Loss of Income vs. Lost Earning Capacity



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Have you been injured in a car crash or other accident? The injuries you may suffer can range from minor to catastrophic. While some may resolve naturally or after a specific course of treatment, other injuries may persist with life-altering effects.

If someone’s negligence caused your injuries, you can file a personal injury claim and sue the responsible party for damages. The amount of damage you can collect depends on several factors. These include the severity of the physical injuries and how they affect your quality of life.  

You’ll likely miss work for weeks or months if you sustain accident-related injuries. A personal injury lawyer can advocate for your rights as you focus on your recovery. If your injuries are severe, you may be unable to return to work or do your job as before.

In such cases, injured victims may file a claim for loss of income and lost earning capacity. Although often used interchangeably, these are distinct types of damages. Read on to learn the difference between loss of income and lost earning capacity.

Key Takeaways:

Seeking compensation for any financial losses suffered after a negligent accident is possible. Loss of income due to an injury is more challenging to prove than medical bills and lost wages.Hiring personal injury lawyers is an effective way to get compensation for lost wages and loss of earning capacity.

Understanding Loss of Income

Accidents can result in severe injuries, whether due to slips and falls, medical malpractice, defective products, or car crashes. Besides physical and emotional effects, personal injury victims may also suffer financial losses. One of the economic damages you may seek is loss of income, also known as lost wages. 

Lost income refers to the past and present lost earnings from work that you have missed because of the accident. The injuries you incur may prevent you from working and deprive you of income opportunities. Since lost income is a recoverable component of your damages, you can get compensation for it instead of losing pay. 

Understanding how lost wages may factor into personal injury cases can help ensure you get fair compensation. Loss of income can come in various forms, including: 

  • Loss of work hours and pay is the primary form of lost income. It refers to the work hours and pay you missed when injured and during recovery. This applies whether you have full-time or part-time employment or a regular or occasional job. 
  • Sick leave and vacation pay: Suppose you have taken sick leave or vacation pay while dealing with the accident’s aftermath. In that case, you may be eligible for compensation. 
  • Income bonuses and pay increases: While you’re off work after getting injured in an accident, you may also lose income bonuses and possible pay increases. Thus, you can include these amounts in your personal injury claim. 
  • Sales commissions: The commission you would have earned from sales had you not sustained injuries is another form of lost income. You can also account for this in your personal injury case. 
  • Business income: Your regular job may not be your only form of lost revenue. If you’re self-employed, you may also be eligible to receive compensation for the income you lose from your business.

What Proof Do You Need for Loss of Income?

Proper documentation is necessary to prove entitlement to compensation for lost income. Establishing lost wages requires specific evidence of the amount you earned before your injury. The process for proving damages between employees and self-employed individuals may also differ. 

Proving loss of income for employees

Collecting information about loss of income is often straightforward when the injured victim is regularly employed. Still, knowing what types of evidence are the most relevant is crucial to give your personal injury case the best fighting chance.

When proving loss of income, employed individuals will likely need the following documentation. Note that you may need to show other documents depending on your circumstances. 

  • Medical records

You must provide medical records to prove you sustained injuries that prevent you from returning to work. It may be a disability slip containing a physician’s recommendation that you need time off from work to recover.  

  • Pay stubs

Your most recent pay stubs are mandatory for proving the value of your lost income. It will show how much you would have earned from the accident to the date of full recovery. This is particularly important if your work hours vary. 

  • Verification letter 

You must obtain a verification letter from your employer indicating your employment status and identification information. This will also provide legitimate evidence of the income and compensation you lost while on treatment or recovery. The letter from your employer must confirm the following:

  • The number of absences or work hours you missed from the accident until you fully recovered
  • Your hourly, weekly or regular pay at the time of injury
  • Any pay raises the employer was considering for you
  • Any overtime wages you routinely received before the accident
  • The number of sick leaves and vacation days used while recovering from injuries
  • Bank statements

Bank statements can be critical, primarily if your paycheck is deposited directly into your account. The transactions will help you prove your specific income and establish your pay rate before the accident. These may also be beneficial if cash payments subsidize your wages, such as tips or commission checks.

  • Tax documents

If you’ve been at your job for quite some time, tax returns can show the amount of money you earn each year. On top of your base pay, they can also reflect the bonuses and compensation you lost due to the accident. 

Proving loss of income for self-employed individuals

Proving loss of income is more challenging for self-employed individuals than those working for a company. Self-employed injured victims do not receive or depend on the same financial benefits as regular employees, like sick leave. Without well-documented income, it will be harder to present a strong case for lost income and seek compensation from the insurance company.

You are self-employed if you work as an independent contractor, freelancer, or sole proprietor. The following are types of evidence self-employed personal injury victims may need to prove lost wages. 

  • Medical documents

Self-employed individuals must provide medical documents detailing the injuries sustained after the accident. These may not show your lost income, but they will justify the time off of work you need to recover. 

  • Receipts and invoices

The invoices issued to your clients may help self-employed individuals prove an economic loss after an accident. It will show the accounts receivable or checks you receive for services rendered. Copies of receipts and recently paid invoices will help build your case for lost income while you cannot work. 

  • Annual tax returns

Your past tax returns may also help prove the value of your lost income. It reflects your profits and losses for the year, even when you’re self-employed. You could split your annual earnings by half to show the income you likely lost. This is particularly helpful if your recovery after the accident lasted six months. 

  • Bank records

All the money you earn from your business likely passes through the bank. This makes banking records the most effective way to prove lost income when self-employed. However, it may only work if you have a dedicated bank account that you solely use for business transactions. 

