Establishing the amount of deemed earnings
Deeming an ability to earn - "suitable employment"
In order to apply s 19(4) of the SRC Act, the Delegate must be satisfied that the AE amount is from “suitable employment”, as defined in s 4(1) of the SRC Act, albeit that the client may not be able to obtain actual suitable employment. When considering what is “suitable employment”, the Delegate should have regard to the client's:
- education;
- employment history;
- training;
- medical restrictions.
As an example, an RAAF General Hand who has been retrained in clerical skills could be deemed able to earn as an Administrative Service Officer in the Australian Public Service (APS), or an equivalent capacity in a State/Territory Public Service or in private enterprise, provided they meet all relevant entrance criteria. A RAAF Pilot who has been retrained in Microcomputer Technology could be deemed as able to earn as an Information Technology Officer in a similar range of employment environments.
In cases where the client is actually in employment, the Delegate has the power to deem a higher weekly AE amount where evidence exists to indicate that the client has a capacity to earn more than their actual earnings. For example, there may be evidence that the client has chosen, for lifestyle reasons, to work part-time even though they have the actual capacity to work full-time.
If the client can show, through genuine and unsuccessful attempts to obtain employment, that he/she lacks the ability to find employment because of their injury, the ability to earn should be treated as nil.
Establishing the level of Normal Weekly Earnings (NWE) or the Ability to Earn in suitable employment (AE) of a self-employed client presents particular difficulties. However the same principles can be followed in assessing NWE and AE for both full-time and Reserve clients.
What is required is to establish the amount of net taxable income which can be attributed to the client's mental or physical labour. No account is to be taken of any income the client may be earning purely from the application of the client's capital.
At the simplest level, the Delegate could determine a notional AE amount by reference to the greater of:
- the net taxable income of the business; or
- the cost of employing another person to do the work the client is doing in the conduct of the business.
Taxation returns, statements from accountants or copies of business accounts can be used to determine this issue. where current earnings details are not reasonably available, and the client's annual taxation return has not yet been completed, returns from previous year(s) can be used as a guide.
The Department of Defence has the power under s 58 of the SRC Act to require the client to provide a copy of taxation returns or other relevant details. Where the client refuses to provide this information, without a reasonable excuse, s 58(3) can be applied to refuse to deal with the claim until the information is supplied.
If the Delegate is not satisfied that the stated income (or loss) is a reasonable reflection of the client's earnings from labour in their employment, NWE or AE can be deemed as the amount it would cost to employ someone to do the work the client was doing in conducting the business. If the client is not actively working in the business, but the evidence indicates the client is able to do so, it is permissible to deem on the basis above.
If the client is totally incapacitated in any week and unable to contribute to the running of the business, the AE for the week should be zero even though the business itself may continue to derive an income.
If the business is making a loss, it is NOT permissible to treat the AE amount as a negative amount.
Where the client is able to contribute at some level or for some periods within a week, the proportion of gross income which can be attributed to the client's labour should be counted as AE.
Another method is to compare the client's earnings (or business earnings) before a period of incapacity and after it. It would be reasonable in some cases, in the absence of other reliable evidence, to deem the difference as the client's loss.
The case of Cage Developments Pty Ltd v Schubert (1983) gives some guidance on this issue.
Where a client's earnings vary from week to week, the Delegate may determine a notional able to earn amount by establishing the type of employment and the hours per week that constitutes suitable employment for that client. Then, by applying the appropriate industrial award rate of pay, a notional able to earn amount may be determined. The reason for a client's reduced work hours must be as a result of the injury rather than the availability of work.
It is suggested that a period of at least 3 months be reviewed to derive an average upon which the notional able to earn amount is to be based. 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.
Client moves to area of low employment
In some cases, a client 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 the member has elected to discharge to an area with low employment opportunities. The same test must be applied: is the loss due to the effects of the compensable condition or is it due to a personal choice to move to an area of low employment opportunities? An exception to this rule exists where the discharging member has maintained a family home in the area and returns at time of discharge to that family home. Note that it is not sufficient that the member simply has family in the area.
Deemed AE is increased in line with WCI increases
Where an AE for a discharged client is established by deeming, the AE amount is increased each 1 July by the WCI % amount – this has the effect of increasing compensation at the same rate as the WCI increase and neither advantages or disadvantages the client.
Deeming ability to earn - Summary
Deeming ability to earn (AE) is an important and legitimate claim management tool. It should be used carefully, having regard to the factors as set out in s 19(4) and the definition of “suitable employment” in s 4(1), but must be actively considered in all cases where incapacity payments are intended to be made. Furthermore, deeming an AE is a legitimate way of ensuring a focus on rehabilitation and (keeping in mind the factors discussed below and the definition in s 4(1)) should be a potential goal of all RTW plans. Deeming should be actively considered at the time of formulating RTW plans and at the time of closure. Clients should be advised up front that deeming may be an outcome at the end of the plan.
Any income that a client actually earns by his or her labour is considered to be an amount earned in suitable employment and is to be included as AE.
Where there is a demonstrated AE in some type of employment, earnings are to be deemed in that capacity, whether the employment is with the Commonwealth or otherwise.