Method to Calculate Payments of Employer's Subrogation Interest
In Mrkich v. Workers' Comp. Appeal Bd. (Allegheny County Children & Youth Servs.), 801 A.2d 668 (Pa. Cmwlth. 2002), the Court explained the proper method used to calculate payments pursuant to an employer's subrogation interest:
It is now well settled that the 'gross method' is the accepted means of calculating payments pursuant to employer's subrogation interest. ... Under the gross method, after deducting the attorney's fees and expenses of litigation ... employer's lien is satisfied by payment of the lien amount minus the proportionate share of costs attributable to the lien.
Whatever remains of the recovery fund is paid to claimant.
For purposes of gross method computation, employer is considered to have been paid, in satisfaction of its lien, both the cash it actually received and the proportionate share of costs it constructively paid.
Similarly, claimant is considered to have been paid both the cash actually received and the share of costs attributable to that payment.
This total amount attributed to claimant is known as the 'balance of recovery.'
If, by the time the tort recovery is obtained the claimant is no longer disabled, each side will have obtained what it is due and will have paid its proportionate share of costs.
Where claimant has not fully recovered, however, the employer retains a contingent subrogation interest in the balance of recovery paid to claimant, and receives a credit in this amount toward future compensation benefits to the extent they become payable.
Employer is excused from paying future benefits until this credit is exhausted.
This period of time, measured in weeks, is computed by dividing the credit by the weekly compensation benefit amount.
The result is known as the 'grace period.' ...Id. at 674-75.
During the "grace period," an employer is entitled to a complete suspension of benefits until its lien is satisfied. Mrkich; Miller v. Workmen's Comp. Appeal Bd. (Giant Food Stores, Inc.), 715 A.2d 564 (Pa. Cmwlth. 1998).
See also Stalmaster v. Workmen's Comp. Appeal Bd. (SEPTA), 679 A.2d 293 (Pa. Cmwlth. 1996) (during grace period compensation owed by employer is satisfied by third party recovery).
Both this Court and our Supreme Court repeatedly hold an employer has an absolute right to immediate payment of its past-due lien from the recovery fund after payment of attorneys' fees and litigation costs. Thompson; Rollins Outdoor Adver. v. Workmen's Comp. Appeal Bd., 506 Pa. 592, 487 A.2d 794 (1985); Reeder v. Workers' Comp. Appeal Bd. (Mercer Lime & Stone Co.), 871 A.2d 337 (Pa. Cmwlth. 2005); Mrkich; Budd Co. v. Workers' Comp. Appeal Bd. (Settembrini), 798 A.2d 866 (Pa. Cmwlth. 2002).