How Is Workers Compensation Calculated?

Workers’ compensation provides financial and medical support to employees who suffer injuries or illnesses as a direct result of their job. This system ensures that injured workers have access to necessary medical care and receive compensation to cover a portion of lost wages while they are unable to work. Workers’ compensation is governed by state laws, so calculation methods vary significantly by jurisdiction.

Determining Your Average Weekly Wage (AWW)

The Average Weekly Wage (AWW) is a crucial starting point for nearly all workers’ compensation benefit calculations. This figure represents an employee’s average gross earnings over a specified period before a work-related injury or illness. Accurately determining the AWW is essential as it forms the baseline for calculating the amount of weekly benefits an injured worker may receive.

For a full-time employee with consistent earnings over a year, the AWW is often calculated by taking their gross earnings (pre-tax) for the 52 weeks prior to the injury and dividing that total by 52. This straightforward method provides a clear measure of average earnings. However, real-world employment situations can be more complex, requiring alternative calculation methods.

When an employee has worked for less than a full year, their AWW calculation may involve shorter periods. Some states might use the total earnings from the weeks worked, typically the 13 weeks immediately preceding the injury, and divide by that number of weeks. If the employee has not worked for a substantial portion of this shorter period, such as 13 weeks, the wages of a similar employee who has worked consistently may be used to determine a fair rate.

Seasonal or irregular employment also necessitates specialized AWW calculations to accurately reflect earning potential. For workers with fluctuating income or those who only work part of the year, simply dividing by 52 weeks could significantly understate their true earnings. In such cases, methods might involve dividing total earnings by the actual number of weeks worked, or using multipliers (e.g., a “200-day multiplier”) that consider typical working days in a year for that occupation, even if the worker did not work all those days due to seasonal factors. This ensures that compensation reflects the value of work performed rather than penalizing for seasonal downtime.

When an injured worker holds multiple jobs, a situation known as concurrent employment, earnings from all positions might be considered in the AWW calculation. If the job duties across these employments are similar, earnings from all jobs are typically aggregated. However, if the second job involves different duties, those wages might not be included, or the calculation method can vary depending on which job the injury occurred in.

The types of income included in AWW calculations generally comprise regular wages, overtime pay, performance bonuses, and commissions. Tips are also usually included if they have been reported. Some allowances, such as for housing or vehicle use, might also factor into the calculation if they can be assigned a monetary value. Conversely, certain elements are typically excluded from AWW, such as health insurance benefits, retirement contributions, paid time off, vacation pay, severance pay, travel allowances, and expense reimbursements.

Calculating Wage Loss Benefits

Wage loss benefits aim to replace a portion of the income an injured worker loses due to their work-related injury or illness. The Average Weekly Wage (AWW) serves as their foundation, though specific formulas and percentages vary by state.

Temporary Total Disability (TTD)

Temporary Total Disability (TTD) benefits are provided when an injured worker is completely unable to perform any work for a temporary period. These benefits are typically calculated as a percentage of the worker’s AWW, most commonly around two-thirds (66.67%) of the AWW. States also impose specific maximum and minimum weekly benefit amounts, meaning that even if two-thirds of an AWW is very high or very low, the actual payment will fall within these established limits. These benefits continue until the worker can return to work or reaches maximum medical improvement.

Temporary Partial Disability (TPD)

Temporary Partial Disability (TPD) benefits are for workers who can return to some form of work, often light duty, but are earning less than their pre-injury wages. The calculation for TPD usually involves two-thirds of the difference between the worker’s pre-injury AWW and their current post-injury earnings. For example, if a worker’s AWW was $900 per week and they are now earning $600 per week, the lost wage is $300, and the TPD benefit would be two-thirds of that difference, or $200 per week. These benefits are payable only while the employee is working and earning less, and they may have duration limits set by state law.

Permanent Partial Disability (PPD)

Permanent Partial Disability (PPD) compensates for a permanent impairment that remains after a worker has reached maximum medical improvement (MMI), meaning their condition has stabilized and is not expected to improve further. The calculation of PPD is often complex and involves an impairment rating, which is a medical assessment, usually expressed as a percentage, reflecting the degree of permanent loss of use or function of a body part or the whole person. This rating is determined by a medical professional using established guidelines, such as those from the American Medical Association.

PPD calculations can differentiate between “scheduled” and “non-scheduled” injuries. Scheduled injuries refer to specific body parts, like a finger, arm, or leg, which may have set values or formulas assigned to them in state statutes. For example, some states assign a specific number of weeks of benefits for the loss of a limb. Non-scheduled injuries, which might include injuries to the back or head, are generally more subjective and rely heavily on the impairment rating to determine compensation. Many states use a formula that multiplies the PPD rate (often two-thirds of AWW), a number of weeks assigned to the injured body part, and the impairment rating percentage to arrive at a lump sum or weekly payment.

Permanent Total Disability (PTD)

Permanent Total Disability (PTD) benefits are awarded when a work injury results in a complete and permanent inability to work. The calculation for PTD often mirrors that of TTD, typically providing two-thirds of the worker’s AWW. However, PTD benefits are generally paid for the duration of the disability, which can be for life, rather than for a temporary period. These benefits are for the most severe cases where a worker cannot return to any gainful employment.

Valuing Medical Care and Other Benefits

Beyond direct wage replacement, workers’ compensation systems cover other financial components crucial for an injured worker’s recovery and well-being. These include medical care, rehabilitation services, and, in tragic cases, death benefits. While not always calculated like wage loss, their value and coverage are integral to the system.

Medical Care

Medical care is a key component of workers’ compensation, covering all reasonable and necessary expenses related to the work injury or illness. This typically includes doctor visits, hospital stays, surgeries, medications, diagnostic tests, and therapy. The system manages these costs through direct payments to healthcare providers. Many states utilize fee schedules to regulate the maximum amounts that can be charged for specific medical services.

Rehabilitation Benefits

Rehabilitation benefits help injured workers recover and return to work. These can include physical therapy to restore physical function and vocational rehabilitation services to help workers acquire new skills or find suitable employment if they cannot return to their previous job.

Death Benefits

In cases of work-related fatality, death benefits are provided to eligible dependents of the deceased worker. These benefits involve regular payments to dependents, often a percentage of the deceased worker’s AWW. The specific percentage and duration of these payments vary by state and depend on the number and relationship of dependents.

Workers’ compensation also covers funeral and burial expenses for work-related deaths. A maximum amount is set by state law for these expenses. Eligibility for death benefits requires proving that the worker’s death was a result of a job-related injury or illness and that the family members were financially dependent on the deceased.