ACC levies are mandatory contributions paid by all New Zealand workers, business owners, and vehicle owners to fund the Accident Compensation Corporation. These funds provide comprehensive, no-fault personal injury cover, paying for rehabilitation, medical costs, and income compensation if you are injured at work, at home, or on the road.
What Do ACC Levies Actually Fund?
New Zealand operates under a unique “no-fault” accident compensation scheme. This means that if you are injured in an accident, regardless of whether it was your fault or someone else’s, you are entitled to coverage. To fund this world-leading system, the Accident Compensation Corporation (ACC) collects levies from various sectors of society. Understanding exactly where your money goes is the first step in managing your personal finances and business obligations effectively.
The levies are not pooled into a single account but are instead separated into specific accounts designed to fund injuries related to that source of funding. This ensures that motorists pay for road accidents, and employers pay for work-related injuries.
The Work Account
This account funds injuries that happen in the workplace. It is funded entirely by levies paid by businesses and self-employed people. The amount a business pays depends heavily on the industry they operate in; a construction company will pay a higher levy rate than an accounting firm due to the higher risk of workplace injury.
The Earners’ Account
This account covers non-work-related injuries for people who are in the paid workforce. For example, if an accountant injures their knee while playing rugby on the weekend, their rehabilitation and weekly compensation are funded by the Earners’ Account. This is funded by the “Earners’ Levy” deducted from wages and salaries.
The Motor Vehicle Account
This account covers injuries involving moving vehicles on public roads. It is funded through levies collected via petrol at the pump and vehicle licensing (rego) fees. This ensures that road users contribute directly to the cost of road accidents.
The Non-Earners’ Account
It is worth noting that there is also a Non-Earners’ account, which covers people who are not in the workforce, such as children, retirees, and beneficiaries. This specific account is funded by the government through general taxation, not through the specific ACC levies discussed in this guide.
The Earners’ Levy: Employee Contributions
For the majority of New Zealanders who are PAYE employees, the interaction with ACC levies is relatively passive. The Earners’ Levy is automatically deducted from your gross pay by your employer, much like income tax.
How the Rate is Calculated
The Earners’ Levy is set at a flat rate per $100 of liable earnings. This rate is reviewed annually and can fluctuate based on the financial needs of the ACC scheme. As of the current financial year, the rate generally sits around the $1.60 mark (per $100), though it is vital to check the current year’s specific rate on the ACC website or your payslip.
The levy is collected to cover the cost of injuries that occur outside of work hours—playing sport, DIY accidents at home, or slips and trips during leisure time.
Maximum Liable Earnings Cap
There is a cap on the amount of income that is subject to the Earners’ Levy. This is known as the Maximum Liable Earnings threshold. Once your annual income exceeds this threshold (which is adjusted annually, often sitting above $130,000), you no longer pay the levy on the earnings above that amount. This cap exists because there is also a cap on the weekly compensation you can receive if you are injured.
Self-Employed Levies: CoverPlus vs. CoverPlus Extra
For self-employed contractors, freelancers, and business owners, ACC levies are significantly more complex than for PAYE employees. You are responsible for paying both the employer portion (Work Levy) and the employee portion (Earners’ Levy). Furthermore, you have a choice in how you are covered, which can have massive implications for your financial security and cash flow.
The Three Invoiced Levies
When you receive your ACC invoice as a self-employed individual, you will typically see three distinct charges:
- Work Levy: Covers workplace accidents. Based on your industry risk and liable earnings.
- Earners’ Levy: Covers non-work accidents. Based on liable earnings.
- Working Safer Levy: A smaller flat rate collected on behalf of WorkSafe NZ to support injury prevention activities.
Option 1: ACC CoverPlus (The Default)
If you do nothing, you are automatically placed on ACC CoverPlus. Under this scheme, your levies are calculated based on your liable income declared in your tax return from the previous year.
The Pros: It is automatic and requires no setup. If your income increases, your cover increases (up to the cap).
The Cons: The biggest drawback of CoverPlus is the burden of proof at claim time. If you have an accident, you must prove your income to receive lost earnings compensation. For self-employed people with fluctuating income, or those who income split with a spouse to reduce tax, this can result in receiving significantly lower compensation than expected. If your business made a loss in the previous year, you may be entitled to zero weekly compensation, despite working full time.
Option 2: ACC CoverPlus Extra (CPX)
ACC CoverPlus Extra is an optional product that allows self-employed individuals to negotiate an agreed level of cover. This is often the superior choice for contractors and business owners.
How it works: You agree on a set amount of cover (e.g., $80,000 per annum) and pay a levy based on that amount, regardless of what your actual tax return says.
The Strategic Advantages:
- Guaranteed Income: Because the value is agreed upon upfront, you do not need to prove your income at claim time. You receive 100% of the agreed weekly compensation.
