What it is
Lost wages are the actual wages, salary, tips, commissions, and self-employment income the claimant did not earn because they were unable to work due to accident-related injuries or required medical treatment. The damages component includes time missed from work during initial recovery, time missed for follow-up appointments and therapy, and reduced earning capacity during a partial-recovery period (e.g., light-duty work at reduced hours). Lost wages are distinct from "loss of earning capacity," which is the future-projected loss of income from a permanent impairment — a much larger, more speculative damages category for serious injuries. Lost wages are typically the easiest economic damages to document: pay stubs, W-2s, tax returns, and a treating-physician note putting the claimant out of work are usually sufficient. Self-employed claimants face a tougher documentation challenge, often relying on prior tax returns, contracts, and business records to establish baseline income.
How it works in practice
The claimant or their attorney requests a "wage-loss letter" from the employer that documents the dates the claimant was out of work, the dates they returned (possibly on reduced hours), and the dollar amount of wages lost. For salaried employees the calculation is straightforward; for hourly employees with variable schedules a typical-week average is used; for tipped employees the prior-year tip income is averaged. PTO and sick time used during the recovery period are recoverable as lost wages in most jurisdictions because the time off was caused by the accident — even though the claimant was technically paid. In no-fault (PIP) states the wage-loss claim is paid first by the claimant's own PIP coverage (typically at 70-85% of actual wages) up to PIP limits; any excess is part of the third-party liability claim. Self-employed claimants document lost income through prior-year tax returns, current-year billing records, and (in stronger cases) expert testimony from a forensic accountant or vocational expert.
How Lost Wages affects your settlement
Lost wages have a double impact on settlement value: they are directly recoverable as economic damages, AND they are part of the base on which the pain-and-suffering multiplier is calculated. A claimant with $10,000 in medical bills and $5,000 in documented lost wages has $15,000 in economic damages and (at a 3.0 multiplier) $45,000 in pain-and-suffering for a $60,000 total. Without the documented wage loss, the same case has $10,000 in economic damages and $30,000 in pain-and-suffering, for $40,000 total — a $20,000 swing from documenting wage loss alone. Three concrete moves to maximize the wage-loss component: (1) get an OUT-OF-WORK note from the treating physician for every day of missed work, including follow-up appointments and therapy days — without the note, the adjuster will dispute the loss; (2) document mileage and time for medical appointments (often recoverable as separate economic damages in addition to lost wages); (3) document the use of PTO and sick time as accident-related, not as a personal benefit. For self-employed claimants the documentation burden is heavier but the upside is correspondingly larger; experienced PI attorneys often retain a forensic accountant in serious-injury cases to project lost income with credibility. Loss of earning capacity (the projected future loss from permanent impairment) is a separate, larger damages category for serious injuries and requires vocational-expert testimony.
Primary sources
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Informational only and not legal advice. Settlement-dollar implications described here reflect typical patterns and may differ in any specific case. Confirm the analysis for your situation with a licensed attorney.