Summary
It is important that in all situations all income sources are considered to accurately calculate the Income Replacement Benefit (“IRB”) payable –whether from multiple jobs or a partial return to work. This also includes income sources other than wages, such as employer paid benefits. The difference in the IRB payable can be significant if everything is not considered.
Background
As forensic accountants, we often receive files which have been incorrectly calculated in situations where the insured has returned to work after the accident, either on a part-time basis, or to only one of the multiple jobs held before the accident. The impact is almost always an overpayment of the IRB. So, let’s look an example to see how we can identify the situation earlier, to ensure correct benefits are calculated. While the example below won’t address 100% of the situations, you should be able to apply the approach to any other situation which presents itself. Alternatively, feel free to contact ADS to discuss your situation.
Example – Multiple Jobs Pre-Accident, but Insured Returns to Only One Job After the Accident:
In this situation, the insured was working for multiple employers prior to the accident. As a result of the injuries, the insured is unable to return to job A, but can return to job B full-time. The key to calculating the IRB in this type of situation is to ensure all income from both jobs, A and B, is considered when calculating both the pre- and post-accident income, regardless of the degree to which the insured has returned to work.
A common error we see, both on the part of adjusters, but also as an expectation of the insured, is the exclusion of job B from the pre and post-accident income calculation. The thought being that because there has been no impact on the insured’s income from this job as a result of the accident, it should not be considered. However, as you can see below, this approach significantly impacts the IRB payable, but is not consistent with the calculation methodology supported in arbitration decisions. (As an example we refer you to Charles and Dominion – FSCO A00-000572)
If you are unsure of the methodology for calculating an IRB, we recommend you read our related blog post first.
Job A – Pre-accident = $350/wk
Job B – Pre-accident = $350/wk
The incorrect calculation that we often see is as follows:
Job A – Pre-accident – $350/wk = IRB of $245/wk (70%)
Job A – Post-accident – $0/wk
This results in an IRB Payable of $245/wk ($245 – $0).
Now consider the correct calculation if both income sources are considered, pre- and post-accident:
Job A plus Job B – Pre-accident – $700/wk = IRB of $490/wk (70%)
This amount is limited to the policy limit of $400/wk.
Job B – Post-accident – $350/wk (because Job A = $0)
Post-accident adjustment = $245/wk (70% x $350)
This results in an IRB payable of $155/wk ($400-$245).
Obviously this is significantly different than the $245 per week calculated above. This highlights the importance of including all income sources for both the pre- and post-accident periods when calculating the IRB payable.
Other Considerations:
Following an accident, whether the insured returns to work on a part-time basis, doesn’t return at all, or returns to only one of multiple jobs, it is important that all income from all sources are considered in calculating the insureds income BOTH before and after the accident.
Another significant consideration is the adjustment for employer paid benefits. As previously outlined, it is very important that all income sources are considered for all periods. This should include income such as wages, bonuses, vacation pay, and employer paid benefits.
In many situations the continuing portion of the employer paid benefits may be only partially continuing, so a breakdown of this income source should be obtained to ensure it is adequately accounted for. ADS would be pleased to provide you with an OCF-2 support form to assist in collecting information about additional income sources such as employer paid benefits. Do not hesitate to contact our team for a copy.
What Does This Mean for You?
The following are the key considerations for all employment situations when calculating an IRB:
- Know ALL sources of income that fall within the relevant pre- and post-accident periods for ALL jobs.
- Have a breakdown of all income from each of those sources to make any relevant adjustments (wages, bonuses, vacation pay, allowances, employer paid benefits, etc).
- Include ALL income in each of the pre and post accident periods to accurately calculate the IRB payable.