What is ACC?
The Accident Compensation Corporation (ACC) provides compulsory insurance cover for personal injury for everyone in NZ. If anyone in New Zealand is injured (including visitors and those who aren’t currently working), ACC will help pay for medical costs, support at home and work, and any loss of income.
Everyone who works or owns a business in New Zealand is obligated to pay ACC levies. (If you’re used to being an employee you may not have realised, as your payment to ACC is taken out at the time of your wages/salary being paid). Businesses, including self-employed people, pay their ACC levies annually around August/September each year, based on their prior year income. If you are self-employed, such as on the Mycare platform, finding out you are responsible for paying an annual ACC levy may come as a surprise, especially when you receive your first annual invoice.
To avoid bill shock we recommend putting aside a little money each week to cover your ACC bill when it arrives.
What are ACC levies?
ACC collects levies from all working New Zealanders. These levies are separate to the income tax you pay each year and are compulsory.
Once you are earning self-employed income, you’ll receive your first invoice after you file your first tax return (the IRD passes ACC your income information, on which your levy is based). Invoices normally turn up around August/September each year.
The three ACC levies
Everyone who earns income in New Zealand pays the Earners’ levy, no matter what kind of work you do (employees pay this at the same time as PAYE tax). Businesses pay the other two other levies, the Work levy and the Working Safer levy.
Self-employed contractors count as both earners and businesses and therefore are responsible for paying all three.
Each levy is calculated slightly differently (with rates updated every April):
• The earner’s levy is a flat rate of $1.33 per $100 (excluding GST) of your liable income
o this helps fund cover for injuries that happen during everyday, non-work activities
• the Working Safer levy is a flat rate of $0.08 per $100 of your liable income
o this helps fund Worksafe NZ, New Zealand’s primary workplace health and safety regulator
• The Work levy is based on the industry you operate in
o this helps funds cover for injuries that happen at work
o the riskier your line of work, the higher this levy will be
The amount of income assessed by the Earners’ levy is capped, which means for that levy the most you’ll pay is roughly $2,000.
How to estimate your ACC levies
To make sure you are saving enough each week to cover your ACC levy, you’ll need
to have a rough estimate of what it will be.
Firstly, the levies you pay are all calculated off your liable income, which is based on the information you declare when you do your taxes. Mycare reports your Mycare income to the IRD (plus any tax at the rate you have chosen to withhold), but you may have other self-employed income also.
Your levies also depend on the type of cover you have, and your Classification Unit (basically, what type of work you do).
The Earner’s levy
Good news: the Earner’s levy is incredibly straightforward. To calculate your levy, you take 1.33% of your liable income.
The Working Safer levy
The Working Safer levy is 0.08% of your liable income.
The Work levy
In order to calculate your Work levy, you’ll need to find your Classification Unit (CU), and make sure that ACC has this recorded for you as your self-employment activity.
Most people on Mycare will likely be on either
- Homecare service, personal (excluding nursing) Q879045)
- Personal Services (not classified elsewhere) S953955
Each CU has a different Work levy rate – essentially the riskier the profession, the higher the levy. If ACC don’t have a CU for you, they’ll assign you a code with one of the highest levy rates so this admin is worth your initial setup.
Note if you have more than one type of self-employment (say homecare work on Mycare plus some gardening work) you must look up the levies for both and use the highest levy.
CoverPlus vs. CoverPlus Extra
One last thing…
When you pay your ACC levies, you’ll be covered for accidents or injuries under a standard plan called CoverPlus. If you’re unable to work, CoverPlus will pay you up to 80% of your income, calculated based on your reported income from the most recent financial year.
But depending on your needs, lifestyle, and expenses, you might want even more coverage. Makes sense.
If this is the case, you can opt to be on a plan called CoverPlus Extra (CPX).
Your levy will be slightly higher, but the benefits you receive were you to have an accident would be more (similar to other types of insurance).
If you’re not sure what's best for you, you can see a full comparison of the two levels of cover on ACC website.
What can I do to ensure I am prepared for my ACC bill?
1. Ensure the hourly rate you quote with clients takes into account of the fact that as a self-employed contractor, you are responsible for your own ACC levies, annual leave, sick pay and so on
2. Log into MyIR (or call/log in to ACC) and update your Classification Unit. Some suggested units for Care workers on Mycare are:
Q879045 Homecare service, personal (excluding nursing)
S953955 Personal Service not elsewhere classified (for domestic chores)
This will ensure you are getting charged the correct amount for the Work levy portion of your invoice.
3. Have a separate bank account that you save a little each week for ACC. We suggest 2 – 3% of your income, but we can’t give you a definitive amount as each person’s situation is different.
4. If you would rather not take care of budgeting, Hnry is a great service that assists sole traders with ACC, tax returns and accounting at a reasonable rate. Many care workers on the Mycare platform are using Hnry to take care of their responsibilities.
DISCLAIMER: The information on our website is for general educational purposes only. It doesn't cover all situations and circumstances, and shouldn't be taken as direct or personal financial advice. We recommend all self-employed individuals have access to an accountant, or take advantage of a service such as Hnry.