ACC: How Does It Actually Work?
Every now and then we come across a fairly outrageous ACC bill that has been paid by the organisation without blinking an eye. On closer inspection it turns out that the organisation has been charged on the basis of their staff working in construction or similar…
When an organisation registers as an employer it is asked for a BIC or Business Industry Code. This can be found here: https://www.businessdescription.co.nz/#/home. If this field is left empty Inland Revenue will apply a default code which is usually based on a trade classification. This employer portion of the ACC levy can vary between as little as 0.1% and as much as about 6% depending on that classification. So it is important to pay attention to your BIC.
If you think you are paying too much ACC it is worth checking out whether ACC has your right BIC. You can look up your BIC through your IRD online services.
The ACC system is not too different to Kiwisaver in that there is an employee and an employer contribution. The employee contribution is part of the PAYE rates, which are made up of Income Tax and ACC, and is set at 1.21%. So if your marginal tax rate is 17.5%, your PAYE rate will be 18.71%. Because the rate is integrated into the PAYE system this is often hidden from employees and they may not realise that they contribute to ACC in this way.
The employer rate is variable according to what industry you work in, as explained above. Unlike Kiwisaver it is not collected through the tax deduction system but ACC invoices you separately.
Payroll Sharing Agreements
Some of our clients have their payroll done through another agency, meaning their employees’ gross pay is paid to another organisation, which handles their employees’ net pay, tax deductions etc.
ACC is sometimes forgotten in such arrangements. If you pay another organisation to pay your staff you need to pay them their Gross Pay plus their Annual Leave entitlement (8%) plus (if applicable) the Kiwisaver employer contribution (usually 3%) plus the ACC employer’s levies.