The formula for the indemnification of loss of earning capacity is:
Net Earning Capacity = Life Expectancy x
[Gross Annual Income (GAI) – Living Expenses]
= 2/3 (80 – age of deceased) x (GAI - 50% of GAI).
In addition to the damages awarded, the Supreme Court imposes on all the amounts of damages an interest at the legal rate of 6% until fully paid.
In the 2002 case of DODWELL SHIPPING AGENCY CORPORATION vs. BORJA, G.R. No. 143008, 10 June 2002, the said formula was reiterated:
Net earning capacity = Life expectancy x [Gross Annual Income – Living Expenses (50% of gross annual income)],
Life expectancy = 2/3 (80 – the age of the deceased).
It is net income (or gross income less living expenses), which is to be used in the computation of the award for loss of income. In fixing the amount of the said damages, the necessary expenses of the deceased should be deducted from his earnings. When there is no showing that the living expenses constituted a smaller percentage of the gross income the living expenses are fixed at half of the gross income. To hold that one would have used only a small part of the income, with the larger part going to the support of one’s children, would be conjectural and unreasonable. Life expectancy should not be based on the retirement age of government employees, which is pegged at 65. In calculating the life expectancy of an individual for the purpose of determining loss of earning capacity under Article 2206(1) of the Civil Code, it is assumed that the deceased would have earned income even after retirement from a particular job. (See also: TUBURAN vs. PEOPLE, GR 152618, August 12, 2004; and PEOPLE OF THE PHILIPPINES vs. DANTE NUEVA y SAMARO, G.R. No. 173248, November 3, 2008).
Further, in PEOPLE vs. DOMINADOR ASPIRAS alias "BOY", G.R. No. 121203, April 12, 2000, it was held that as to the computation of expected or future income by multiplying the years for which the victim could have worked with his employer were it not for his death (11 years) by his annual gross earnings, we find that the correct formula for computing the loss of earning capacity is follows: 2/3 x (80 - age of victim at the time of death) x (reasonable portion of the annual net income which would have been received as support by heirs). [People vs. Cawaling, 293 SCRA 267] The age of the victim at the time of his death was 48. He was receiving a monthly salary of P7,610.00, and yearly benefits in the amount of P38,000.00. Hence, his annual gross income was P129,320.00. Net income was 50% of the gross annual income, in the absence of proof showing the deceased’s living expenses. [See also: People vs. Gutierrez, Jr., 302 SCRA 643, 667, February 8,1999.].