable to work due to the injury.
- Estimate the projected income loss based on the average monthly income and the duration of absence from work.
- Take into account any fixed expenses or overhead costs associated with the individual’s self-employment, as these may impact the calculation of lost wages.