How Are Bonuses, Tips, and Fringe Benefits Handled in Calculations of The Average Weekly Wage in Louisiana Workers Compensation?
Louisiana law provides for a variety of means of calculating an Average Weekly Wage, depending upon whether the injured worker was paid by the hour, the month, the year, or on some other basis.
This Average Weekly Wage serves as the basis for calculating the actual benefit; if a total and permanent award is involved, for example, 66 2/3% of the average weekly wage would equal the weekly benefit, subject to applicable maximums and minimums.
But what about bonuses, tips, and fringe benefits? Are they included in the calculations for the employee’s average weekly wage? And if so, how?
Basically, no fringe benefits or other compensation are to be included in calculating the Average Weekly Wage, unless these benefits or compensation are taxable as income.
Also, employees should separate out any tips or bonuses, and use the calculation method found under “wages based on unit, piecework, commission or other basis” for any tips or bonuses.
GROSS WAGES
Gross wages are defined as the total amount of an employee’s earnings before deductions – such as deductions for taxes, social security, health insurance, or retirement plans – are taken from the paycheck.
If an injured worker is a salaried employee, the gross wages are the amount of his or her annual salary.
Under Louisiana workers compensation, gross wages may also include taxable fringe benefits, such as the payment of some business expenses or amounts taken out of an employee’s income and deposited into a pre-tax retirement account such as a 401(K).
A good rule of thumb is that if an employee is required to pay income tax on something, then likely it should be counted as gross wages for purposes of determining a Louisiana workers compensation average weekly wage.
BONUSES AND TIPS UNDER THE AVERAGE WEEKLY WAGE IN LOUISIANA WORKERS COMPENSATION
Louisiana law is clear that any money paid to the employee, which can be regarded as remuneration or reward for his or her services, should be included in determining the employee’s Average Weekly Wage, irrespective of whether or not the payment was in the form of wages.
For this reason, both bonuses and tips must be included in the wages of the employee for calculation of the employee’s Average Weekly Wage.
Again, since employee is required to pay income tax on both bonuses and tips, then bonuses and tips must both be counted as gross wages for purposes of determining a Louisiana workers compensation Average Weekly Wage.
HOW ARE BONUSES AND TIPS CALCULATED FOR THE AVERAGE WEEKLY WAGE?
Whenever an employee earns a bonus or a tip, this bonus or tip is almost always in addition to a salary.
When an employee’s income is made up of both a salary and a bonus or tips, the bonus or tips portion should be handled separately from the salary portion when calculating the employee’s Average Weekly Wage.
To calculate the bonus or tips portion of the employee’s wages under the Average Weekly Wage:
(1) If the employee had worked for the employer for 26 weeks or more:
- Take the employee’s gross earnings from bonuses or tips for the 26 week period immediately preceding the accident;
- Divide this number by the number of days the employee actually worked for the employer during this 26 week period; and then
- Multiply this number by the average number of days worked per week.
(2) If the employee had worked for the employer for less than 26 weeks immediately preceding the accident:
- Take the employee’s gross earnings from bonuses or tips for the period that the employee worked for the employer immediately preceding the accident;
- Divide this number by the number of days the employee actually worked for the employer during this same period; and then
- Multiply this number by the average number of days worked per week.
Then the bonus or tip figure would then be added to the salary amount (calculated under the rules for calculating salaries), and then this total would constitute the Average Weekly Wage of an injured worker who is employed on both a salary and a bonus or tip basis.
FRINGE BENEFITS UNDER THE AVERAGE WEEKLY WAGE IN LOUISIANA WORKERS COMPENSATION
Louisiana law on the subject of “fringe benefits” holds that no amount shall be included in the wage calculation for “any benefit or form of compensation which is not taxable to an employee for federal income tax purposes.”
So that means that if the employee has to pay income tax on something, it must be counted as gross wages for purposes of determining the Average Weekly Wage.
