ACC – Accident Compensation – How does it all work?

Accidents can happen at any time, and the consequences can be particularly challenging for self-employed individuals and business owners. This is where the Accident Compensation Corporation (ACC) comes into play.

In this blog post, we will provide you with a detailed overview of how ACC works, focusing on its significance for self-employed individuals and those in business. By the end, you'll have a clearer understanding of ACC's role in protecting your livelihood and assisting you in times of need.

What is ACC?

In the context of New Zealand, ACC stands for the Accident Compensation Corporation.  ACC is a government agency that provides comprehensive, no-fault personal injury insurance for all residents and visitors to New Zealand. It operates under the Accident Compensation Act 2001.

ACC covers a wide range of injuries, whether work-related or non-work related injuries, including those resulting from accidents, medical misadventure, work-related incidents, and some illnesses. The scheme provides various types of support, such as financial compensation, treatment and rehabilitation services, and assistance with income replacement if a person is unable to work due to their injury.

ACC Levies

The funding for ACC comes from levies collected from individuals, businesses, and vehicle owners. These levies are based on factors such as risk, injury rates, and the cost of providing the necessary support services. The Accident Compensation Corporation's goal is to help prevent injuries, support individuals in their recovery, and promote a safe and healthy society in New Zealand.

If you’re Employed -

For those simply on a PAYE income, not much is seen of ACC, unless a claim is made, and this is because the levy for ACC is automatically deducted from your wages by your employer.

If you’re in Business -

Whether you are a self-employed person, a shareholder employee or an employer, you are required to pay ACC levies.  To pay this levy, ACC will issue an invoice after your tax return is filed.  There is no ability to ‘contract out’ of the scheme.  There are cover options available to those in business, which we explain in detail further on in this blog.

Levies for businesses fall into the following broad categories -

Levies are calculated and invoiced annually, based on -

Initially, employers and shareholder employees generally receive an assessment based on the previous year’s figures. ACC subsequently updates this based on actual earnings for the current year and invoices all businesses for the year:

CoverPlus Extra - Optional Cover

An issue we see with self-employed business owners is that income can often fluctuate and if they have an accident and need to make a claim, they find that the cover is not sufficient as the claim is based on a year where income was lighter than the current years.

This is where CoverPlus Extra works well, as it is an option you can add to the standard policy which allows you to agree on a set amount of income you want to be covered if you have an accident.

Note, this policy is unfortunately named very similar to the standard policy, but with an “extra” on the end, so is called Coverplus Extra.

This cover is only for Self-employed and non-PAYE shareholder-employees

Benefits

• If your income tends to fluctuate, an agreed policy such as CoverPlus Extra helps give you surety of cover, no questions asked.
• You know what to expect at invoice time with an agreed amount, no surprises.
• Have certainty over what your weekly compensation payments will be if you do have an accident.
• The policy covers injuries that happened outside of work also just like their standard cover.
• Coverplus Extra also has the added advantages for those in high risk industries such as builders and forestry whereby the administrative staff can have their ACC premium reduced to a rate that more suitably reflects the activity performed and at a lower cost.
• Coverplus Extra also enables those with other insurances to package a more comprehensive insurance cover by reducing the amount of the agreed value policy, but supplementing it with other insurance policies provided through your insurance broker.

Calculate your Levies

• Workplace Cover for Employers and Shareholder-Employees Levy Calculator - Employers & Shareholder-Employees
• CoverPlus for Self Employed Levy Calculator - Cover Plus Self Employed
• CoverPlus Extra (optional cover) for self-employed or shareholder-employees Levy Calculator - CoverPlus Extra - Self Employed

The types of errors that we find are:

Unfortunately, ACC invoices may not always be correct, as they work off a limited and often out of date set of information obtained through their various interactions with governmental departments, the largest being the IRD.

• Wrong classification rates used, resulting in incorrect charging
• Incorrect liable earnings information
• Not splitting the income to allow for the different types of work carried out by the various business owners
• Incorrect charging of levies where changes have been made to the business structure

Other Scenarios

As the ACC work with a limited set of information is it also quite possible that the application of ACC is incorrect if

• You have multiple sources of employment income, e.g. PAYE and Shareholders salaries

If appropriate, we can be engaged to undertake a review of your ACC Levies to determine whether these are being accurately applied. Or you may simply want us to investigate an invoice received.

Dealing with an Employee’s Accident

First Week after Injury

• Injury Work Related – Employee visits doctor and provides medical certificate. Employer pays 80% of income for the first week -  employer can’t make an employee take sick leave or annual leave for this week.  Find out more here
• Injury Non-Work Related – employee can opt to use sick or annual leave

Paying the first week in Xero Payroll

• Click into Process Pay Run
• Open the employee’s draft payslip for that run
• Under Earnings, Add ACC (First Week)
• For subsequent weeks of ACC leave
• Add a custom pay item with a rate of $0 per hour
• Leave pay item (unpaid), then create a leave request for the employee

After First Week

ACC covers 80% of your employee’s income.  Employee must register with MyACC to apply for this compensation and setup payments.

Employee can choose to top up to 100% using their sick or annual leave.

Some employers choose to pay a 20% top-up from payroll that doesn’t use employees leave.  Note this is taxed as secondary source of income.  Employee should check tax code.

Non Work injuries

• Employee can use sick leave to cover first week
• ACC covers 80% of the employee’s ordinary earnings for subsequent weeks.
• Record first week of ACC leave
• Employee submits a leave request – the ACC (First Week) earnings pay item is only for employees with work-related injuries.
• Record extend ACC leave
• Customer Pay item with a rate of $0 per hour
• Leave pay item (unpaid) and create a leave request for the employee

ACC Top-Ups and Tax Codes

As an employer you may agree to topping up the 20% bringing the employee’s earnings to 100%.  You can do this by –

• Using one day of sick leave for every 5 days of leave.
• Pay the remaining 20% of normal earnings.  To avoid under-taxing you can over-ride their usual tax code, i.e. secondary tax code.  Follow these  instructions.

Summary

Understanding ACC and its services is essential for self-employed individuals and businesses alike. By familiarizing yourself with ACC coverage, levies, claims process, and rehabilitation support, you can proactively protect your livelihood and ensure you and your employees receive the necessary assistance in case of an accident. Remember, ACC is there to provide a safety net, enabling you to focus on what you do best without worrying about the potential financial consequences of accidents or injuries.