Alternative Duty Wage Replacement

A few weeks ago we talked about Alternative Duty as a way of preventing indemnity payments and keeping medical costs weighted 30% on the experience modification worksheet.  I would like to address the issue of Alternative Duty and reduced pay in further detail.

I have been in this industry for a long time and have known for a long time that you can pay an employee less than their normal wage during light duty, and the workers' compensation law requires the carrier to supplement that amount.  What I haven't ever investigated was the way the replacement was calculated.

In my error, I believed that the carrier only pays the difference between the reduced pay and the normal workers' compensation reimbursement rate.  Let me explain.

An employee has an average weekly wage of $1,000.  When off work for a temporary partial disability, workers' compensation would pay the employee $667.  Everyone with me?

If we bring that employee back to a job that pays only $600, the workers' compensation carrier has the obligation to pay the difference.  My erroneous thought was that the carrier was obligated for $67.  I believed $667 minus $600 was the calculation.

That isn't true.  I owe my education to a post by Buckner Blog dealing with Understanding Claims.  I owe thanks to State Auto tweeting the article, which brought it to my attention.  One of the aspects of the article had to do with the claim payment while a worker was on alternative duty.  Their article calculated the replacement differently than I expected, so I checked with my own expert.  Don Smith is a long time friend, baseball fan, and expert on all things workers' compensation related.  He confirmed the accuracy of the Buckner article.

Back to my example, if we are paying the injured worker $600, then workers' compensation is responsible for 66 2/3 of the difference between $1000 and $600.  Carrying that math forward the employee would receive $267 from the carrier, plus our $600.  That is a total of $867.  Now since the pay we provide is taxed, it isn't a clear $200 additional the employee is receiving, but I do believe they will come out ahead.

The reason for the long explanation is this.  When asking an employee to come in to work instead of staying home and collecting workers' compensation, we have another incentive for them.  We will more than likely be increasing their take home pay as compared to just receiving workers' compensation benefits.

That would be in addition to the fact that some level of work or activity would be physically and mentally beneficial to their healing.  Not to mention, the camaraderie of being around their fellow employees should be a boost to their well being.

Let us all remember that as long as we have been doing this, there are still nuances and details that may have escaped us for one reason or another.  I believe that is one benefit to the multitude of blogs and social media connections prodding us as professionals to constantly learn and improve.  Thanks to all who do so, and in the process improve our profession.