Loss Of Earnings Claims: Why HSC Should Assist
Whilst expert opinion may be unlikely to be required on all aspects of an employed individual's claim for loss of earnings and benefits, a detailed and accurate calculation of a claimant's losses is still needed.
Many solicitors feel unable to ask HSC to assist them in calculating quantum for an employed individual. However, Lord Woolf and the new Civil Procedure Rules, far from denying you our assistance, has actually provided us with a defined role that allows us to help. This role is HSC as your expert adviser.
A recent edition of our own in-house magazine Quantum News set out the key aspects of the role of an expert adviser. The benefits of instructing us in such a role include the following:
- You do not need court approval to appoint an expert adviser
- Privilege has not been removed from instructions to an adviser
- An expert adviser does not owe his or her duty to the court but to those that instruct them
Benefits to client of having HSC assist you in calculating quantum:
- An accurately prepared set of detailed calculations incorporating all recent tax and other legislative changes and which in turn is referenced to supporting evidence where applicable, is less likely to result in a drawn out process of numerous requests for further particulars of claim and supporting evidence
- We are happy to take over the role of obtaining required supporting documentation from former employers or other third parties
- Calculations will be prepared more efficiently by those whose expertise lies in calculating quantum and hence there will be a saving in both time and costs
- We can readily identify variable elements of pay and ensure their accurate incorporation into any claim
- There is a reasonable chance of having previously calculated quantum for another individual in either the same industry or even the same company. For this reason, supporting evidence of the type of remuneration package earned by the claimant and supporting documents on benefit schemes available, may not be required from unhelpful former employers
- If the correct questions are asked of a former employer or of a client at an early stage, then both employer and client are more likely to have supporting evidence still readily available
- We can ensure incorporation of losses into a claim which a client may not even have appreciated had been lost
- We do not simply use the client's net pay figure. Such a method often substantially understates the true value of the claim
- All elements of the client's loss of earnings and benefits are quantified even where they may prove difficult to calculate (subject to proportionality)
Benefits to solicitor of having HSC assist:
- The calculation of loss of earnings and benefits for an employed individual can be extremely daunting with numerous calculation pitfalls for the inexperienced
- We are more numerate than solicitors and calculating quantum is our area of expertise, so our calculations will be prepared more efficiently than if prepared by a solicitor. Our costs can, therefore, be recovered as a disbursement of the solicitor
- We can assist you where you are under intense time pressure in a case, for example, before starting an action, or where a Part 36 offer/payment needs to be considered/made
- If we do the calculations then you will have more of your most valuable commodity (ie time) for other parts of the claim as well as for other clients
- As conditional fees perhaps begin to open up the litigation process to a larger slice of middle England, the figures involved in quantum may well increase in value. In such circumstances there is also likely to be a far greater occurrence of items such as benefits and promotion etc. HSC understand such items and we know how to quantify them
- Unlike salary, benefits such as the company car benefit are regularly the subject of legislative change and such changes need to be correctly incorporated into any claim
- Maurice Faull set up HSC's litigation support department almost 10 years ago and over that time has built up a very impressive library of booklets on various company remuneration and benefit packages. It is possible, therefore, that we may already hold documentation that you may find difficult to obtain
- Where future legislative change (or indeed legislative change simply since the date of ill-health retirement) are likely to have had an affect on a remuneration package we will know about it and so incorporate it into the claim
- We can ensure that a claimant's employer is asked the right questions about a claimant's remuneration package and their prospects at an early stage of the proceedings
- If a former employer is also the defendant, asking the right questions on day one can be extremely beneficial
- Payslips can be extremely complicated to analyse and many employees do not understand them even when they have been working for a company for a substantial number of years. We can clearly inform you of the losses involved, even if your client cannot
- The net pay figure is often the clearest and easiest figure to use and so is often taken as the starting point for the calculation of a claim - the use of net pay can, however, seriously understate a claim and its use can cause difficulties between you and your client if this understatement is later recognised
- Your client will be happy if their claim is accurately calculated by HSC
- If you effectively outsource the calculation process to us then you do not have to do this work yourselves. If you had wanted to spend endless hours on a calculator, then you would have chosen the far more exciting profession of accountancy!!
