Template for Estimating Lost Wage Damages
Calculating an estimate of damages due to lost wages in an employment dispute is typically fairly easy. This calculation can be performed on a simple Excel template, a template of which can be found here for download. All you need to do is fill in the blanks. ("Plug-and-Play").
This article will show you that you do not need a financial expert to calculate damages in a lost wage claim. However, you may (or may not), need a financial expert to get the correct values for the variables you need to Plug-and-Play. And, you will most definitely need an expert to testify if your matter does not settle and can only be resolved in court or arbitration.
Generally, if you call ResX with a wage damage matter, we will give you an estimate of the damages the same day using the approach described in this blog. We will then tell you to "call us back if your matter cannot settle based on our estimated lost wage damages and we will be happy to serve as your expert witness at trial."
To keep this blog simple it will address only wage damages. It will not address damages related to lost benefits such as healthcare or pension benefits. Damages due to lost benefits will be discussed in later blogs.
Lost wage damage usually occurs because of an event such as termination or injury ("Event"). Lost wage damage is the difference between the but-for wages and the actual-wages subsequent to the Event. The damage calculation generally involves the following variables ("Variables").
- Wages prior to the Event
- Expected But-For Wage Growth
- Work Life Expectancy at the time of the Event
- Duration of Unemployment usually in months
- Replacement wages
- Expected Replacement Wage Growth
- Discount Factor and method allowed
The Variables listed above are a function of the matter being evaluated.
A sample damage estimate template ("Template") is shown below. The Excel version of the Template can be accessed by clicking here (when you reach the linked page, note the "download" button in the upper right corner of the page). The Excel file will give you access to the formulas used to calculate damages based on the scenario's assumed facts.
In this example the lost wage damages are calculated for each year as the difference between the but-for wages and the actual wages. Next, each year is adjusted to its corresponding value on the date of the Event ("PV"). Finally, the damages from each year (after the PV adjustment) are totaled to determine total lost wage damages.
The Template can be easily modified to accommodate different facts and different Variables. It is a little more difficult to modify it for the number of years covered by the analysis and/or the date of the Event. However, someone familiar with Excel and basic financial analysis techniques should be able to quickly make the proper modifications. If not, feel free to contact ResX and we will walk you through the necessary modifications at no cost.
The key to determining lost wage damages is not the calculation, it is the Variables. An experienced attorney will be able to estimate the value of each of the Variables based on his/her experience and information obtained early in the discovery process. The attorney will also be able to spot the obvious elements of a matter that may affect the value of the Variables. For example:
- Differences in the hours worked in the "but-for" and "replacement" job scenarios
- Unreported cash income earned under one or both scenarios
- Replacement work that is not consistent with the true skills of the worker or the true availability of work in the relevant employment market.
Once you have an estimate for each of the Variables, the Template will estimate the value of the wage damages which, in most cases, should be sufficient for purposes of negotiation and settlement.
If settlement cannot be achieved, call us. We will analyze each of the Variables in depth, prepare a detailed model that includes all of the information relevant to your matter, and present the results of our analysis to the trier of fact.
Calculating wage damages is not that complicated. This blog provides a simple template for calculating wage damages. The key to the accuracy of the Template's results is the accuracy of the Variables used by the Template. These variables include 1) wages prior to the Event, 2) but-for wage growth, 3) work-life expectancy on the date of the Event, 4) duration of unemployment, 5) replacement wages, 6) replacement wage growth, and 7) discount rate. Additionally, the Template used in this example relies on a simplified set of facts. When using the Template it must be modified to accommodate the years during which wage damages occur and the date of the Event giving rise to the dispute.
The preceding discussion covered only some of the considerations the damage expert will take into account with evaluating damages associated with the lost wage damages. The relevance of these considerations and numerous others will always depend on the specific facts of the matter being evaluated.
Resolution Experts PC, "ResX, PC", provides independent forensic accounting services for complex litigation and contract compliance and fraud. ResX is based in Michigan and serves clients throughout the United States. For more information and to learn about working with ResX, please visit our website: www.resxpc.com. Follow our page on LinkedIn here.