Untaxed Tip Earnings Included in AMW

     In Sierra Nevada Administrators v. Negriev, the Nevada Supreme Court held that when an injured employee reports tip income to his or her employer, that income is included in the average monthly wage calculation.  The average monthly wage calculation is used to determine how much an injury worker receives for compensation benefits. 

     The injured worker in this recent case was a bartender at a sports pub. He reported his tip income to his employer, but the employer did not include the tip income on his paycheck.  While the bartender reported his tip income to his employer, he did not include his tip income on tax returns filed with the  IRS. The court said it was irrelevant whether the injured worker actually paid taxes. The key was that the bartender had actually reported his tips to his employer.

   Remember that the average monthly wage is a factor in calculating the permanent partial disability award as well as the compensation benefits due when lost time compensation is paid.  Make sure that you discuss your average monthly wage with any attorney you see for a consultation  so that the attorney can check for legitimate increases that may have been overlooked. 

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How Are Benefits Calculated in Nevada?

Once a claim is accepted by the insurer or the third-party administrator handling the claim, if the injured worker is off work for more than five days in a row, or five days within a twenty-day time period, temporary total disability benefits (TTD) are paid.   In order to pay TTD benefits, the insurer must first get information from the employer on a wage verification form that asks the employer what the injured worker’s gross wages were in the 12 weeks before the date of the injury.  Any overtime wages the injured worker earned during  those 12 weeks are included.   This earnings history is then used to determine the average monthly wage.   An injured worker can request that the insurer use a one-year earnings history instead of a 12-week earnings history if that would result in a higher average monthly wage.

The TTD paid is then calculated at 66 2/3% of the average monthly wage. For example, if the injured worker’s average monthly wage is $3000, the TTD benefits would be $2000 if the injured worker were off work for one month.   There is a maximum average monthly wage set by the state each year.   Injured workers who earn more than the state maximum average monthly wage will have their benefits based on the maximum average monthly wage, and will therefore receive less than 66 2/3 of what they were really earning before their injury date.

Regulations address how an insurer is to determine the average monthly wage of injured workers who have not worked for 12 weeks before the date of their injury, or how to calculate average monthly wage of piece workers, or union employees, or other individuals with special circumstances.   These regulations also address when the insurer should exclude days from the calculation if the employee had a certified illness or absence from work so that the average monthly wage calculation is not unfairly too low.   Injured workers who were working for more than one employer at the time of their accident may have the wages of the second employer, called the concurrent employer, included in the average monthly wage calculation. However, it is up to the injured worker to notify the adjuster that there is a concurrent employer and to supply that wage information to the adjuster. 

It is very important that the average monthly wage determination is correct, and that it is as high as it should be for the injured worker. This average monthly wage figure is used to calculate benefits when the injured worker is off work due to the injury, and is also used to determine how much money the injured worker receives for a permanent partial disability award.   The average monthly wage established on the claim when it is closed will also be the average monthly wage used if the claim is ever reopened in the future.   Injured workers who request a free consultation with an attorney should always discuss with the attorney whether the average monthly wage calculation appears to be correct.

Maximum Average Monthly Wage Used to Calculate Benefits

When an injured worker is taken off work by the treating doctor, the insurer pays the injured worker 66 2/3 of the injured worker's average monthly wage if it does not exceed the state's maximum average monthly wage for the year in which the accident occurred.  For injuries occurring after July 1, 2009, the maximum average monthly wage has been certified by Nevada's Dept. of ESD as $5,208.60 a month.   That means that an injured worker who is unable to work for a month can receive a maximum of $3,472.40 a month in benefits.  As benefits are usually paid every two weeks, and each day in a 14 day period is counted, the bi-weekly benefit check would be $1,603.88.  If the injured worker is earning less than the state maximum average monthly wage, the benefit is 66 2/3 of the actual gross wages earned.  Rate charts showing the maximum average monthly wage going back to fiscal year 1974 are at this link.

The period of earnings that are examined is usually a 12-week period immediately preceeding  the date of the injury.  However, an injured worker may request that the insurer use a one year earnings history, or the full period of employment if it is greater than 4 weeks, but less than a full year, if it would result in a higher average monthly wage calculation.  The regulations on how to fairly calculate an injured worker's average monthly wage begin at NAC 616C.420.  If an injured worker has an unusual employment arrangement, has more than one employer at the time of his accident, or thinks that the benefits paid by the insurer are less than 2/3 of his typical monthly gross income, a free consultation with an attorney would be wise.   The average monthly wage that is established by the insurer to calculate the amount of temporary total disability benefits is also used to calculate how much a final permanent partial disability award will be at the end of the claim.  It is one of the most important determinations the insurer makes on the claim.