Have you been injured or wrongfully terminated, leaving a gap in your income? You might be entitled to compensation for lost earnings, a crucial component of many legal claims, but calculating this amount goes far beyond simply adding up missed paychecks.
The Two Pillars of Lost Earnings
Lost earnings are broadly categorized into two parts:
- Past Lost Earnings: This represents the income you would have earned from the incident (injury, termination, etc.) until the present date. Calculating past lost earnings is typically more straightforward, as it involves analyzing your recent paystubs to determine your average earnings and multiplying this figure by the number of lost work days/weeks/months. However, this is not limited to just paychecks, all forms of income or benefits would be considered in the total loss calculation.
- Future Lost Earnings: This is a more intricate aspect, akin to predicting business profits, where you must estimate what you would have earned but for the incident, compared to your likely future earnings given your current situation. Again, consideration of benefits other than paychecks, such as bonuses, commissions, lost insurance, health benefits, 401(k) contribution and matching, etc., should also be considered in the estimate of future earnings. The difference, adjusted to present value (accounting for the time value of money), forms the basis for potential future earnings compensation.
Building the Foundation: Analyzing Earnings History
Similar to appraising a business, the first step is a thorough examination of your earnings history. This includes your salary, bonuses, commissions and benefits, creating a baseline for future calculations.
Steady Earners: If you have a history of consistent raises with the same employer, establishing your base earnings is relatively simple.
Variable Earners: For individuals with fluctuating income due to health concerns, career changes or commission-based jobs, adjustments are needed to arrive at a fair baseline. One-time payments like signing bonuses are typically excluded.
Projecting the Future: Beyond the Past Paycheck
While past earnings are a good starting point for future projections, adjustments may be necessary. A new startup with limited earnings history might still claim significant lost future earnings if they can demonstrate a realistic plan for future growth. Similarly, your individual skills, qualifications and educational background might indicate a higher future earning potential than your current situation reflects. A change in future circumstances that result in high projected future income results in a higher damages amount, but these future circumstances must be justifiable based upon reasonable assumptions.
Beyond the Numbers: Considering External Factors
When forecasting future earnings, experts consider factors beyond your raw pay figures:
- Seasonal Fluctuations: Some professions experience seasonal highs and lows. This can impact the accuracy of a straight historical average.
- Economic Trends: Broad economic shifts can influence future earning potential.
- Promotion History: Your past promotions are an indicator of your potential for future advancements and salary increases.
Employment Discrimination: Leveling the Playing Field
In cases involving discrimination, your past earnings might not accurately reflect your true earning potential. Here, comparing your earnings to colleagues in similar roles with comparable qualifications can be crucial to establishing a fair baseline.
The Value of Benefits: Beyond the Paycheck
Benefits like health insurance, retirement plans, paid time off and even company-provided meals significantly impact your total compensation. When benefits are expected to be small, many professionals use a statistical approach as an estimate. For example, the use of average benefits as a percent of salary would be a quick way to estimate the loss. However, when the benefits are expected to be substantial, a more customized approach might be necessary.
It’s common for the plaintiff to have difficulty recalling the various benefits afforded to them. In cases like this, the attorney will use the discovery process to ensure that the defendant provides all necessary information on the benefits afforded to the plaintiff so all applicable benefits are properly accounted for in the analysis.
The Loss Period: Defining the Scope of Damages
The loss period refers to the timeframe during which you lost income due to the incident. Typically, it starts from the date of the incident (injury, termination) and continues until you find comparable employment. In severe cases, where the incident permanently impacts your ability to work, the loss period might extend your entire expected working life.
Windham Brannon Can Help
Calculating lost earnings is a complex process with numerous nuances, so consulting a qualified appraiser is crucial for ensuring an accurate assessment of your damages and maximizing your potential compensation. Windham Brannon’s Valuation Practice is ready and can help you take a proactive approach toward seeking lost compensation. For questions or more information, contact your Windham Brannon advisor today, or reach out to Matt Stelzman.
