AE refers to the person’s post-injury earning capacity. AE may be either an 'actual' amount that the person is currently earning, or a deemed amount in accordance with the person's ability to earn (for example in cases where the person is unemployed or underemployed for reasons other than the accepted injury).

AE is defined in Section 19(2) of the DRCA as the greater of the following amounts:

1. the amount per week (if any) that the employee is able to earn in suitable employment; or
2. the amount per week (if any) that the employee earns from any employment (including self-employment) that is undertaken by the employee during that week.

The 'AE' amount is used in three incapacity rate calculations in the DRCA:

1. calculation of the 'AE' amount in Section 19(2). This subsection is applicable to compensation during the first 45 weeks after injury i.e. the maximum rate compensation weeks.
2. calculation of the 'AE' amount in Section 19(3). This subsection is applicable to compensation after the first 45 weeks. The subsection also provides for an increased rate of payment (after combining earnings from employment and compensation) where the client undertakes actual employment during the week, and
3. where weekly compensation is paid to former employees under Part X of the DRCA, S132A provides that the amount that the client is able to earn in employment in a week is subtracted from the weekly incapacity compensation otherwise payable.

Section 19(4) of the DRCA sets out matters to which delegates 'shall have regard' when deciding the amount per week that a client is able to earn in suitable employment. These matters are relevant to all three provisions listed, and are discussed in relation to 'deeming ability to earn' (section 8.18).   

Amendments to the DRCA which commenced on 1 April 2002 provide that the AE amount includes earnings from both suitable employment and any other amount that a person earns from employment (including self-employment) during the week. AE does not include earnings from sources such as family trusts, rental properties etc. Only income resulting from the persons 'own labour' (i.e. work they are doing/able to do) is counted.

Actual Earnings (AE) are defined in sections 92, 101, 105 and 115 for serving members. For former members, AE is defined under Section 132 as the greater of the following amounts:

1. the weekly amount (if any) that the person is able to earn in suitable work; or
2. the amount (if any) that the person earns for the week (including from allowances other than expense allowances) from any work that is undertaken by the person during the week.

Section 181 outlines the matters to be considered in determining actual earnings.  AE does not include earnings from sources such as family trusts, rental properties etc. Only income resulting from the persons 'own labour' (i.e. work they are doing/able to do) is counted.

Where a person is in employment and earning an income by working to their full capacity, AE is adjusted in line with their actual earnings. Where AE is a notional deemed amount, the amount should be increased annually on 1 July by the WPI increase amount. 

In some cases a person may have been deemed based on their actual earnings. If the deemed AE has been indexed beyond those earnings and no longer represents what the person is actually able to earn (i.e. the person is working to their full capacity), then the deemed amount may be adjusted in line with actual earnings instead. A decision to adjust the deemed AE amount should be recorded.

Under the SRCA, NWE is also increased at the same rate at the same time (1 July) as a person’s deemed AE.

Any income that a person actually earns by his or her labour is considered to be an amount earned in suitable employment and is to be included as AE. This includes earnings from self-employment and commissions, see section 8.6 and 8.7.

AE for a serving member includes any amount earned in employment with the ADF as well as earnings or what the person is able to earn from civilian employment for part-time reservists.

To establish a person’s AE on the basis of actual earnings, the following information is required:

• Pay slips or similar documents to establish hours worked and amount received.

• Medical certificates (to establish capacity).

The gross value of earnings are held in calculations.

In cases where the delegate is satisfied that a person is working below their full capacity (either level of employment or hours in employment), the person may be deemed with an ability to earn at a higher amount (see section 8.18).

8.4.1 Allowances included in AE

The following types of allowances should be included in the calculation of AE:

• allowances which are taxable (other than expense allowances);

• allowances which are paid in respect of specific skills or qualifications attained by the person i.e. allowances paid for licences, tickets, certificates.

Generally, the following types of payments should not be included in the calculation of AE:

• allowances for money spent, or likely to be spent, by the person on expenses i.e. travel allowance, meal allowance;

• retention bonuses (these can be paid either as a lump sum payment or periodically - e.g. fortnightly, and are not considered allowances).

Allowances which should be included and excluded from AE calculations are listed in the following table. Note however that the list is not exhaustive.

MRCA section 132 (1) (b) provides the definition of AE for a person in employment as; 'the amount (if any) that the person earns for the week (including from allowances other than expense allowances) from any work that is undertaken by the person during the week.'

Whether or not travel allowance is included in calculation of AE depends on the prupose of the payment. Where it is confirmed the allowance was paid for travel expenses (i.e. accommodation, food/drink and incidental costs) rather than a payment for the inconvenience of/time spent travelling, it should be excluded from AE calculations.

