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.
Week | Normal Earnings | Actual Earnings | Hours worked | % of NE | Entitlement |
1 | $1,000 | $400.00 | 20 | ||
2 | $1,000 | $300.00 | 15 | ||
3 | $1,000 | $500.00 | 25 | ||
4 | $1,000 | $340.00 | 17 | ||
$385.00 (average) | 19.25 (average) | 90% | $515.00 | ||
5 | $1,000 | $320.00 | 16 | ||
6 | $1,000 | $500.00 | 25 | ||
7 | $1,000 | $400.00 | 20 | ||
8 | $1,000 | $200.00 | 10 | ||
$355.00 (average) | 17.75 (average) | 85% | $495.00 |
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.