Setting Wage for Sole Proprietors (Owners), Spouse-owned Businesses and Partners
To establish the Average Weekly Wage (AWW) for sole proprietors, husband and wife businesses, and partners, use the reported net earnings for the tax year* prior to the year in which the injury occurred. Presume that the claimant has worked all 52 weeks of that prior year unless there is documentation to the contrary.
Total net earnings will be reported on federal Forms 1040, 1065, 1120S or others. Some completed forms may include earnings from more than one business or partnership. To identify the net earnings from the business covered by the worker's compensation policy, it is necessary to get the net earnings specific to that business. That information is found on either the Schedule C (or C-EZ for smaller businesses with no inventory) or, in the case of partners, the Schedule K-1.
The adjuster should request from the claimant the Schedule appropriate to the business and tax year and use information from the Schedule to set the Average Weekly Wage. Until such time that the information is provided, the AWW may be set at $290.00** (based on the current minimum wage of $7.25 hour x 40 hours). If the Schedule shows the net earnings average less than $290.00, raise the AWW to the minimum of $290.00. For example, if the net earnings are $8,500 for 52 weeks which averages $163.46, set the AWW at $290.00. TTD and PPD rates cannot be less than $137.33. NOTE: A "draw" is not a taxable earning and should not be used to set the AWW.
The claimant will/should know which Schedule he/she uses to report net earnings (derived from the business profit/loss). However, the summary below is provided to assist in discussions with the claimant or accountant.
Sole Proprietor (also called owner or owner/operator): Request a copy of the Schedule C or Schedule C-EZ. One or the other form would have been submitted with the Form 1040. For the Schedule C, use the net profit or loss reported on line 31. For the Schedule C-EZ, use the net profit reported on line 3.
Husband and Wife Business: If the husband and wife jointly own and operate a business and share in the profits and losses, they are partners in a partnership, even if there is no formal partnership agreement. As such, they may not use Schedule C or C-EZ. Instead they may file a Form 1065. Each spouse will show his or her share of the partnership income or loss on Schedule K-1. Request a copy of the claimant's Schedule K-1 for the tax year previous to the year of the injury. Use the amount shown on line 15a, net earnings (loss). If no amount is shown on line 15a, presume there was a loss of earnings and set the AWW at $290.00. NOTE that Form 1065 is also used when the husband and wife are filing jointly but are not business partners. Call a DWD Wage Analyst for assistance if this appears to be the situation.
S Corporations: Request a copy of the Form 1120S and Schedule K or K-1 for the insured. Fax or mail copies to DWD Worker's Compensation, ATTN Wage Analyst. (fax 608-267-0394)
A partnership is the relationship between two or more persons who join to carry on a trade or business, with each person contributing money, property, labor, or skill and each expecting to share in the profits and losses of the business whether or not a formal partnership agreement is made.
A joint undertaking merely to share expenses is not a partnership. Mere co-ownership of property that is maintained and leased or rented is not a partnership. However, if the co-owners provide services to the tenants, a partnership exists.
If you are not sure a claimant is an employee or owner, contact your underwriter or a Wage Analyst. Also, some businesses have special tax reporting laws and the above information may not apply. And, a new business may not have a previous tax year. For these situations or general questions, contact a Wage Analyst at 608-266-3264 or 608-261-6532.
*Most businesses use a calendar year as their tax year but some may operate on a fiscal year which may be any 12 months other than January to December. In either case, use the tax year previous to the one in which the injury occurred.
**$290.00 is based on the current minimum wage; if changed by either federal or Wisconsin law, the minimum AWW should reflect that change.
WI DWD/WC/Wage 9/02 revised 1/14