If the basis for receiving an allowance is unclear from the information provided (usually a payslip), further details should be obtained from the person or the employer. For example, the employer can clarify whether a person is receiving an allowance for a particular skill or trade proficiency, or if an allowance is intended to compensate the employee for costs associated with undertaking their employment such as laundering/maintaining a workplace uniform, or requiring high-speed internet connection at home.

Where a person may receive a penalty rate of pay i.e. a higher rate of pay for working certain hours or in certain conditions the higher rate of pay is included in AE. Overtime hours and rates are also included as AE.

8.5.1 Establishing a notional AE based on prior periods of employment

Where income is not earned at a constant or clearly recognisable rate and the delegate is satisfied that employment is continuing, there is an established method to average the variable earnings over a specific period to obtain a notional actual earnings (AE) amount.

A period of at least three months is the basis from which to derive an average for the notional actual earnings amount.  Where the delegate is dealing with an entitlement to arrears of compensation, it is appropriate for an average to be drawn from the whole of the period of the arrears.

The following procedure involves calculating a notional actual earnings (AE) amount and averaging the weekly hours worked for a specific period (hereafter called the review period).  The entitlement can then be calculated for the review period and the benefit paid for a future period.  Notional figures are then recalculated for the second and subsequent periods.

8.5.1.1 Setting the notional AE  for first calculation period

For a person who may be commencing work after a rehabilitation program, the notional AE can be established for the first period by using industry award rates or alternatively, based on actual earnings from pay slips when they are provided by the person.

Upon completion of the first period, the notional AE for the second period can be calculated by averaging the actual earnings from the payslips that relate to the review period, which is the first period in this circumstance.

8.5.1.2 Weekly Hours

The notional hours for the next period are based on an average of the actual hours from the review period.  When commencing a person and no weekly hours are available, the weekly hours could be based on medical opinion of the person's capacity for employment.  As with the notional AE, the average weekly hours are recalculated for each new period.

8.5.1.3 The Review Period

The length of the review period will need to be established for each case.  Accordingly, the length of review periods should have regard to the particular circumstances of the person's employment.  A review period of three months may besuitable, as this allows for regular provision of pay slips.  Longer or shorter review periods may be preferred, if the persons' earnings are known to have seasonal or shift variations.

For example:

• Where a person's hours vary from week to week, with no real pattern, the review period may be three months.

• Where a person works as a fruit picker, with seasonal variations in the hours worked, the review period could be twelve months thereby taking all the seasonal variations into account.

• In the case of a car salesman who earns monthly commissions over and above his weekly rate of pay, the delegate may choose a review period of a month in accordance with the pay arrangements for the car salesman.

• Where a person receives trailing commissions, such as might be the case for a finance broker, then it may be appropriate to average those earnings out over a full financial year to arrive at an appropriate notional AE.

The delegate has the option to choose the length of the review period according to the circumstances of the case.  However the review period should never be greater than twelve months.  The length of the review period should be discussed with the person during initial liaison.

8.5.1.4 Ongoing Claim Management

The process of averaging the earnings and hours of the review period to calculate a notional AE and hours for the next period is repeated for the life of the claim, or until circumstances change.

The intent of this method is not to recalculate retrospective pay periods once pay slips are provided. Instead the calculation continues to apply an average to the forward period.

The responsibility still remains with the person in receipt of incapacity payments to immediately advise when their circumstances change.

8.5.1.5 Worked example

The person works differing hours each week with corresponding fluctuating earnings.  It has been agreed that the review period will be of 4 weeks duration.  Normal weekly hours are 36.75 hours per week.

The average of the benefits for the first review period is $515.00.  This is the amount the person is paid for each week of the second period.

The average for the second review period is $495.00.  This is the amount the person would be paid each week for the third period.

For the initial period of incapacity payments, the delegate calculates the benefit each fortnight, upon receipt of payslips.  When the first period has passed, for example at the end of three months, the average of that period can be used as the review period for future calculations.

8.5.2 Deeming Fluctuating Earnings based on an award rate of pay

Alternatively, where a person's earnings vary from week to week, a notional AE amount can be determined by establishing the type of employment and the hours per week that constitutes suitable employment for that person. The appropriate industrial award rate of pay (hourly) or the person’s actual hourly rate of pay is multiplied by the hours per week the person can work in suitable employment to calculate a notional AE amount. The reason for a person's reduced hours of work must be as a result of the injury rather than the availability of work. See section 8.18 for further details on deeming AE in suitable employment.

The method to calculate earnings from self-employment is used for both calculations of Normal Weekly Earnings/Normal Earnings and AE (actual earnings/able to earn). There are multiple methods to calculate earnings from self-employment and discretion should be used to pick the method that best represents the person’s earnings.  The same method should be used to calculate both the person’s NE/NWE (see chapter 3) and the person’s AE.

