The average weekly wage (AWW) is one of the most important calculations a claim handler will make during the life of an admitted claim. If it is low, a compensation judge may order an immediate underpayment, which can cause reserve problems. If payments are made too high, the insurance carrier can struggle to take credits on future benefits paid, delaying the settlement of other cases.
This article explores the challenges the claim handler and defense team must overcome when finding the correct AWW. It also offers opportunities to make a more precise initial calculation to promote settlement and closure of the claim.
Special Employment Situations
Various irregular employment situations create stumbling blocks for members of the claim team and defense attorneys when calculating the AWW. Here are some of the more common areas to closely examine.
- Overtime wages: Monies earned through overtime pay are generally included in AWW calculations. Jurisdictions that include this may require a more extended look-back period – generally about 52 prior weeks – and only if overtime is earned “frequently.”
- Tips and Other Gratuities: Tipping is common in many occupations in the United States. This is generally found in service industry positions such as restaurants, food service workers, beauticians, barbers, and bartenders. It may be possible to argue fraud if an employee is late reporting this source of income as part of their AWW.
- Room and Board: This situation can arise for apartment and property managers who usually live on-site and have caretaking activities. It can also be found for long-term traveling employees as part of road crews who travel long distances and have employer-covered housing expenses. Issues concerning per diems are also covered as part of sources of money that can be included.
- Housing Allowances: Many categories of employment offer allowances for various expenses, such as housing. If an employee claims these sources of income as part of their AWW, it will be necessary to determine the circumstances and reasons for the allowance.
- Bonuses: This is an issue subject to extensive litigation around many jurisdictions. The courts’ consensus is that this wage category should be included if it is based on the employee’s personal efforts or job performance. Bonuses resulting from overall company performance have typically been excluded.
The list of issues to consider is nearly endless. Remember that the AWW can also include fringe benefits such as pensions, insurance, and Paid Time Off.
The Strange and Unusual
Several other interesting types of employment require a deeper dive in terms of claim investigation. Be prepared for these situations:
- Professional Athletes: There are several variables to consider, which include the terms of the player’s contract and bonus – especially signing and performance-based matters.
- Construction and Outside Labor: Jobs impacted by the weather require the claim team to calculate the average “daily wage” and then determine the AWW. There are often special statutory provisions created for union positions.
- Minors and Apprenticeships: Statutes generally protect these employees with special provisions that ensure a minimum AWW, as they usually work at entry level or minimum wages. Compensation judges are often granted the ability via statute to impute wages based on what one usually earns while learning a trade.
Additional leg work is also needed for part-time employees. Even volunteers can be imputed an AWW based on statute or administrative rule.
Tips and Practice Pointers
The correct determination is a fact-dependent process that requires intensive and complete investigations. Here are some tips for more accurate calculations and less litigation.
- Use recorded statements and deposition to uncover and verify information: Issues concerning the AWW should be a part of the discovery process. Claim handlers can ask about other sources of income in a recorded statement. Defense counsel should ask about and get specifics regarding special and unusual employment circumstances at a deposition if allowed.
- Never rely on the First Report of Injury: Information about the employee’s AWW on a First Report of Injury is almost always inaccurate. Claim handlers should contact the employer representative after a work injury and collect wage records. Questions can also be asked regarding whether the employee’s work is “regular” or “irregular.”
- Verify that claimed wages were claimed on the employee’s income tax return. Tipped employees and others who work in primary “cash” occupations usually must claim these earnings on their income taxes. The rationale is that one should not be able to benefit from the extra earned income without satisfying their tax liabilities. Arguments can be made that these sources of income should not be included in the AWW if not reported to the Internal Revenue Service.
Calculating the correct AWW is complex and requires effort and energy. Taking the time to get it right will only pay dividends to the claims program. It also requires teamwork between the claim handlers and the defense attorney. Now is the time to correctly calculate the AWW 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.
Workers’ Comp Roundup Blog: http://blog.reduceyourworkerscomp.com/
©2023 Amaxx LLC. All rights reserved under International Copyright Law.
Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.