TAX-DEFERRED EARNINGS
Louisiana law also holds that any amount withheld by the employer to fund any nontaxable or tax-deferred benefit provided by the employer, which was elected by the employee in lieu of taxable earnings, shall be included in the calculation.
So that means that tax-deferred earnings, such as earnings that the employee invests in a 401(k), or tax-exempt earnings, such as a medical spending account, are counted as gross wages for purposes of determining the Average Weekly Wage.
ROOM AND BOARD
Sometimes benefits are provided to employees that are not delivered in monetary terms, such as room and board.
These types of benefits – such as board, lodging and laundry or similar services under the contract of employment – are typically included in the calculation of a weekly wage.
Louisiana workers compensation courts have typically included the fair market value of housing and utilities provided to an employee in the calculation of a weekly wage and usually calculate these benefits on a weekly basis.
In order to correctly value fringe benefits such as room and board, the Louisiana workers compensation courts have ruled that the “value” or “worth” of the item provided is the proper measure, rather than an arbitrary amount fixed by the employer.
TRAVEL EXPENSES AND ALLOWANCES
So again, the rule is that if the employee has to pay income tax on something, it must be counted as gross wages for purposes of determining the Average Weekly Wage.
The only deviation from this rule appears to be in the case of reimbursement to employees for expenses incurred due to travel.
Louisiana workers compensation courts have ruled that such travel allowances amount only to a reimbursement for extra living costs made necessary by the job, and therefore are not real and definite economic gains to the employee.
Often, Louisiana workers compensation courts will compare the travel allowance to the actual travel expenses, and include as a wage any amount which constitutes an actual gain to the employee.
VACATION TIME AND SICK LEAVE
Louisiana courts have held that accrued vacation and sick leave is not taxable until used and, therefore, is not included in Average Weekly Wage unless it is used in the four weeks preceding the job accident.
So that means that accrued vacation and sick leave are not counted as income for purposes of determining the Average Weekly Wage.
THE LOUISIANA STATUTE FOR CALCULATION OF BONUSES, TIPS, AND FRINGE BENEFITS FOR LOST WAGE (INDEMNITY) BENEFITS IN LOUISIANA WORKERS COMPENSATION
The Louisiana statute outlining calculations for lost wage benefits is La. R.S. 23:1021. In pertinent part, this statute reads as follows:
(13) “Wages” means average weekly wage at the time of the accident. The average weekly wage shall be determined as follows:
(d) Other wages. If the employee is employed on a unit, piecework, commission, or other basis, his gross earnings from the employer for the twenty-six week period immediately preceding the accident divided by the number of days the employee actually worked for the employer during said twenty-six week period and multiplied by the average number of days worked per week; however, if such an employee has worked for the employer for less than a twenty-six week period immediately preceding the accident, his gross earnings from the employer for the period immediately preceding the accident divided by the number of days the employee actually worked for the employer during said period and multiplied by the average number of days worked per week.
(e) Exceptions. For municipal police officers, additional compensation paid by the state pursuant to R.S. 40:1667.3 shall not be included in the calculation and computation of total salary or average weekly wage to the extent such officer continues to receive such additional compensation during the period of his disability.
(f) Income tax. In the determination of “wages” and the average weekly wage at the time of the accident, no amount shall be included for any benefit or form of compensation which is not taxable to an employee for federal income tax purposes; however, any amount withheld by the employer to fund any nontaxable or tax-deferred benefit provided by the employer and which was elected by the employee in lieu of taxable earnings shall be included in the calculation of the employee’s wage and average weekly wage including but not limited to any amount withheld by the employer to fund any health insurance benefit provided by the employer and which was elected by the employee in lieu of taxable earnings shall be included in the calculation of the employee’s wage and average weekly wage.
(g) Date of accident. In occupational disease claims the date of the accident for purposes of determining the employee’s average weekly wage shall be the date of the employee’s last employment with the employer from whom benefits are claimed or the date of his last injurious exposure to conditions in his employment, whichever date occurs later.