Understanding Lost Earning Capacity

Injured victims may suffer a permanent or long-lasting disability, affecting their ability to earn income indefinitely. Personal injury lawyers refer to this type of damage as lost earning capacity. Unlike the loss of income, this is not easy to determine as there’s no documented earnings history. It involves making projections about the victim’s work capacity and potential earnings.

Loss of earning capacity is often categorized as general damages rather than special damages. This is because you can establish it without evidence of actual earnings or income before or after the injury. 

Depending on the injury, you may seek compensation for loss of earning capacity and lost income. But note that courts may look at several factors to qualify injured victims for lost earning capacity. These may include the following:

  • Victim’s education and profession
  • Work location and history
  • Transferable job skills
  • Current market values and wage rates
  • Ability to do a different job

What Proof Do You Need for Lost Earning Capacity? 

Economic losses are typically easier to prove than non-economic damages. However, assessing lost earning capacity, which falls under economic losses, is an exception. It’s much harder to verify that an injured victim is entirely disabled and unable to perform their usual job.

Because the damages are not as straightforward as lost wages, proving lost earning capacity is more complicated. It’s even more so when injured victims recover over time, eventually enabling them to return to work part-time or full-time. 

Still, compensation for lost earning capacity is worth pursuing, provided you have sufficient evidence to support your claim. Highlighted below are additional types of evidence that can help support injured victims when proving loss of future earning capacity.

Records of past income

You can use past earnings as evidence of anticipated future income if employed. This would be strong proof, especially if you had little intention of shifting careers. Records of past income may include: 

  • Letters from the employer
  • Pay stubs
  • Prior tax returns

Expert testimony 

Several expert witnesses are generally necessary for loss of earning capacity claims. Their testimonials are vital, especially for victims with non-traditional jobs or whose injuries don’t prevent them from working. The following experts can testify to your claim for loss of earning capacity.

  • Medical professional: A medical expert can testify to the extent of your injury, recovery period, and impact on your future employment performance. They can explain how the accident caused your injuries and prevented you from performing work activities. 
  • Vocational expert: You may get testimony from a vocational expert. They can provide insights into the kinds of jobs you will or will not be able to perform. This is also valuable when you have no work history. A vocational expert can examine the job market and identify the future job prospects that may be available to you. 
  • Economist: A testimony from an economist can show the financial trends in your field of work. This will help establish and quantify the potential earnings you may lose due to the injury.

How Is Loss of Income Different from Lost Earning Capacity?

First, lost earning capacity is much more challenging to prove than lost income. Loss of earning capacity is often speculative because the likely revenue to come in is less defined.

A second critical difference between these two terms is when they happen. Lost wages cover the period before you file a lawsuit. By contrast, the loss of earning capacity encompasses the time after filing a claim.

Another factor that differentiates lost income from lost earning capacity is who can recover them. Those who didn’t have a job when the accident happened will not be eligible for loss of income. However, the same individual can still get compensation for lost earning capacity.

Calculating lost wages and loss of earning capacity also varies depending on numerous factors. Determining the amount of lost income only needs a work attendance record, pay stubs, and employment records. On the other hand, calculating lost earning capacity requires predicting the injured victim’s ability to work at a future date.

How Can a Lawyer Help With Your Personal Injury Claim?

Some injured victims prefer to handle their personal injury claims by themselves. Although it’s possible, hiring a personal injury lawyer is often a better course of action. They can help you with the following: 

  • Determine your eligibility: Laws regarding personal injury claims can vary from one state to another. A lawyer can help determine whether you’re eligible for lost wages or loss of earning capacity. They know your rights to benefits and how to recover them. 
  • Gather necessary evidence to prove claims: Every personal injury case is different, and you must consider numerous factors. A lawyer can identify which ones will help strengthen your case. They can also gather the necessary evidence to prove your income loss or earning capacity.

Represent you during court proceedings: A lawyer can help negotiate the best possible settlement on your behalf. But there are instances where your case needs to go to trial. A personal injury lawyer can represent you during court proceedings when necessary.

Pro Tip

An insurance adjuster may communicate with injured victims and employ tactics that can undermine a claim for damages. Don’t negotiate with an insurance company without the guidance of a qualified personal injury lawyer.

Get Legal Help From The Personal Injury Center To Prove Your Claim 

Suppose you or a loved one gets injured in an accident. In that case, you can be compensated for the loss of income and earning capacity. However, proving there are grounds for compensation is essential to get a successful personal injury claim. 

Working with a lawyer will help you secure the evidence necessary to prove damages that may affect your ability to work. Contact The Personal Injury Center today to find the right lawyer or law firm to help build your case. 

Get the maximum compensation for your loss of income, lost earning capacity, and more. Let The Personal Injury Center assist you today!

FAQs on Loss of Income vs. Lost Earning Capacity

There's no average settlement amount for lost income and loss of earning capacity. The value of your damages depends on several factors unique to your situation. This may include your age, injury, income, work-life expectancy, etc. But a lawyer can help review your case and assess your lost wages or lost earning capacity value.

Besides the loss of income and lost earning capacity, you can include the following damages in your personal injury claim:

  • Medical expenses
  • Property damage
  • Emotional distress
  • Pain and suffering
  • Punitive damages
  • Loss of consortium

Each state has its personal injury laws and statute of limitations. Missing the deadline to pursue your claim may keep you from recovering the maximum compensation for your damages. That's why it's crucial to hire a lawyer who knows the law applicable to your situation.

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