The method used to assess a person's AE derived from self-employment will vary depending on the individual circumstances of each case. It is important to look beyond equating the net profit of a business with a person’s AE. Similarly, the income that a person has allocated themselves as a salary from their business may not be a reflection of what they are actually earning (or able to earn).

There are 2 established methods to calculate AE from self-employment:

1. examining the net and gross earnings from business and taxation records; and/or
2. establishing the cost of employing a person to undertake similar work using award rates of pay (i.e. establishing the cost of replacement labour).

If a person’s taxation or accounting records are too complex to establish an AE without forensic examination, or the established AE does not represent a reasonable wage for that employment, delegates should utilise the AE calculation method based on the cost of replacement labour.

Self-employment does not encompass hobby activities yielding a small income. The distinction between self-employment and hobby activities is drawn on the facts of the case.

8.6.1 AE based on an examination of business earnings

In some situations, the gross earnings of the person’s business can be used to establish their AE. When examining the gross earnings it is necessary to exclude expenses that are clearly related to the running of the business, such as the purchase of stock, staff wages or rent on premises used exclusively for the purpose of running a business.  As a general rule, only expenses directly relating to the normal operation of the business should be excluded when considering the gross earnings of the business.

Delegates may also refer to the Compensation and Support Policy library and specifically sections 10.3.2 General provisions for sole traders and partnerships and; 10.3.2 Assessment of income for sole traders and partnerships for further guidance when assessing earnings from self-employment. References in these sections describing allowable deductions from sole traders and partnerships are written specifically for income support delegates assessing business income under the Veterans' Entitlements Act 1986 and should not be used. It is also important to note that this policy is for guidance only, and is not binding under the SRCA or MRCA.

The examination of business earnings may be more appropriate to a small business with a small number of staff and few expenses.

8.6.2 Cost of replacement labour

It may be appropriate to consider the likely cost of employing another person to provide the same services as an indication of what the person would reasonably have derived as personal income from the business.  Delegates should refer to the appropriate award rate of pay for a person doing similar work where the earnings from self-employment are less than the award rate of pay.  Information about award rates of pay can be obtained from the relevant State of Territory Department of Industrial Relations website or on the Fair Work Commission website.

8.6.3 Case Law

The principle that AE should not be equated with net profit was reflected in the High Court decision in J & H Timbers Pty Ltd v Nelson [1972] and the more recent Federal court decision in Comcare v Davies [2008].

In Comcare v Davies the applicant ran her own business in which expenditure exceeded total income such that there was a net loss.  The Federal Court held that AE should not be confused with the ability to run a profitable business.

In the AAT cases of Hooper v Comcare [2001], Robinson v Military Rehabilitation and Compensation Commission [2008] and Warnock v Comcare [2008], the Tribunal observed that in cases of self-employment, actual net profit or wages drawn by the owner of a business may not be good indicators of AE.  This is because expenses debited to the accounts may be inconsistently applied, not in accordance with good accounting practice or because actual net profit may conceal expenditure which might not otherwise be regarded as business expenditure.

The High Court decision in Cage Developments Pty Ltd v Schubert [1983] demonstrated that in some circumstances actual net earnings might reflect AE.  In that case the High Court also considered that one way to determine AE would be to consider the wages one may have to pay another person to provide the same services.

8.6.4 Establishing hours worked in self-employment

There are no minimum or maximum evidence requirements to establish the hours that a person has worked in self-employment, it is open to the delegate to decide what is required. A statutory declaration from the person regarding the number of hours they work would be considered sufficient evidence, though other forms of evidence could also be used. The person should only be indicating they are working at or below their certified medical capacity i.e, if the medical evidence shows that the person has capacity to work 20 hours per week, the AE should represent a maximum of 20 hours work and the adjustment percentage should also represent those hours of work (even if the person has indicated they work over their medically certified hours).

Entitlement to commissions is payment in return for labour, where that labour results in a sale (i.e. of a car, a mortgage, insurance etc.). Commissions are often paid at a later date than the date of the sale i.e. paid on a monthly basis.  These amounts are considered to be actual earnings and should be included in calculations in the period that the labour the commission was derived from was undertaken.

As commissions may be paid at a later date than the period of the labour (which may span several weeks or months, for example when working as a real estate agent selling houses) it may be impractical to establish which period the commission should be applied too, an alternative method of calculation can be considered i.e. deemed based on those earnings for any periods in the future or deemed using a notional rate established from award/industry rates (section 8.5.2). 

It is important to note that a person cannot have an AE during periods where they are medically certified as totally incapacitated for employment.

Generally, where a person is receiving trailing commissions it is impractical to retrospectively apply those earnings to the period in which the labour they were derived from was undertaken. Trailing commissions may be received many years after the original sale was made and are often paid annually. In these cases the person’s earnings should be deemed based on those earnings for any periods in the future or deemed using a notional rate established from award/industry rates.

