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Average earnings for the purposes of both temporary and permanent disability are computed under Labor Code §4453. AB 749, a major reform bill that became effective 1/1/03, introducted the "SAWW" concept: "Commencing on January 1, 2007, and each January 1 thereafter, the limits specified in this paragraph shall be increased by an amount equal to the percentage increase in the state average weekly wage as compared to the prior year. For purposes of this paragraph, “state average weekly wage” means the
average weekly wage paid by employers to employees covered by unemployment insurance as reported by the United States Department of Labor for California for the 12 months ending March 31 of the calendar year preceding the year in which the injury occurred."

The rates and dates for computing average annual earnings for the purposes of temporary disability indemnity and permanent total disability indemnity are in Labor Code §4453, but  note that subsection (c) provides 4 ways to determine AWE:

(1) Where the employment is for 30 or more hours a week and for five or more working days a week, the average weekly earnings shall be the number of working days a week times the daily earnings at the time of the injury.
(2) Where the employee is working for two or more employers at or about the time of the injury, the average weekly earnings shall be taken as the aggregate of these earnings from all employments computed in terms of one week; but the earnings from employments other than the employment in which the injury occurred shall not be taken at a higher rate than the hourly rate paid at the time of the injury.
(3) If the earnings are at an irregular rate, such as piecework, or on a commission basis, or are specified to be by week, month, or other period, then the average weekly earnings mentioned in subdivision (a) shall be taken as the actual weekly earnings averaged for this period of time, not exceeding one year, as may conveniently be taken to determine an average weekly rate of pay.
(4) Where the employment is for less than 30 hours per week, or where for any reason the foregoing methods of arriving at the average weekly earnings cannot reasonably and fairly be applied, the average weekly earnings shall be taken at 100 percent of the sum which reasonably represents the average weekly earning capacity of the injured employee at the time of his or her injury, due consideration being given to his or her actual earnings from all sources and employments.

In Argonaut Ins. Co. v. IAC (Montana) (1962) 57 Cal. 2d 589, the Supreme Court noted:

"The purpose of this provision is to equalize for compensation purposes the position of the full-time, regularly employed worker whose earning capacity is merely a multiple of his daily wage and that of the worker whose wage at the time of injury may be aberrant or otherwise a distorted basis for estimating true earning power. It would hardly be consistent with that purpose to foreclose a worker from a maximum temporary or permanent award simply because a brief recession had forced him to work sporadically or at a low wage. Nor in making a permanent disability award would it be consistent with the purpose of the statute to base a finding of maximum earning capacity solely on a high wage, ignoring irregular employment and low income over a long period of time."

In Goytia v. WCAB (1970) 1 Cal. 3d 889 , the Supreme Court noted, "A comparison of the first three subdivisions of section 4453 with the fourth shows that the Legislature deliberately established earning capacity as the test for the fourth subdivision as distinguished from the actual earnings for the other three subdivisions....Subdivisions (a), (b), and (c) relate to full-time employees, employees working for two or more employers, and employment at an irregular rate, such as piecework or work on a commission basis. Each of those subdivisions provide for computation of "average annual earnings for purposes of permanent disability indemnity" based upon earnings prior to the injury."

See, too, Earning Capacity

Label Item Links Comments
Labor Code Labor Code §4453: "In computing average annual earnings for the purposes of temporary disability indemnity and permanent total disabilityindemnity only, the average weekly earnings shall be taken at...." LC §4453  
  Labor Code §4454: "In determining average weekly earnings within the limits fixed in Section 4453, there shall be included overtime and the market value of board, lodging, fuel, and other advantages received
by the injured employee as part of his remuneration, which can be estimated in money...."
LC §4454  
Cases  See above   
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