The foundation for an appropriate measure of damages begins with defining and measuring base earnings, the earnings at the time of an event which interrupted the earnings stream and gave rise to a complaint. When calculating lost earnings, which earnings standard should you use, expected earnings or earnings capacity. Earnings capacity, sometimes called potential earnings is what the individual had the potential to have earned, whereas the expected earnings are what the individual would have earned. Unless state laws stipulate use of earnings capacity, most forensic accountants and economists use expected earnings. The exceptions are for situations in which there is no recent actual work history such as a young person who is still a student, a homemaker, or person who has retired from the work force. For all individuals, the expert should verify past work history to determine gaps in work experience or labor force attachment and modify potential earnings accordingly.
About The AuthorCharles Amodio is a partner with FAZ Forensics (Ferraro, Amodio & Zarecki CPAs), based in Saratoga Springs, NY. FAZ is a boutique forensic accounting firm committed to supporting the legal community and others in the successful resolution of financial disputes, fraud & financial investigations, economic damage quantification and business valuation matters by delivering valuable forensic accounting expertise and related expert services at an appropriate cost. FAZ is a recognized leader in the forensic accounting profession serving clients in Albany and the Capital Region, Boston, New York City and the surrounding Metropolitan Areas. If you are interested in more information, please contact them at (518) 288-2160.
- Considerations for Projecting Future Loss of Earnings for IndividualsJanuary 28, 2019
- FAZ Case Snapshot – Oil Spill at MarinaNovember 2, 2018
- Choices About Loss Period MeasurementOctober 8, 2018
- Estimating Loss Period LengthOctober 5, 2018