A person may continue to receive trailing commissions even when they are totally incapacitated for work.  In these scenarios the commissions can not be considered actual earnings (as they were derived from a previous period of labour).   

A person may receive an advance payment for writing a book or a similar endeavour i.e. a commissioned artwork, over a set time-frame. The advance can be used as actual earnings averaged over the designated period. Following completion of the book etc. the person may be deemed in a similar field i.e. as a journalist and the deemed earnings applied to future periods of payment.

Any subsequent royalty payments should also be held as earnings but can only be used in the period in which the labour they were derived from was undertaken i.e. applied to a retrospective period and an overpayment for that period raised. In a lot of cases this may not be practical and instead a deemed earnings amount is held in calculations instead.

It is longstanding policy to offer veterans receiving incapacity payments a period of twelve (12) weeks maternity leave for the birth or adoption of a child.

Incapacity payments continue to be paid during maternity leave for a period of 12 weeks (generally six weeks either side of the expected/actual birth date), if payments would have continued if not for the maternity leave. Payments continue at the established rate of compensation i.e. payment calculations continue to include hours and earnings as if the person was actually working during the period.

Where a pregnancy does not reach full-term, cases will be considered on the individual circumstances.

During the 12 week period, the number of hours worked for the purposes of the "adjustment percentage” in section 19(3) (DRCA) and 131(MRCA) should be the percentage that would have applied were it not for the maternity leave i.e. treated similarly to a period of paid recreation leave or long service leave (LSL), see section 8.10. Similarly AE is set at the amount the person would have earned if not for the maternity leave. In effect the person is ‘deemed’ with an AE during the period.  

In some cases the person may take other paid leave such as LSL and recreation leave in conjunction with the maternity leave, see section 8.10.

8.9.1 Person in paid employment with access to maternity leave

When a person accesses paid maternity leave while in employment, the hours and earnings for that leave are considered AE. The will receive incapacity payments as if they were actually working those hours.

8.9.1.1 Person chooses not to return to paid employment after 12 weeks

If a person makes a choice not to return to work after the 12 week period (whether they received maternity leave pay for an employer or not), and the same level of incapacity would have continued, payments are calculated as if the person has returned to work i.e. the person's earnings are 'deemed' and hours are set at nil.  

8.9.2 Rehabilitation and pregancy/maternity leave

Incapacity payments continue as per usual if the person is participating in a rehabilitation plan after the 12 week period. The AE used in calculations should only be the amount the person actually earns (if any). This will include any amount of paid maternity leave. The person should not be deemed with an ability to earn on an assumption that they will no longer be actively participating in rehabilitation. Instead the delegate must consider if the person is continuing with the rehabilitation plan or not.  

8.9.2.1 Person chooses not to return to rehabilitation after 12 weeks

If the person chooses not to reengage with rehabilitation after the 12 week period, their plan will be suspended and they will not receive incapacity payments for that period. The same would apply if the person was not meeting the rehabilitation plan obilgations. Once the person returns to rehabilitation, and if they remain incapacitated, incapacity payments can recommence. 

8.9.3 Payments received under the Paid Parental Leave (PPL) or Dad and Partner Pay Schemes

The paid parental leave (PPL) scheme provides for 18 weeks' pay at the national minimum wage. Eligibility for the scheme is a matter for Services Australia to determine. Payments under this scheme are not earnings derived from employment and cannot be considered as actual earnings. Therefore, they have no direct impact on the level of incapacity payments. However, the policy is that we will only allow exemption from participation in the workforce or rehabilitation for the 12 week period.

Similarly, 'Dad and Partner Pay' provides payments at the national minimum wage, for up to two weeks. As with the PPL, 'Dad and Partner Pay' is not considered earnings from employment, and therefore not considered as actual earnings for calculation of incapacity payments.

Note: Changes to the Paid Parental Leave Scheme also the Dad and Partner Pay Scheme are in effect from 1 July 2023. Delegates should refer to information on the Services Australia website at: About the Paid Parental Leave scheme - Paid Parental Leave scheme for employers - Services Australia

When a person accesses paid leave while in employment i.e. annual leave or long service leave, the hours and earnings they receive payment for are considered AE. They will receive payment as if they were actually working those hours. 

8.10.1 Lump sum payment in lieu of leave

Where a person has ceased working and receives a lump sum payment in lieu of accrued leave, these payments are not directly related to the person's labour.  These leave payments are excluded from AE.  Any payments in lieu of annual leave are to be regarded as forfeiture of accrued benefits and not money earned.  If a person takes a period of paid leave prior to leaving employment then this is counted as AE.

