In workers’ compensation cases, the amount of an injured employee’s temporary disability payments are calculated based on the employee’s average weekly earnings (AWE).
When an employee is temporarily totally disabled, payments are calculated at two-thirds of the employee’s AWE during the period of disability. (Lab. Code, § 4653.) When an employee is temporarily partially disabled, payments are calculated at two-thirds of the employee’s “weekly loss in wages” during the period of disability (Lab. Code, § 4654), and the weekly loss in wages is defined, in turn, as the difference between the worker’s AWE and the weekly amount that the injured employee will probably be able to earn during the disability (Lab. Code, § 4657). (Note that AWE are subject to the statutorily defined minimum and maximum rates in Labor Code section 4453, subdivision (a).)
That all seems fairly straightforward. But there are nuances and complications in calculating AWE that a workers’ compensation practitioner needs to be aware of.
What actually constitutes “earnings”?
Not surprisingly, it includes wages or salary as well as any overtime (whether occasional or frequent). (Lab. Code, § 4454.) But it also includes “[t]he market value of board, lodging, fuel, and other advantages received by the injured employee as part of his remuneration, which can be estimated in money.” (Lab. Code, § 4454.)
Determining whether an item is remuneration requires an analysis of the following factors:
- Whether it was provided in exchange for services;
- Whether it is an advantage to the employee; and
- Whether it is provided only while the employee is performing employment duties.
(Burke v. WCAB (2009) 74 Cal.Comp.Cases 359 (writ denied).)
In addition, it is important to be aware that some items are excluded. Earnings do not include “any sum which the employer pays to or for the injured employee to cover any special expenses entailed on the employee by the nature of his employment.” (Lab. Code, § 4454.) Such “special expenses” are expenses incurred while the employee is on the job and stop when the employee is not working. For example, in Burke v. WCAB, supra, 74 Cal.Comp.Cases 359, the expenses that the applicant, a concert tour salesperson, incurred while on the road—for lodging, gas, and food—were special expenses not to be included in calculating her AWE because they were fully reimbursed or prepaid by her employer and ceased when she was not working. Thus, they did not provide her with any economic advantage and were not in exchange for her services.
Also excluded from earnings is the value of savings, wage continuation, or stock acquisition plans or any other employee benefit for which the employer pays a third person (other than the employee’s family). (Lab. Code, § 4454.)
Methods of Calculating AWE
Labor Code section 4453, subdivision (c), establishes four methods of calculating an injured employee’s AWE, three of which are keyed to the nature of the employee’s work and one “catch all” method:
- Subdivision (c)(1) applies to full-time employees;
- Subdivision (c)(2) applies to employees working for two or more employers;
- Subdivision (c)(3) applies to employees with irregular compensation rates; and
- Subdivision (c)(4) applies if the employment is for less than 30 hours per week or if none of the other methods can be reasonably and fairly applied.
No matter what method is used, it must reflect the employee’s actual earning capacity at the time of injury.
The most frequently used method is the one found in subdivision (c)(1), which applies in cases of regular, full-time employment (i.e., when the employment is for 30 or more hours a week and for 5 or more days a week). Note that both requirements must be met. For example, in Cundy v. WCAB (2001) 66 Cal.Comp.Cases 1541 (writ denied), the applicant worked for 8 hours per day, 5 days one week and 4 days the next week. Although she worked for more than 30 hours per week, the Board found that Lab C §4453(c)(1) was inapplicable because she did not meet the requirement of working 5 or more days per week.
When the method in subdivision (c)(2) is applicable, that AWE are the total of all weekly earnings from all employments computed in terms of 1 week. But the subsection contains a significant caveat: The earnings from the jobs in which the injury did not occur cannot be taken at a higher hourly rate than the hourly rate paid by the employer in whose employment the injury did occur.
Subdivision (c)(3) is used when the employee is not paid at a regular and constant rate (e.g., piecework, commissions), or if the employee’s earnings are specified to be by week, month, or other period. In such cases, AWE are computed by averaging the actual weekly earnings for any convenient period that does not exceed 1 year. It is common practice to apply the average of the worker’s earnings for the entire year preceding the injury; however, a workers’ compensation judge may in an appropriate case select some other period that most accurately reflects the worker’s true earning capacity.
Finally, in cases in which the method in subdivision (c)(4) is used, AWE are calculated as 100 percent of the sum which reasonably represents the average weekly earning capacity of the injured worker at the time of his or her injury, with due consideration being given to his or her actual earnings from all sources and employments. This is the only method that is explicitly tied to an employee’s earning capacity.
The California Supreme Court has elucidated the factors to consider when determining earning capacity under subdivision (c)(4):
- The ability to work (i.e., the employee’s age, health, and specific skills and training);
- The opportunity to work (i.e., the general condition of the labor market and employment opportunities for persons similarly situated); and
- The willingness to work (i.e., whether the employee makes a practice of working part time or only during a limited seasonal activity and, if so, whether it is then proper to base his or her AWE on those earnings).
(Goytia v. WCAB (1970) 1 Cal.3d 889, 895, 35 Cal.Comp.Cases 27.)
The above discussion offers a taste of how something as seemingly as straightforward as calculating an injured employee’s AWE can end up being a rather complex undertaking. For a complete discussion of temporary disability, including calculating AWE, see CEB’s California Workers’ Compensation, chapter 4.
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