The average weekly wage is the basis for paying all indemnity and wage loss benefits in workers’ compensation claims. Members of the claim management team are faced with many challenges when it comes to correctly calculating this number. By not doing it correctly, a claim can be destined for overpayments that are sometimes hard to recoup.
This two-part series explores the challenges of correctly calculating the Average Weekly Wage and why it is essential. It will also explore some of the many challenges the claim management team faces when determining the correct wage.
What is the Average Weekly Wage?
In layman’s terms, the Average Weekly Wage is a fair approximation of the employee’s probable future earning power, which has been impaired or destroyed because of the injury. The correct way to calculate the Average Weekly Wage varies by jurisdiction. In general terms, the Average Weekly Wage takes into account the following:
- All wages and monies earned by an employee before the work injury;
- Accounts for the wages previously paid – roughly six months before the work injury; and
- Is an average that can be calculated on a daily wage if the employment of an employee is seasonable or impacted by weather conditions (e.g. – employees that generally perform their work outside)
It is crucial that every member of the claim management team knows how to calculate the Average Weekly Wage and should be one of the first things a new claim handler masters. Never rely on second-hand information, such as information in a First Report of Injury or statements from an employer representative. Always receive and review first-hand payment information.
Types of Employment – Regular and Irregular
For better or worse, not all employees work a salaried position in the standard 40-hour work week. Many employees in the United States work in positions where hours fluctuate based on economic conditions and can work overtime or have a second job. The basis for the Average Weekly Wage calculations is based on “earnings,” as opposed to wages “actually received.”
- Regular employment: Regular employment is situations where the documentary evidence and testimony of the employee is consistent work, such as forty hours per week with a singular pay rate. It is vital never to assume this is the case. Always look to the actual pay records to confirm the information received.
- Irregular employment: This category likely comprises the single largest group of employees within the workers’ compensation system. It also creates a more complicated scheme for determining the employee’s wage when the earnings are irregular or difficult to determine or the employment is part-time. Courts generally are the trier of fact when it comes to these issues and will look at various factors such as the divergence in hours worked, wages earned during each work shift, and other factors.
The bottom line is compensation judges seek to find the “fairest” wage based on the information available. Claim handlers should seek direct sources of income and supplement their calculations with case law and common sense.
Other Situations and Unique Variables
Employment settings that involve seasonal and construction work typically performed outdoors sometimes use different calculations. Often, a workers’ compensation statute will require the calculation of an average “daily wage” multiplied by other factors to arrive at the correct Average Weekly Wage.
The average “daily wage” is typically found as follows: Total wages earned in the 26 weeks before the date of injury ÷ Total number of days in which the employee worked.
Once the average daily wage is found, additional calculations are required to determine the Average Weekly Wage.
Best Practices For Average Weekly Wage Calculations
Here are some tips claim handlers can use to calculate the Average Weekly Wage for an injured employee accurately.
- Know and understand the law and supporting case law: The Average Weekly Wage needs to be a precise science. Consult with an attorney if you run into a new or unique situation.
- Never rely on the First Report of Injury: This document may serve as a starting point, but always contact the employer representative and obtain wage history and work calendars. If the employee is self-employed, requesting or subpoena income tax records may be necessary.
- Question the employee on their work activities: Use a recorded statement as the opportunity to ask the employee about their wages. Get exact dates when they started working for other employers, specific dates of pay raise, and information concerning dates worked. This is crucial for “irregular” employment situations or employees subject to an average daily wage calculation.
Conclusions
The Average Weekly Wage is the most important part of a workers’ compensation claim as it is a basis for all wage loss and indemnity benefits. Make this part of your claim investigation a key concern when seeking information. If you have any doubts, consult with an attorney. Never cut corners to avoid spending excessive money on a claim.
Michael Stack, CEO of Amaxx LLC, is an expert in workers’ compensation cost containment systems and provides education, training, and consulting to help employers reduce their workers’ compensation costs by 20% to 50%. He is co-author of the #1 selling comprehensive training guide “Your Ultimate Guide to Mastering Workers’ Comp Costs: Reduce Costs 20% to 50%.” Stack is the creator of Injury Management Results (IMR) software and founder of Amaxx Workers’ Comp Training Center. WC Mastery Training teaching injury management best practices such as return to work, communication, claims best practices, medical management, and working with vendors. IMR software simplifies the implementation of these best practices for employers and ties results to a Critical Metrics Dashboard.
Contact: mstack@reduceyourworkerscomp.com.
Workers’ Comp Roundup Blog: http://blog.reduceyourworkerscomp.com/
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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.