8.10.2 Unpaid leave

If a person accesses unpaid leave, unless the person is incapacitated for work as a result of a compensable injury/disease during that leave, no additional compensation payments can be made for the time off work. The person should be considered to have the same level of incapacity and be treated as if they had continued in the same hours and earnings over the period. The same hours and earnings should be held in calculations over the period.

A person may access their civilian leave entitlements (i.e. sick/Defence Service Sick Leave or recreation/holiday leave) as a result of their accepted condition. The use of this leave entitlement may be compensated.  

The AE of the person will be equal to their gross earnings minus the value of the leave taken as a result of the accepted condition (i.e. the earnings from accessing the leave is excluded from AE). The hours of paid leave should also be excluded from calculations. There must be medical evidence to substantiate the person’s claim that the leave was due to the accepted condition.

If a person accesses sick leave for a condition for any other non-accepted condition, the earnings and hours of that leave continue to be held in calculations.

This policy also applies to those former members who are working in the Public Service. Any concern that removing the paid leave from gross earnings in order to calculate AE will result in a 'doubling up' of Government payments is misplaced. The Commonwealth does not pay for the leave taken by this person. Rather, the person pays for this leave by making use of their leave entitlement. By taking the leave for an accepted condition, the person is unable to use this leave for anything else.

When a person is paid Defence Service Sick Leave (DSSL) or War Service Sick Leave by their civilian employer due to an accepted condition, the use of this leave entitlement may be compensated through incapacity payments. DSSL (or War Service Sick Leave depending on the wording in the Enterprise Agreement) is not a compensation payment, it is a leave benefit provided by the civilian employer as part of their enterprise agreement and the person is able to receive both payments for the period. 

Salary amounts which employees sacrifice in favour of other non-cash fringe benefits, such as additional superannuation, vehicles, and other conditions, are not exempt from assessment as AE.  In some instances, such as with superannuation, the sacrificed amounts are deferred and may not be received for several years.  Nevertheless, as they are earned and derived from the person's employment, they are assessed as income at the time they are earned.

The gross amount of salary should be used as actual earnings.  This is the amount prior to any salary sacrifice deductions. 

Scholarship funding cannot be considered as part of actual earnings as it does not meet the test of having been received as a payment for labour and therefore is not considered to be earnings from employment.

The Repatriation Commission has a general policy approach, for the purposes of the VEA,  that voluntary work does not have the same pressure or stress inherent in paid employment and should not on its own indicate a person's capacity to undertake paid work in relation to eligibility for the Special Rate (T&PI) pension.  This does not give an absolute guarantee that voluntary work will never affect a Special Rate (T&PI) pension and it is always dependent on the individual circumstances of the person and the work they are engaged in.

The effect of voluntary work on DRCA and MRCA payments will differ from that of the VEA because of the focus both Acts have on rehabilitation.  The impact of voluntary work needs to be considered alongside a person’s capacity to return to work or to undertake rehabilitation.

There is no mention of voluntary work in the MRCA.  The legislation only discusses remunerative work.

For policy purposes voluntary work is 'unpaid work for a recognised community or welfare organisation'.  Unpaid work for family, friends, or a business enterprise formed for the purpose of making a financial profit is not classified as voluntary work.

Where veterans are undertaking unpaid work through an Ex-Service Organisation (ESO) or Community of Practice, they may be given a variety of tasks, including working as advocates/mentors or as trainers/assessors. The tasks required as a trainer or assessor, often through the Advocacy Training and Development Program, may mean the veteran's volunteer work is under the direction of an organisation that is not classified as not-for-profit. In these instances, although the veteran is operating under the direction of a profit-based business they are still broadly providing unpaid work through the ESO or ATDP. Therefore it is appropriate to consider that it generally constitutes voluntary work.

Remunerative work is 'work of a nature capable of attracting remuneration'.

A distinction can be made between the rights and responsibilities that accrue when undertaking remunerative employment and the lack of them with voluntary work.  Voluntary work is usually performed at a time, place and pace that suits the volunteer which is not the case for paid employment.

Each case needs to be assessed on its individual circumstances.  Although voluntary work normally does not carry the same pressures and expectations as paid employment, it may in some circumstances, amongst other factors, indicate a person's ability to return to paid employment. However, undertaking voluntary work alone does not indicate a person could return to employment. Similarly, a person undertaking study (including training for volunteer roles such as a veterans' advocate role) alone does not indicate they are able to participate in remunerative work. An incapacity delegate should not, in isolation, determine that a person undertaking voluntary work is capable of an ability to earn for those same hours/work as if it were a paid position.  Ultimately, each case should be assessed on its own merits based on sound medical opinion and/or a rehabilitation process.

