What is the “Average Weekly Earnings” calculation and why is it important in your Workers’ Compensation Claim?

Average Weekly Earnings (AWE) is frequently abbreviated as AWE or AWW (Average Weekly Wage). AWE sets the baseline for which certain benefits in a Workers’ Compensation Claim are calculated, such as temporary disability indemnity, permanent disability indemnity, life pension and death benefits. These benefits are subject to statutory minimum and maximum amounts established in Labor Code Section 4453. Temporary disability benefits are two-thirds of the calculated AWE, on a tax-free basis.

Generally, an employee’s earnings are determined by the calculating the total amount earned in the year prior to the industrial injury and dividing by 52 weeks. However, the standard formula may not always be the most accurate or legally correct method for deriving the AWE. It is important to remember that unless the employee is paid at the maximum temporary disability (TD) rate, a claims administrator must document whether the employee has received those earnings, and if so, the amount or fair market value of commissions, bonuses, overtime, tips, and market value of board, lodging, fuel or other advantages as part of the worker’s total renumeration (California Code of Regulations, title 8, Section 10101.1(j)(1)).

Labor Code Section 4453 lists four specific methods for calculating an employee’s average weekly earnings. If an employee: 1) works 30 hours of more a week and five or more days a week or one employer on a regular basis, 2) is employed by two or more employers at or about the time of the injury, or, 3) is paid at an irregular rate, such as piecework, or by commission, then the calculation is based on standardized methods in Section 4453.

However, an employee’s AWE can be calculated using the catch-all provision found in Labor Code Section 4453(c)(4), which applies, “where for any reason [the other methods] of arriving at the average weekly earnings cannot reasonably and fairly be applied.”

Earnings capacity is an essential concept in the application of Section 4453(c)(4). This concept is utilized by estimating earning capacity had the individual not been injured. The Court of Appeal has stated, “The essence of the employer’s analysis is to determine whether there are factors that within the anticipated duration of the temporary disability would increase or decrease the earnings the worker would have received absent the injury. If such factors exist and their impact is significant enough that it is reasonable or unfair to use actual earnings at the time of injury to calculate the temporary disability benefits, earning capacity should be used to calculate benefits.” (Grossmont Hospital v. WCAB (Kyllonen) (1997) 59 Cal.App.4^th 1348, 1363.)

Other situations that can impact the AWE determination include; pre-injury and post-injury wage increases or decreases, part-time employment, concurrent employment, seasonal work, return to work on reduced hours/pay, terminated or retired employees.

Therefore, it is crucial to understand the AWE the claims administrator has determined and what method and relevant factors have been included, (or improperly not included), in the calculation. There is no set formula for determining average weekly earnings and many factors can impact the correct calculation.  If there are disputes the matter can be heard by the court.

The Workers’ Compensation attorneys at Mastagni Holstedt, APC are seasoned advocates for injured workers, and are here to protect your rights and help you navigate the complex workers’ compensation system.