After an injury, financial stress can quickly pile up, especially if you’re unable to work during your recovery. When pursuing a personal injury claim, you may be entitled to compensation not only for your medical bills but also for the income you’ve lost and any future income you may lose due to your injury. Two key components of your financial recovery are lost wages and loss of earning capacity. While both affect your settlement, they refer to different aspects of your lost income.
In this article, we’ll explain what lost wages and loss of earning capacity are, how they are calculated, and how they influence the overall value of your personal injury settlement.
1. What Are Lost Wages?
Lost wages refer to the income you were unable to earn as a result of your injury. This could include time missed from work while you were recovering, attending medical appointments, or undergoing treatments. Lost wages are relatively straightforward to calculate because they represent the money you would have earned had you not been injured.
Lost wages include:
- Hourly wages or salary: Compensation for the hours you couldn’t work.
- Overtime pay: If you regularly work overtime and were unable to do so due to your injury, you may be compensated for lost overtime wages.
- Bonuses or commissions: If your injury caused you to miss out on bonuses or commissions, you can include these losses in your claim.
- Sick or vacation time: If you had to use sick days, vacation time, or paid time off (PTO) while recovering, you may be compensated for those lost benefits.
Why it matters:
Lost wages ensure that you are compensated for the income you missed during your recovery, helping to cover immediate financial needs like bills, rent, and daily expenses.
Key takeaway:
When calculating lost wages, you’ll need to gather documentation like pay stubs, employment contracts, or statements from your employer to prove your earnings and the time missed from work.
2. What Is Loss of Earning Capacity?
Loss of earning capacity refers to the reduction in your ability to earn income in the future due to your injury. While lost wages cover the income you missed during recovery, loss of earning capacity addresses the long-term impact of your injury on your career. If your injury causes permanent disability or prevents you from returning to your previous job, you may be entitled to compensation for your diminished ability to earn income going forward.
Loss of earning capacity may apply if:
- You are unable to return to work in your previous role because of the injury.
- You are forced to take a lower-paying job due to physical limitations caused by your injury.
- You can no longer work the same number of hours or perform certain job tasks.
- Your career trajectory or potential for advancement is hindered by your injury.
Why it matters:
Loss of earning capacity accounts for the long-term financial impact of your injury. It ensures you’re compensated not just for immediate lost income but also for the future financial losses you will experience as a result of being unable to work at your full capacity.
Key takeaway:
Calculating loss of earning capacity is more complex and typically requires expert testimony from vocational experts or economists to project your future income potential and how your injury has affected it.
3. How Are Lost Wages Calculated?
Calculating lost wages is relatively straightforward because it is based on your actual income before the injury. To calculate lost wages, you’ll need to gather documentation that shows how much you were earning before the injury and how much time you missed from work.
Steps to calculate lost wages:
- Determine your average income: This can be done by reviewing pay stubs, employment contracts, or tax returns.
- Calculate the number of days missed: You will need to document the number of workdays or hours you missed due to the injury.
- Multiply your daily or hourly wage by the number of days or hours you were unable to work.
For example, if you earned $200 per day and missed 30 days of work, your lost wages would be $6,000.
Documentation required:
- Pay stubs: Showing your wages, bonuses, and overtime.
- Employer statements: A letter from your employer verifying the time you missed from work and your rate of pay.
- Tax returns: In cases where you’re self-employed or don’t have regular pay stubs, tax returns can help prove your income.
Why it matters:
Accurately calculating lost wages ensures that your settlement compensates you for the income you missed while recovering from your injury.
4. How Is Loss of Earning Capacity Calculated?
Loss of earning capacity is more challenging to calculate than lost wages because it involves predicting future income that you will not be able to earn due to the injury. Several factors are considered when determining loss of earning capacity:
Factors that affect loss of earning capacity:
- Your age: Younger individuals may receive higher compensation for loss of earning capacity because they have more years of potential work ahead of them.
- Your occupation: The nature of your job and whether your injury prevents you from performing specific tasks is important in calculating loss of earning capacity.
- Your skills and education: If your injury limits your ability to work in your specialized field, the impact on your earning capacity may be significant.
- The severity of your injury: Permanent disabilities or long-term limitations on your ability to work will result in higher compensation for loss of earning capacity.
To calculate loss of earning capacity, a vocational expert or economist may be brought in to provide an assessment of your career prospects and estimate how much income you’re likely to lose in the future due to the injury.
Steps to calculate loss of earning capacity:
- Determine pre-injury earning potential: Using your prior income history and career trajectory.
- Assess post-injury earning potential: Based on your current physical limitations, available job opportunities, and ability to perform work tasks.
- Calculate the difference between your pre-injury and post-injury earning potential over the course of your working life.
For example, if you were expected to earn $50,000 per year but can now only earn $30,000 due to your injury, the difference of $20,000 per year would be your loss of earning capacity. Over 20 years, that would amount to $400,000 in lost future income.
Why it matters:
Loss of earning capacity reflects the long-term financial impact of your injury, ensuring that your settlement accounts for future income that you may never be able to earn.
5. How Lost Wages and Loss of Earning Capacity Affect Your Settlement
Both lost wages and loss of earning capacity play a significant role in determining the overall value of your personal injury settlement. They ensure that you’re not only compensated for your immediate financial losses but also for the long-term impact your injury may have on your ability to earn a living.
Impact on your settlement:
- Lost wages: These are included in your settlement as compensation for the income you missed during your recovery period.
- Loss of earning capacity: This can significantly increase your settlement if your injury permanently affects your ability to work and earn future income.
In most cases, your personal injury lawyer will work with experts to ensure that both lost wages and loss of earning capacity are accurately calculated and included in your settlement demand.
6. How a Personal Injury Lawyer Can Help
A personal injury lawyer plays a crucial role in ensuring that your lost wages and loss of earning capacity are properly documented and included in your claim. They will:
- Gather documentation: Your lawyer will collect pay stubs, employer statements, and other necessary documents to prove your lost wages.
- Work with experts: They will work with vocational experts, economists, and medical professionals to calculate your loss of earning capacity.
- Negotiate with the insurance company: Your lawyer will handle negotiations with the insurance company to ensure you receive fair compensation for both lost wages and future income.
Why it matters:
Without an experienced lawyer, you may undervalue your claim and fail to include compensation for loss of earning capacity, which could leave you undercompensated.
Conclusion
Lost wages and loss of earning capacity are critical components of your personal injury settlement. While lost wages compensate you for the immediate income you missed during recovery, loss of earning capacity addresses the long-term financial impact of your injury. Understanding how these damages are calculated and working with legal and financial experts ensures that you receive full compensation for your current and future financial losses.
Disclaimer: The content of this article is for informational purposes only and does not constitute legal advice. The information provided is based on general research and is not intended to be a substitute for professional legal advice or consultation with a qualified attorney. Always consult with a lawyer regarding your specific legal situation.
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