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Car Accident & Lost Income: Self-Employed Help (2024 Guide)

Suffering injuries in a car accident can lead to staggering medical bills and vehicle repair costs, creating a sense of overwhelming stress. While employees of companies often have access to paid leave or sick days to alleviate some financial strain, self-employed individuals lack these benefits, which can make it more challenging to seek full compensation from the insurance company.
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C.L. Mike Schmidt Published by C.L. Mike Schmidt

Defining “Self-Employed”

Before pursuing a legal claim, it’s important to differentiate between an employee and someone who is self-employed. Typically, you’re considered self-employed if you work as a freelancer, independent contractor, or own a business. For instance, a hairdresser with their own salon would be classified as self-employed.

An employee, on the other hand, has an employer who pays them a wage and pays the employer portion of your FICA taxes. Employees can be full-time, part-time, or seasonal workers.

How Car Accidents Affect the Self-Employed

Depending on the extent of your injuries, a car accident could render you unable to work for an extended period or result in a permanent disability. This situation can have a significant impact on your business, particularly if you’re a sole proprietor with no employees. Being unable to perform essential tasks necessary for your work can disrupt your entire business.

For many self-employed people, no work means no income to run their business, including rent, equipment, or other expenses required to continue operating. In addition, while you’re unable to run your business or perform your tasks, your customers may hire someone else to meet their needs, which can mean lost opportunities for future income, as well.

Such circumstances could force self-employed individuals to consider closing their businesses, resulting in a permanent loss of income.

How Do Self-Employed Workers Prove Lost Wages After a Car Accident?

According to the SCLG, when self-employed individuals are injured in car accidents, proving the wages lost due to the accident can be particularly challenging [1].

A car accident attorney can help freelancers and other self-employed workers prove their lost wages and recover their lost self-employment income, even if it takes expert testimony from an economist to explain what the worker would have made, were it not for the vehicle accident – SCLG

To establish the income they would have earned if not for their injuries, they can use various types of documents as evidence of lost income:

  • Previous years’ tax returns
  • 1099 tax forms from clients
  • Current, outstanding, or past business invoices
  • Bank statements
  • Online transaction histories
  • Deposited checks
  • Client contracts detailing work and payment terms
  • Sworn statements or testimony from clients

These documents should demonstrate the victim’s historical income and recent profits to establish what they would have expected to earn in the future, representing lost earning capacity.

Combining these documents often strengthens a self-employed victim’s case for lost wages. Those with meticulous records tend to fare better than those without. Strong documentation of income from independent work can often suffice for lost income compensation without relying on client testimony, which can be challenging to obtain.

In personal injury cases, victims must prove their lost wages claim with a reasonable degree of certainty. This requirement is more burdensome for small business owners and sole proprietors than for traditional workers with pay stubs showing their lost income.

What are Lost Wages?

If you’re injured in an accident, the wages you could have earned from your regular work had you not been injured are considered lost wages. This includes regular pay, commissions, overtime pay, bonuses, personal or sick leave, vacation, self-employment income, or any other benefits or perks lost, such as free meals or a car allowance.

When understanding “lost wages”, don’t confuse it with “lost earning capacity.” All amounts lost in the past resulting from a personal injury are ‘lost wages.’ It covers all losses you suffered up till the date of the trial or settlement. On the other hand, “lost earning capacity” refers to the income you will no longer be able to earn in the future as a result of your injury.

Proving lost earning capacity for the future can be more challenging than showing lost wages from the past. While you can rely on facts to recover lost wages, proving lost earning capacity requires speculation about your future employment. Courts may require testimonies from medical experts to recover future regular pay, bonuses, and increments, making it more complex to establish.

Calculating Lost Wages for the Self-Employed

Proving lost wages as a self-employed individual presents unique challenges. Time away from work can result in lost clients and missed opportunities, both tangible and intangible costs that should be considered. Since you act as your own boss, any salary you pay yourself likely represents only a small portion of your total lost earnings, as many small business owners have complex salary structures to manage business finances.

If you’re self-employed, it’s crucial to pick an experienced and driven accident attorney. The pure complexity of proving lost wages aside, the opposing party may claim that lost income was due to external, non-injury-related factors. And the process of arguing this can get complicated, messy, and document-drenched. So, it’s important to hire an attorney familiar with those types of accident cases.

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The Litigation Group at Schmidt & Clark, LLP is an experienced team of trial lawyers that focuses on the representation of plaintiffs in lawsuits. We are handling individual litigation nationwide and currently accepting new legal challenges in all 50 states.

If you or a loved one was involved with these matters, you should contact our law firm immediately for a free case evaluation. You may be entitled to a settlement by filing a suit and we can help.

References:

1. https://www.shouselaw.com/ca/blog/car-accident-lost-wages-self-employed/

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