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Keefe: Math on Wage Loss Differential Forever Changed

By Eugene Keefe

Tuesday, June 13, 2017 | 522 | 0 | min read

You can’t ignore the ever-rising Cook County minimum wage ramp when calculating wage loss differential claims in Illinois workers' compensation.

Eugene Keefe

Eugene Keefe

We assure our readers in claims, risk management, brokers and human resources that the landscape has changed in dealing with these wacky and potentially explosive claims. I am also unsure what our arbitrators and commissioners should do in writing a decision for a worker who does or can find a minimum wage job that is certain to go up on an annual basis for the rest of their career.

If you don’t understand how expensive the exposure in a high-rate Illinois comp wage loss differential claim can be, I assure you that a 25-year-old construction worker who is given max rate wage loss differential benefits today could receive $2,350,813.92 by the time he reaches the end of the benefit at age 67.

I think that is a staggeringly high benefit. I am also sure the claimant bar wants to make every comp claim into a wage loss claim to try to squeeze the highest possible settlement out of the insurance carrier or self-insured employer.

We can all be sure that on July 1, the Cook County minimum wage will be $10 per hour. What I am calling a “ramp” continues in a year when our county’s minimum wage rises to $11 on July 1, 2018, and to $12 in July 2019. It hits $13 an hour in 2020, and subsequent and guaranteed annual increases will be at the rate of inflation, not to exceed 2.5%.

I am not aware that the annual increases will ever actually end. If you know the legislation better than I and that is wrong, please let me know.

The silly people who put the cost-of-living increases into the Cook County minimum wage calculation, limited to 2.5% a year, are similar to the kooky simpletons who installed the 3% annual compounded increase in the state's fake government pensions that will cause those fake and defunded pensions to double every 22-23 years or so.

If the minimum wage for this nutty county goes up at 2.5% a year (and the new law provides for such increases), it will double in 28 years! While that sounds like a long time, we can all assume this county’s minimum wage is now on an eternal ramp that won’t ever stop rising unless the law is changed.

If the Cook County minimum wage goes up at the 2.5% limit each year:

  • 10 years from now, in 2027, the minimum wage will be $16.64 per hour.
  • In year 15 (2032), the minimum wage will be $18.83 per hour.
  • In year 20 (2037), this county’s minimum wage will be $21.30 an hour.
  • In year 25, the minimum wage will be a whopping $24.20 an hour.

You can’t make this stuff up folks — it is simple and currently unchangeable math.

How the WC wage differential math will change

If a claimant were making $30 per hour and is now making the minimum wage of $10 per hour, he would receive two-thirds of the difference ($533.33 a week) as the supplemental benefit in the first year. The next year, the benefit would be based on the new minimum wage of $11 an hour, and the math would provide $506.67 a week. The third year, the math would reduce the benefit to $480.

As the minimum wage would go up, the state wage differential benefit would typically go down.

Will the Cook County minimum change wage loss claims in other counties?

The short answer is no one can be sure, but the closer the claimant lives to Cook County, the stronger the chance the employer could demonstrate the worker could get a much higher minimum wage “replacement” job than in Galesburg or Bloomington.

How wage loss differential claims used to work

Most of the “permanency” or impairment sections of the state Workers' Compensation Act assume that the petitioner has returned to work within his capabilities at a similar rate of pay. Section 8(d-1) allows a petitioner to elect to receive, in lieu of all other permanency benefits, two-thirds of the difference between what he would be earning in the job he had when injured and the average of what he is able to earn in a new and alternative job. 

This benefit was generally considered to continue until the petitioner retired from the workforce (the words of the statute are “for the duration of his (her) disability”). For claims occurring on or after Sept. 1, 2011, wage loss is capped at the point the worker reaches age 67, or for at least five years.

This amendment was considered a solid savings for Illinois employers. Wage loss differential benefits are routinely confused with temporary partial disability benefits, which are available in some states. Illinois has no provision for a petitioner in a modified-duty job who temporarily receives lower wages but expects to return to a higher-paying job in the near future.

Once having opted for wage differential benefits, all other forms of permanent partial benefits should be waived based upon the statutory fiat in Section 8(d-1). Some petitioners’ attorneys claim this benefit should be paid as "maintenance" but the new concept of temporary partial disability now applies. 

Wage differential benefits were the first of the benefits somewhat amenable to the present value calculation. The new math on a rising minimum wage ramp is going to make the present value calculation much more challenging. If any of our readers can figure out a reasonable way to recalculate, as the Cook County minimum wage rises, please send it along.

The long and the short of the problem is no one expected the new minimum wage ramp that would ensure moderate-wage jobs for some workers would rise on an annual basis. We are all going to have to deal with the new math.

Eugene Keefe is a founding partner of Keefe, Campbell, Biery and Associates, a Chicago-based workers' compensation defense firm. This column was reprinted with his permission from the firm's client newsletter.

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