What to look for on a payslip
The key data on a payslip
1. Basic salary:
Future annual basic salary should be at least twelve times the latest pre-accident monthly basic salary. Often the annual basic pay figure is taken as the last twelve months gross pay earned by the claimant. The use of this figure will be incorrect if it includes previous months of lower, pre-pay rise basic salary and if it includes variable pay, such as overtime.
Eg:
The annual basic salary from 1 April 1995 in the above example is £36,000 per annum (ie 12 months x £3,000 per month) and not the total gross pay to date figure of £34,160. This figure which, in the above example, was earned in the last 12 months, may also actually include non-basic salary making the use of £34,160 an even greater understatement if these are not valued separately.
2. Total gross taxable pay to date:
The above cumulative gross pay figure of £34,160 can also be used to identify additional further elements of pay other than basic salary that have been received by the individual in the months prior to the payslip that we have been provided with. This cumulative pay figure can also identify instances where a large pre-accident increase in pay has occurred, ie as a result of a salary increase and/or as a result of promotion.
Eg:
The previous payslip to month 12 above shows a payment of pay arrears of £600. As we know that a pay rise was awarded from 1 January 1995, the previous basic salary can be calculated as having been £2,400 per month, ie £28,800 per annum. A pay rise on 1 January 1995 from £28,800 to £36,000 is substantial and is likely to indicate a promotion which will need to be investigated.
3. Total pension contributions to date:
Using details on both the level of pension contributions made by a claimant and knowledge of the percentage of pension contributions that an employee must pay into his pension scheme, it is possible to identify the claimant's total pensionable pay that they have earned. A comparison of pensionable pay and total gross pay will then identify any non-pensionable pay that has been earned, eg overtime in this case.
Eg:
Pension payments made in the twelve months to 31 March 1995 were £1,938 in the above example. These payments are made at the rate of 6% of pensionable pay. Pensionable pay earned by Mr A N Other is, therefore, £32,300 (£1,938 x 100/6). Non-pensionable pay (eg overtime) can, therefore, be calculated as £1,860 (£34,160 - £32,300).
4. Whether an incremental promotional pay system is in operation:
In certain professions and industries an incremental pay award system operates within grades, eg teachers and nurses. Such guaranteed future promotional pay awards should be incorporated into a loss of earnings claim as well as loss of pension rights. It may also indicate future promotional possibilities that may have been available to the claimant.
Eg:
In the above example there are five incremental grades within Scale D with a £2,000 annual pay increase to each (1994/95 rates). The above payslip shows A N Other at just grade 1 at the date of his last payslip and future increases with higher grades need to be included within the claim.
5. Contributions to an occupational final salary pension scheme:
In addition to the pension contributions made by the employee into such schemes a sizeable contribution is also made by an employer so as to provide the employee with a very substantial benefit (see later notes on this particular benefit).
6. Additional Voluntary pension contributions:
In addition to pension contributions made to an employer's occupational pension scheme, further pension contributions are often made into a separate pension scheme with its own tax saving and investment growth benefits. This lost pension benefit can be quantified either by obtaining illustrations of expected benefits both with and without future pension contributions or, by valuing the loss of tax relief suffered by the claimant on lost AVC contributions.
7. Pay opportunities and benefits linked to employer's financial success:
The Chancellor in his budget statement highlighted his desire to provide even greater financial incentive for employees to gain a stake in their employer's future financial success. The new all employee shareholding scheme was announced in the Chancellor's Spring 2000 budget and starts on 6 April 2000.
Gordon Brown has set out his aim with this new additional employee share ownership scheme to create an even greater take up rate than the current system and hence, this type of benefit will increase in both its incidence as well as its value to employees in the future. Extremely attractive tax incentives such as employers being able to give employees up to £3,000 of shares each year free of Income Tax and National Insurance and an employee being able to purchase up to £1,500 of shares tax-free which an employer can then match with up to two free shares for every share purchased will increase the appeal of such equity based remuneration schemes to both employees and employers.
It is, therefore, going to be even more important to be aware of such schemes and to be able to quantify the very large financial benefits of being a member of such schemes.
An example of a widely used equity based remuneration scheme is the sharesave schemes offered by most of the large plcs, including former State owned companies, such as BT.