- Tax Efficiency: If you income-split, you can set your ACC cover at a level that reflects your contribution to the business, rather than your taxable income.
- Cost Savings: If your actual income is very high, but you don’t need the maximum cover, you can lower your agreed value to reduce your levy bill. Conversely, if your income is low due to write-offs, you can keep your cover high to ensure safety.
Motor Vehicle Levies Explained
Owning and driving a car in New Zealand incurs ACC levies through two distinct channels. These funds are ring-fenced for the Motor Vehicle Account to support rehabilitation for victims of road accidents.
1. The Petrol Pump Levy
A portion of the price of every liter of petrol you buy is an ACC levy. This is a “pay-as-you-go” system: the more you drive (and the more fuel you consume), the more you contribute to the fund. This logic follows that high-mileage drivers have a higher exposure to risk on the road.
2. Vehicle Licensing (Rego) Levy
When you renew your vehicle license (rego), a significant portion of the fee is the ACC levy. This levy varies depending on the type of vehicle you own. ACC assesses vehicles based on their safety ratings.
Safety Ratings and Costs: Vehicles are banded into risk classes. A car with a high safety rating (providing better protection to occupants and pedestrians) attracts a lower ACC levy. Conversely, older vehicles with poor safety ratings will attract a higher levy. This tiered pricing is designed to encourage the fleet upgrade to safer vehicles.
Note: Diesel vehicles do not pay the petrol levy at the pump; instead, their contribution is balanced through higher registration fees and Road User Charges (RUC).
The Impact of Business Industry Classification (BIC) Codes
One of the most common reasons businesses overpay their ACC levies is incorrect Business Industry Classification (BIC) codes. When you register for an IRD number or file a tax return, you select a code that best describes your business activity. ACC uses this code to determine your “risk rating.”
The Risk Rating System
Every industry is assigned a levy rate per $100 of earnings based on historical claims data.
For example:
- Clerical/Office Work: Low risk, low levy rate.
- Forestry/Logging: High risk, high levy rate.
The Trap
If you run a construction company but you spend 100% of your time in the office doing project management and administration, you might be paying the high “construction” rate when you should be paying a lower administrative rate.
It is crucial to review your BIC code description. If your business involves multiple distinct activities, you may be eligible to split your classification, ensuring you only pay the higher rate on the wages of staff actually performing the high-risk work.
Understanding the Invoicing Cycle: Provisional vs. Terminal
For business owners, the arrival of ACC invoices can cause cash flow headaches if not anticipated. ACC operates on a system of provisional and terminal levies, similar to provisional tax.
Terminal Levy (The Wash-up)
This invoice calculates what you should have paid for the previous financial year, based on the actual income you filed in your tax return. It compares this actual amount to what you paid provisionally. If you earned more than expected, you will have a “terminal” amount to pay to top it up.
Provisional Levy (The Estimate)
This invoice charges you for the upcoming year. Since ACC doesn’t know what you will earn yet, they estimate your income based on your previous year’s earnings plus an inflation adjustment.
Important Tip: If you expect your income to drop significantly in the coming year (e.g., you are taking parental leave or downsizing), you can contact ACC to adjust your provisional levy downward. This prevents you from paying a large bill only to have it refunded a year later.
Frequently Asked Questions
How much is the ACC earner levy currently?
The ACC earner levy rate changes annually on April 1st. Historically, it hovers between $1.20 and $1.60 per $100 of liable earnings. You should check the ACC website for the official rate for the current tax year.
Do I pay ACC levies on dividends?
Generally, no. ACC levies are charged on “income from personal exertion” (wages, salaries, and shareholder-salaries). Passive income, such as dividends or rental income, is usually not subject to ACC levies, but this also means that income is not considered when calculating lost earnings compensation.
Can I opt out of paying ACC levies?
No, you cannot opt out. The ACC scheme is mandatory for all workers and business owners in New Zealand. This replaces the right to sue for personal injury, providing a guaranteed no-fault cover for everyone.
What is the main difference between CoverPlus and CoverPlus Extra?
The main difference is certainty. CoverPlus is based on your actual taxable income (which must be proved at claim time), whereas CoverPlus Extra is an agreed-value policy where you choose your cover level upfront, guaranteeing that specific payout without needing to prove income later.
When are ACC levies due?
ACC typically sends invoices to self-employed people and businesses between July and October, after receiving income data from Inland Revenue. Payment is usually due 30 days from the invoice date, though installment plans are often available.
How can I lower my ACC levies?
You can lower levies by ensuring your BIC code accurately reflects your business activities (especially if you are in a lower-risk role within a high-risk industry), utilizing the Workplace Safety Discount for small businesses, or adjusting your agreed value level if using CoverPlus Extra.
