Should bonuses be included in an average weekly wage calculation in Colorado?
Wages in general
Wages could include earnings from the employer, possible earnings from concurrent employment, some bonuses, the cost of continuing health insurance, and certain fringe benefits. Bonuses are not a fringe benefit and it is a judge’s discretion to decide whether to include them in the calculation of an average weekly wage.
Inclusion of bonuses
If the claimant received bonus pay from the employer prior to the injury, discovery will need to be done to determine what the basis for the bonus pay. The bonus could be based on claimant’s sales or performance, a company profit sharing, an annual holiday bonus, etc. The reason for the bonus effects whether it should be included in the claimant’s average weekly wage calculation and how the calculation is done.
For bonuses to be considered wages, they must have a “reasonable, present day, cash equivalent value.” Also, the claimant must have access to the bonus on a day-to-day basis or an immediate expectation interest in receiving the benefit. It is the claimant’s burden to prove that the bonus should be included in the average weekly wage.
Some factors the court will consider are:
- If the claimant were terminated at any time, would the claimant receive the amount of accrued bonus at that point or would the claimant receive the bonus when it is later issued?
- Is the bonus guaranteed to be paid by the employer or could the employer choose to not pay any bonus?
- Is the bonus based on performance in general and discretionary or is the bonus based on set goals that the claimant was on target to meet at the time of the injury?
- Does the amount of the bonus greatly fluctuate or is it a set amount based on certain criteria?
- What did the claimant earn as a bonus during other time periods?
If the bonus was not guaranteed, fluctuated, and there was no real expectation interest of claimant receiving the bonus, then it probably should not be voluntarily included. However, if the claimant was guaranteed the bonus, the claimant always earns this bonus, and the employer must pay the bonus if the claimant meets certain goals, the average weekly wage may need to be increased for the bonus.
Calculation of average weekly wage with bonus
A judge has wide discretion in determining the manner to calculate an average weekly wage. Respondents should argue that if a bonus is included in an average weekly wage, it should be included based on the period it was earned. For example, if a bonus is awarded quarterly, then the bonus would be divided by 13 weeks before being added to the average weekly wage or if the bonus is awarded annually, then the bonus should be divided by 52 weeks before being added to the average weekly wage. This ensures that the bonus is fairly distributed over the time period it was earned and an entire annual bonus is not accidently included in the possible 12 weeks of wages that were used to calculate the average weekly wage.
If the claimant’s earnings prior to the injury included bonus pay, the average weekly wage calculation should not automatically include the bonus pay. Discovery will need to be done to determine why the bonus was paid, if the bonus was discretionary, and whether the claimant had access to this pay or a reasonable expectation interest of receiving this bonus pay.
For further questions on this topic, please contact one of our attorneys at 720-488-9586.