Very briefly, the current legislation allows an employee to agree to save a specified monthly sum (within limits) for a period of five years and to use the eventual saved amount (including tax-free savings bonus) to purchase shares in their employer.
The purchase of these shares is at a discounted share price that is agreed at the start of the sharesave scheme and hence, all growth in the share price of the claimant's employer over the five year scheme periods, is a financial gain for the employee.
This financial gain is enjoyed by the employee without them having suffered any financial risk over this five year period and this adds to the scheme's popularity amongst staff. The reason that the employee has no risk is because they are under no obligation to actually purchase the shares at the end of the five year scheme if the option price to buy the shares is actually higher than the company's current share price. In other words, the employee can never suffer any financial loss only enjoy capital gain. Such equity gains can be very large.
In companies where sharesave schemes operate there is also often a policy of paying part of any annual bonus to employees in the form of shares in the employer company. This is also an excellent method of providing a tax-efficient source of employee remuneration and hence its popularity with both employer and employee. Such details are not shown on an employee's payslip so you need to ask the right questions.
As an indication of the level of financial gain possible in such schemes, one need only look at the example of the BT share price over recent years.
An employee joining the 1995 BT sharesave scheme will have been given the option to purchase BT shares at a discounted price of £3.06 per share at the completion of the 1995 scheme, ie in July 2000. That employee will then be able to sell their 1,127 shares (this number assumes the employee will have saved £50 per month to the 1995 scheme) at the current share price when the scheme is completed in July 2000. At the end of February 2000 the BT share price was £11.05 (it was £14.23 at the end of 1999) and hence current employees of BT who saved £50 per month in the 1995 scheme will enjoy a substantial financial gain of £9,450 (assumes share price stays at 28.02.00 value to July 2000) through being a member of the 1995 scheme.
Put another way, a former employee of BT will have lost £9,450 by not being able to be a member of the 1995 BT sharesave scheme. Again, using only net pay will mean this former employee's claim is substantially underestimated.
In total an employee can save up to £250 per month into his employer's sharesave scheme, this will usually be made up as £50 per month into five separate annual schemes.
In addition to a loss of capital growth to the date of option on the above shares, a claimant will have also suffered a loss of both future capital value and dividend income on these shares from the date of option until the date of the award of damages.
8. Company car benefit:
For those who are not provided with a free company car and fully reimbursed expenditure on petrol, it seems incredible that many of those that are provided with such items do not consider them to be a benefit. The ever increasing amount of tax recovered by successive Chancellors on company car drivers has resulted in many company car drivers claiming that their company car actually costs them more in tax than if they had purchased their car privately.
Such a view may often lead to many claimant's failing to mention that their former employer provided them with a fully expensed car as they genuinely believe that this is no longer a financial benefit of their employment.
Of course, anybody who finances their own car will know that a company car is a benefit.
Furthermore, as the current maximum tax rate on such a benefit is only 40%, a company car driver is able to claim 60% of the value that the Chancellor places on such a benefit. There is also the option to value the benefit using statistics produced by the AA on the cost of running a car, if this method is considered applicable.
Such car benefits (whose existence can be identified from coding notices on a payslip) can make up a sizeable element to any claim.
As an example, a £20,000 fully expensed company car, (ie including free petrol for private mileage) can be claimed at a net annual recoverable loss of £4,737 for the highest rate taxpayer and a loss of £6,079 for the basic rate taxpayer.
What does all of the above mean to the bottom line?
We have produced an example of the appendices that we would provide in order to value a claim for a 45 year old male at the date of accident who effectively suffered immediate and permanent ill-health retirement.
The example has a five year pre-trial loss and expected retirement at age 60, ie a 10 year future loss
Claimant held a management position with a previously State owned utility (BT) and enjoyed the usual array of benefits associated with his position and his basic annual salary at the date of the accident of £36,000 per annum
HSC valuation of loss of earnings, pension rights and benefits, £667,688
Basic claim for loss of earnings (including correct pension loss calculation but using the incorrect pensionable pay figure) that would arise by simply taking net pay in the three months prior to accident and ignoring all other benefits except pension is calculated to have been just £356,124
Can you afford not to ask HSC to take a look at employed claimants?