All incapacity payees must be regularly reviewed by a medical specialist and the frequency of that review depends on the payee's level of incapacity. If a payee is undertaking voluntary work it will not generally trigger a review of their incapacity payments outside the regular review period except in exceptional circumstances. It must be the accepted condition(s) which form the basis for the person's inability to undertake remunerative work.

A payees incapacity payments may vary if their ability to earn changes based on sound medical opinion, a rehabilitation program and/or other factors depending on the individual case. If a person is undertaking voluntary work it may form part of a person's rehabilitation program and may be one of the factors considered overall in the rehabilitation assessment process.

Engaging in voluntary work can have significant medical/social rehabilitation advantages for a person.  This policy encourages claimants to undertake some voluntary activity that facilitates or assists in recovery or is a step towards returning to paid employment, or is undertaken where a claimant is unable to undertake or return to paid employment.

Any payments received via lump sum settlement of private insurance matters will not affect a person's entitlement to either permanent impairment or incapacity compensation under the MRCA.  There is no requirement to “offset” these payments against any incapacity benefits (as occurs with payments for common law damages).  Similarly income protection insurance is not earnings from employment and should not be considered in the calculation of actual earnings.

Refer to Chapter 2.2.9 of the MRCA policy manual “Claims” for more information on the definition of private insurance benefits and the basis for excluding them from the recovery provisions contained in the Act.

If a person receives a bonus (paid as a lump sum or periodically) this is not considered actual earnings and is not to be included in calculations of actual earnings. This is covered specifically under section 180 of the MRCA. There is no legislation specifically excluding bonuses under the SRCA, however the omission of bonuses under section 8 (relevant to calculating NWE) indicates the same policy is applicable to both the SRCA and MRCA.

If a person receives a redundancy/severance payment, this is not considered actual earnings.  However the person may be deemed at a rate equal to what they were earning prior to the redundancy as they have demonstrated capacity to continue in that employment.   

Subsections 19(4)(b)-(g) of the DRCA and subsection 181(3)-(5) of the MRCA provide a basis for deeming an ‘able to earn’ or ‘ability to earn’ amount when the person is not actually engaged in employment or is underemployed (either hours worked or hourly rate).  Able to earn or ability to earn is abbreviated to AE and used in place of actual earnings in calculations of incapacity payments.

The MRCC’s policy position is that if the person can show genuine yet unsuccessful attempts to obtain employment they will not be “deemed” when suitable employment is not possible.  This same policy is equally applicable to DRCA and MRCA cases.

AE is a representation of what the person is capable of earning in suitable employment and can be variable depending on the person’s circumstances, i.e. the level of the person’s incapacity. Delegates should ensure that the deemed AE is an accurate reflection of an ability to work rather than just the person’s current employment status.

In order to apply a deemed AE, the AE must be established in reference to suitable employment. Additionally, the person is deemed with an ability to earn in a certain number of hours per week. The decision on the number of hours the person could work in suitable employment should be made based on medical and/or rehabilitation advice.

The effect of deeming a person with AE is to reduce their entitlement. 

The overriding criteria when deeming a person AE must always be whether the person’s actions i.e. a failure to accept or seek employment, work less hours or change employment etc. were reasonable in the circumstances.  The medical evidence should be integral in determining reasonableness, but other factors should also be considered. If the action was reasonable the person should not be deemed. Delegates may have regard to any other matter they think relevant in the circumstances.

8.18.1 Deeming based on Actual Earnings at the End of a Rehabilitation Program

As part of the rehabilitation process, if the person has gained employment, the delegate may deem an ability to earn based on their actual earnings and the medical evidence of the hours which they are able to work.  A deeming decision should be made in conjunction with evidence from the rehabilitation program.

8.18.2 What is Suitable Work?

Establishing what is suitable work for a person is relevant to deeming a person with an AE or in considering what work is suitable for a person to pursue via rehabilitation.

The issue of what constitutes suitable employment in a particular case should be resolved before considering the question of ability to earn.

Suitable work is defined in section 4 of the DRCA and section 5 of the MRCA and means work for which the person is suited having regard to the following:

1. the person's age, experience, training, language and other skills;
2. the person's suitability for rehabilitation or vocational retraining;
3. if work is available in a place that would require the person to change his or her place of residence – whether it is reasonable to expect the person to change his or her place of residence;
4. any other relevant matter.

A delegate must have regard to the definition of suitable work when determining whether work is suitable for a person.  In making this assessment, consideration must be given to all four criteria, as no one criterion alone can be used to determine the issue.  The person's individual circumstances must also be considered.

DRCA only - The definition of 'Suitable employment' was amended by the Safety Rehabilitation and Compensation and Other Legislation Amendment Act 2007 to allow consideration of a client's capacity to work outside of the Commonwealth (or licensee), when calculating incapacity payments under section 19 of the DRCA. 

