Compensation for personal injury claims is assessed differently for employed and self-employed individuals due to the unique nature of their income structures and financial arrangements.
When you pursue a claim for personal injury, a schedule of loss is prepared by your solicitor to set out all past and future financial losses arising from the accident, including loss of earnings and any calculations supporting the claim. Any losses claimed must be a direct consequence of the accident.
Loss of earnings for employed claimants
For employed claimants, loss of earnings is usually assessed using their net income after tax and National Insurance deductions. Evidence such as payslips, P60s, and employer records is used to establish pre-accident earnings.
How is loss of earnings calculated for an employed claimant?
The claim for loss of earnings would usually be calculated by working out the claimant's average net weekly or monthly earnings based on the 12 weeks prior to the accident. This average would then be applied to the period of absence to determine what the claimant would have earned had the accident not occurred. We would then deduct any sick pay or other earnings received during the period of absence to calculate the net loss of earnings.
What if a claimant has fluctuating earnings?
In cases where earnings vary due to factors such as zero-hours contracts, overtime, shift work, bonuses, or commission, an average can still be calculated but it may be necessary to work out this average over a longer period, depending on the reasons for the fluctuation and whether they are seasonal.
What if the claimant has had no time off work?
If the claimant has not taken time off work but has suffered financial loss due to their injuries, for example due to inability to work overtime, achieve bonus targets, or pursue promotions, this should also be factored into their claim.
What if the claimant has incurred a pension loss?
Since the introduction of mandatory workplace pensions, this is an important aspect to consider. If the claimant is not earning, they will not receive employer contributions or make their own contributions, potentially resulting in significant losses.
What if an employer has paid them full company sick pay, can they claim this back?
If the claimant has continued to receive their full salary during their absence, the employer may wish to pursue a subrogated claim to recover any sick pay paid due to the claimant's injuries. In order to do this, employers must demonstrate that their right to recover sick pay is a condition of the claimant’s employment, typically outlined in their contract or employee handbook.
Loss of earnings for self-employed claimants
For self-employed claimants, compensation is based on loss of net profit rather than income. Net profit is calculated by deducting business expenses, tax, and National Insurance from gross earnings. This can be more complex where there are fluctuating earnings and may require evidence such as business accounts and tax returns for three years before the accident, and profit and loss statements three years before the accident. Claimants may also recover reasonable costs incurred to reduce losses, such as hiring temporary staff or renting equipment.
The method of assessment depends on whether the claimant is a sole trader, in a partnership, or a director of a limited company. Sole traders’ losses are typically easier to identify based on reduced profits. Any losses claimed must be financial losses to the individual claimant rather than the wider business, if there are other owners of the business too.
How is loss of earnings calculated for a self-employed claimant?
In straightforward cases, comparing pre-accident accounts or tax returns with post-accident earnings can indicate financial loss. External factors like market conditions must also be considered. Claims can be complicated to calculate where a business is fairly new, is growing quickly or has also been significantly affected by other external factors.
How does loss of earnings differ across business structures?
- For partnerships, the claimant’s loss is limited to their share of profits.
- For both partnership and companies, claimants can only recover their personal loss.
Mitigation of loss
Courts must also consider a claimant’s duty to mitigate their losses, i.e. keep them to a minimum. For self-employed individuals, this may involve delegating tasks or modifying work practices to try to reduce any loss sustained. Failure to mitigate losses could reduce compensation recovered.
For employed claimants, mitigation might involve seeking alternative employment, if feasible, or seeking treatment in order to get back to work as soon as possible.
In both cases, compensation aims to fairly compensate the claimant for their financial loss.
In higher-value claims, compensation may also include future loss of earnings and pension loss. These losses are typically assessed using specially designed tables, which consider factors such as inflation and other future contingencies.
In summary, while the principles for assessing loss of earnings are similar, the calculation methods differ significantly for employed and self-employed claimants.
If you have suffered an injury at work, whether you are self-employed or not, you may be entitled to compensation to help with loss of earnings. Our personal injury department has a team of personal injury specialists who can provide expert advice, contact us today on 0161 696 6235 or fill in our enquiry form.
By Mahrukh Bashir, graduate paralegal
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