Lost wages for self-employed claimants can be a complicated matter in personal injury cases. As opposed to regular employees with frequent paychecks, self-employed claimants have to use an array of records and estimates to establish their lost wages.
In this article, you will find out what lost wages for the self-employed are, how they are different from normal lost wages, the problems you might encounter, and how to calculate and substantiate your lost income effectively.
What Are Lost Wages for Self-Employed Individuals?
Lost wages for self-employed individuals refer to the income that a self-employed person could not earn due to an injury caused by someone else’s negligence. This can include:
- Missed client payments due to the inability to work
- Canceled contracts or lost business opportunities
- Reduced sales or service income
- Missed product launches or events
For example, if you are a freelance graphic designer who cannot work for a month due to a car accident, the income you would have earned during that month is considered lost wages.
Why Proving Lost Wages for Self-Employed Individuals Is Challenging
Unlike salaried or hourly employees, self-employed individuals do not receive a consistent paycheck. This makes proving lost wages more complicated because:
- Income may vary significantly from month to month.
- Clients may cancel or delay payments for reasons unrelated to your injury.
- Income is often based on completed projects or sales rather than regular hours worked.
Because of this, it is crucial to have strong documentation to demonstrate your typical earnings and how much you lost due to your injury.
Key Types of Documentation to Prove Lost Wages
To successfully claim lost wages as a self-employed person, you will need to provide several forms of documentation, including:
1. Tax Returns and Income Statements
- Copies of your tax returns for the past two to three years can help show your average annual income.
- Profit and loss statements can provide a detailed view of your monthly or quarterly income.
2. Client Contracts and Invoices
- Signed contracts can demonstrate the income you were expected to receive.
- Invoices can show the amounts you billed clients and whether those payments were missed due to your inability to work.
3. Bank Statements
- Bank records can confirm deposits from clients, helping to establish your average income.
4. Correspondence with Clients
- Emails, text messages, or other communications can show that you had to cancel or delay work due to your injury.
- If clients canceled projects because you could not complete them, this can further support your claim.
5. Calendar or Appointment Records
- If you rely on a schedule of appointments or bookings, this can help demonstrate how much work you missed.
6. Business Expense Records
- If your injury increased your expenses (such as hiring a substitute or losing a non-refundable business expense), these costs may also be considered.
How to Calculate Lost Wages for Self-Employed Individuals
Calculating lost wages for self-employed individuals involves determining your average income and projecting how much you would have earned during the period you were unable to work. Here is how you can do it:
Step 1: Determine Your Average Income
- Calculate your average monthly income using tax returns, profit and loss statements, or other financial records.
- If your income is highly variable, consider using a longer period (such as one or two years) to get a more accurate average.
Step 2: Calculate Your Missed Income
- Multiply your average monthly or weekly income by the number of months or weeks you were unable to work.
- If you lost specific projects or clients, calculate the exact value of those losses.
Step 3: Include Other Income Losses
- Consider missed opportunities, canceled contracts, or lost client relationships due to your injury.
- If you had planned a product launch or event that was canceled, calculate the expected revenue you missed.
Example Calculation
Imagine you are a freelance photographer who typically earns $5,000 per month. After suffering a wrist injury in a car accident, you were unable to work for two months.
- Your average monthly income: $5,000
- Total lost wages: $5,000 x 2 months = $10,000
If you also had to cancel a $2,000 wedding photography contract, your total lost wages would be $12,000.
Special Situations for Self-Employed Individuals
Here are some special situations you have to consider if you’re a self-employed individual:
Seasonal Work
If your business has busy and slow seasons, you may need to provide documentation showing how your income varies throughout the year.
Commission-Based Income
If your income is primarily commission-based, such as in real estate or sales, you may need to show average commission earnings and how many deals you missed due to your injury.
New Businesses
If your business is relatively new and you do not have years of financial records, you may need to rely on other forms of proof, such as projected earnings, client contracts, and expert testimony.
Joint Ventures or Partnerships
If you share a business with one or more partners, you will need to demonstrate how your inability to work directly affected the business’s earnings.
Can You Claim Lost Wages for Future Income Loss?
Yes, if your injury is severe enough to affect your ability to work in the future, you may also be able to claim lost earning capacity. This is different from lost wages because it focuses on the future income you are unlikely to earn due to a long-term disability or reduced work capacity.
How Insurance Companies May Challenge Your Lost Wages Claim
Insurance companies often try to reduce lost wages claims for self-employed individuals by arguing that:
- Your income was not guaranteed.
- You could have worked remotely or delegated tasks to others.
- Your claimed losses are inflated or speculative.
To counter these arguments, you must provide strong, well-documented evidence.
Tips for Strengthening Your Lost Wages Claim
- Be Organized: Gather all your financial records and ensure they are complete and accurate.
- Keep Communication Records: Save emails or messages with clients who canceled or postponed work.
- Obtain Expert Testimony: In complex cases, a financial expert may help demonstrate your lost earnings.
- Consult an Attorney: An experienced personal injury attorney can help you present a strong claim.
What If Your Claim Is Denied?
If the insurance company denies your claim for lost wages as a self-employed individual, you can:
- Request a clear explanation for the denial.
- Submit additional evidence to support your claim.
- Consider negotiating with the insurer.
- Consult an attorney to explore legal action.
Real-World Example
Imagine you own a small event planning business. After suffering a back injury, you are unable to work for three months. During this time, you lose three planned events, each worth $3,000.
- Total lost wages: $3,000 x 3 = $9,000
- Additional loss: If you had to hire someone to manage your business in your absence, this cost may also be recoverable.
About the Author
Neil Bhartia
Neil Bhartia isn’t your typical, stuffy attorney that you see on TV. While some have their sights exclusively on money and treat their clients like a number, Neil takes a personal interest in every single client he has. As an empath, Neil understands that people that seek legal help are typically in an involuntary, and stressful situation, and he goes out of his way to diffuse the stress and educate clients on each every detail of the legal process.