8.18.2.1 Age, Experience, Training, Language and Other Skills

This criterion makes it necessary to consider the person’s employment background. For example, if a former RAAF General Hand was injured to the extent that their work prospects were limited to sedentary office-based work, such work would be inappropriate if the person had poor literacy and numeracy skills. Similarly, work as a cleaner would generally not be considered suitable work for a former RAAF pilot or skilled Officer Engineer.

8.18.2.2 Suitability for Rehabilitation or Vocational Retraining

This criterion is generally guided by a formal rehabilitation assessment, provided in accordance with section 36 of the DRCA and section 44 of the MRCA, of a person’s capacity for rehabilitation. A rehabilitation assessment examines a person’s transferable skills in relation to the local labour market. If there is a gap between a person’s transferable skills and the availability of work commensurate with the person’s pre-injury vocational status, then retraining may be appropriate.

The former RAAF General Hand example in section 7.17.2 may be provided with literacy and office skills training as part of a rehabilitation program, and therefore become suitable for clerical work.

A highly trained RAAF pilot has already demonstrated the ability to undertake training. If that pilot is unable to fly due to their service injury or disease, s/he would be suitable for retraining for new employment at a level commensurate with at least their previous capacity.

There may be occasions where, due to the nature of the service injury or disease, a person is so severely impaired that they are not immediately suitable for vocational rehabilitation. Incapacity delegates should work closely with the Rehabilitation Coordinator and be guided by information contained in the Rehabilitation Guide. The Rehabilitation Coordinator should be guiding the person through medical and psychosocial rehabilitation prior to considering vocational rehabilitation. 

A person's place of residence may be relevant to the consideration of whether they could be engaged in suitable employment. The idea of whether it is 'reasonable' to expect a person to change their place of residence in order to obtain employment can influence the consideration of what work is suitable for the person and whether they can be deemed to have actual earnings.

It is important to note a person cannot be 'forced' to relocate to an area with higher employment opportunities in order to obtain suitable employment.

If it is unreasonable for a person to move, the work would not be suitable work. Factors affecting the reasonableness of a requirement to move could include:

• continuity of school attendance for the person’s children;

• existing or potential work of the person’s spouse;

• availability of family support;

• long-standing social networks;

• continuing contact with children after marital separation;

• availability of appropriate and affordable housing; or

• access to medical services.

If it is reasonable to expect the person to move to an area where they could obtain employment and they choose not to do so, this may mean that they can be deemed to have actual earnings.

However, this is different to the situation where a person unreasonably moves to an area of low employment (see section 8.18.4).

8.18.2.5 Any other relevant matter

This criterion encompasses a wide variety of individual circumstances in the person’s case. It includes the person’s medical restrictions, whether or not they arise out of the person’s compensable condition.

For example, a motor mechanic with recurrent shoulder problems may not be considered suitable for work in a workshop where they are required to work on vehicles on hoists, above shoulder height. This is irrespective of whether the shoulder condition is compensable.

When considering a person’s capacity for work, it is also appropriate to consider the availability of work that is suitable given the state of the local labour market.

8.18.2.6 Family-assisted employment

Family-assisted employment may be characterised as suitable employment. Consideration should be given to whether the person's employment activities in the family business suggest a capacity to undertake similar work in the general labour market.

The amount a person is able to earn is the value to the enterprise of the client's work i.e. the cost of replacement labour.

8.18.3 Deeming when a person is underemployed i.e. working below their capacity

In cases where the person is actually in employment, the Delegate has the power to deem a higher weekly AE amount where evidence exists to indicate that the person has a capacity to earn more than their actual earnings. For example, there may be evidence that the person has chosen, for lifestyle reasons, to work part-time even though they have the actual capacity to work full-time.

8.18.4 Deeming when a person unreasonably moves to an area of low employment

In some cases, a person who otherwise has an ability to earn in suitable employment will move to an area of low employment opportunities for personal or lifestyle reasons and due to the lack of employment opportunities is not able to obtain employment. In such cases, the delegate must look to the reason that the client suffers a loss: is it because of the effects of the compensable condition or is it due to their personal choice to move to an area of low employment opportunities? In the latter case, the client should be deemed with a partial or total AE depending on the extent to which he or she would otherwise have been able to earn.

Such deeming should also be applied in cases where a person has elected to discharge from the ADF to an area with low employment opportunities. The same test must be applied i.e. is the loss due to the effects of the compensable condition or is it due to a personal choice.

An exception to this policy exists where the discharging member has maintained a family home in the area and returns at time of discharge to that family home. This does not of course apply to people who were already living in that locality immediately before becoming incapacitated, or who after incapacity are returning to the family home, to a supportive family network within that district or who are accompanying an employed partner to a remote posting etc. Nor does this apply to a person whose rehabilitation assessment has disclosed nil or minimal capacity for any employment. However, it is not sufficient that the member simply has family in the area.

