Clients, particularly new clients, often ask about “registering” with the Accident Compensation Corporation, ACC.
The short answer is that no registration is required. ACC will find you!
When you file an income tax after 31 March each year the salary and wages information (including shareholder salaries) from that return is sent from Inland Revenue to ACC. ACC then calculates the amount of levy based on the business’ Business Industry Classification (BIC) number and the amount of salary and wages paid. Each employee is only charged a levy up to $118,191 of salary and wages so if an individual earns $150,000 a year then they will only be charged a levy on their earnings to $118,191.
Your BIC number is determined by the industry you operate in rather than the type of work you do. So if you do general administration work then you may be able to use an administration code but if you do administration work for a forestry company then you will need to use the forestry BIC.
Industries with higher accident costs will have higher levy charges.
The levy is made up of several portions: current and residual portions of the work account levy, current and residual portions of the earner levy, and the health and safety in employment levy. The earner levy is charged through the PAYE system for employees but is part of the total employer levy for shareholder employees.
When you set up your business you will generally be asked for your BIC when you register for GST or obtain an IRD number. If you already have an IRD number but are below the $60,000 GST registration level then ACC will contact you for your BIC.
Because your first ACC levy is charged after the business tax return has been filed, it may be some time before you receive your first ACC invoice. For example, if your income tax return for the year ended 31 March 2014 is filed in October 2014 you may not receive your ACC levy invoice until the following February or March. At the same time ACC will send you a provisional invoice for the current year based on last year, usually resulting in a large bill for your first year.
Very roughly you would expect the levy to be around $1,000 for every $100,000 of salaries and wages paid.
A couple of things to remember about earnings cover under ACC:
- it only covers accidents and not illness. You may therefore want to have some income protection insurance
- you may not have reasonable loss of earnings cover if you are in your first year of operating your business. You may therefore want to consider Cover Plus Extra – see below for more details.
Earner levy deductibility
While the cost of the ACC levy is deductible for both GST and income tax purposes, the earner levy is not deductible for either. The earner levy constitutes the bulk of the levy.
For employees who are on PAYE it is deducted from the employee’s regular pay in addition to their PAYE so is considered a personal cost, not a business cost. Therefore for the self-employed and shareholder employees this portion of the levy is not deductible for the employer even though the employer may pay for it.
Reducing your levy
Given that the ACC levy is a significant cost for any business, we recommend that you review the BIC to ensure it is appropriate for your business and to consider Cover Plus Extra as an option to reduce both cover and premium costs.
There are also various ways to reduce your levies such as a discount if you have a low payroll (less than around $500,000) and can demonstrate good workplace safety in a high risk industry, reduced rates if you have a history of no claims etc although these can be easier to achieve if you operate in a trade rather than a desk role.
Around 12 years ago ACC introduced a new product called Cover Pus Extra for shareholder employees. While the levy is calculated to a maximum of $118,191 per shareholder employee, Cover Plus Extra allows you to choose a different level of cover with a corresponding effect on the levy premium.
So for example if you usually earn $100,000 in shareholder salary, you may decide that you only need cover for income of $60,000 or less if you have an accident and cannot work. You may be happy to have a lower level of ACC cover because you have income protection insurance or have income from other sources.
The lower level of cover reduces the premium but ACC’s computer systems cannot calculate the Cover Plus Extra premium when the cover is taken out each year. You will be charged the standard premium and after year end ACC will manually calculate the amount of premium refund you are due. With a large backlog recently ACC has been running up to 2 years behind in paying these refunds.
ACC is a complex cost for any business so for everything you ever wanted to know about ACC levies go to their website at www.acc.co.nz.