8.18.5 Failure to seek/accept employment after incapacity has resolved

A person may still be receiving incapacity payments if their condition has resolved but they continue to participate in rehabilitation. That is, the person is no longer incapacitated, but that participation in the rehab program itself (temporarily) removes them from the general labour market.

Rehabilitation is often required after the reduction or ending of an impairment, i.e. where the client has regained the basic physical or mental capacity to participate in a workplace of some sort, but as a practical matter requires re-skilling or a graduated introduction to an alternative employment category.  At the end of a rehabilitation program and a period of job-seeking assistance, the person should ordinarily be considered to be unemployed rather than incapacitated and incapacity payments ceased.

It is important to note that referral for rehabilitation on its own does not create an entitlement to incapacity payments where the person is not first incapacitated for work due to one or more of their accepted disabilities.

8.18.6 Deeming when a person refuses/quits employment or fails to complete a rehabilitation program with employment offered at its completion

Under Section 19(4)(b)-(d) of the DRCA and Section 181(3)(a)-(c) of the MRCA a person can be deemed with AE if they refuse an offer of suitable work, fail to continue in suitable work (for reasons other than their accepted condition) or fail to complete a rehabilitation program when they have been offered suitable work following a reasonable rehabilitation or vocational retraining program. The delegate should consider whether the failure was reasonable or not. If a person prefers other work or has a perception that they could do better elsewhere, this would not normally be considered a reasonable excuse for declining employment (providing the employment is 'suitable'). Similarly, having accepted an offer of suitable employment, failed to engage or continue in that employment. The amount deemed is what the client would have earned in that employment.

In certain circumstances it is possible that a person may be deemed AE in ADF employment.  This provision is most often relevant to cases where a client voluntarily discharges from the ADF. All such cases where an injured client discharges prior to being formally designated MEC4 fall into this class. The effect of 19(4)(c) of the DRCA and section 181 of the MRCA in such cases is that incapacity payments cannot be payable from the date of discharge, but are only payable from the date where medical evidence demonstrates a further deterioration in the condition. 

A Reservist may be deemed AE in their civilian employment (work) while they have an incapacity for service (unable to undertake their military duties).  The distinction between the two types of work needs to be brought to the attention of the Reservist's treating practitioner.  The doctor must provide guidance in respect of each type of employment the person is unable to perform, and identify the restrictions that must be applied to the employment the person can perform.

8.18.8 Deeming when a person fails to seek employment

Under Section 19(4)(e) of the DRCA and section 181(5) of the MRCA a person can be deemed with AE if they fail to seek suitable work. The delegate must have regard to the weekly amount the person could reasonably be expected to earn in suitable work, having regard to the state of the labour market at the time, and whether the failure was reasonable in all circumstances.

8.18.9 Deeming Actual Earnings for Casual Employees

A casual employee may be disadvantaged when determining their incapacity payments during a period of unpaid leave,.  This may be the case where we deem an ability to earn based on actual earnings which include a loading in lieu of leave entitlements.  Accordingly, for casual employees the amount of any deemed ability to earn should exclude any loading.

When a person is on approved leave (paid or unpaid) from their employer we treat the period of leave as actual hours worked, for the purpose of calculating the percentage of NE.  For example, a person who works 20 hours per week and takes leave will continue to have their top-up incapacity payments based on 90% of NE less the deemed AE. This is in contrast to sick leave which would be recorded as 0 hours worked.

This is consistent with how we treat full-time employees on top-up, but who also accrue paid leave entitlements, where we consider they are working their normal working hours during periods of paid leave.

In some instances employees may be employed on a casual rate of pay during an initial probationary period and then be placed on a permanent rate of pay after successfully completing the probationary period.  The arrangements above would only apply during the period the person receives casual rates.  When the person changes to a permanent rate of pay any deemed ability to earn is based on actual earnings.

Where a person accepts voluntary redundancy, delegates should consider whether the person continues to have an AE in that employment and if so should be deemed at the amount they have demonstrated they are able to earn. Any severance payments, or leave paid out should not be considered as AE.

If a person has previously been deemed with AE and is now claiming a new period of incapacity the person must demonstrate that this new period of incapacity represents a deterioration of his/her condition, i.e. to below the level of capacity current at the time of the last 'deeming' and should reference the duties and employment that were considered suitable and why they are no longer so.

There is no minimum level of evidence required to substantiate this (i.e. an initial GP medical certificate is acceptable). Essentially, delegates need to be satisfied based on the circumstances of each case.

In the absence of specific medical evidence to that effect, the client should be regarded as unemployed rather than incapacitated, and the deeming would continue to apply.