ACC levies fund one of New Zealand's most distinctive social systems: universal, no-fault accident cover for everyone in the country. Unlike most nations where accident insurance is optional and fault-based, New Zealand provides automatic injury coverage funded through compulsory levies. Understanding how ACC levies work is essential for financial planning, whether you're an employee seeing deductions on your payslip, a contractor managing your own levy payments, or a business owner responsible for workplace cover. This comprehensive guide explains the ACC system's structure, why levies exist, how they're collected across different work situations, and what this means for your cashflow and tax planning. No numeric rates or percentages—just clear concepts to help you understand this uniquely Kiwi system.
ACC stands for Accident Compensation Corporation. It's a Crown entity that administers New Zealand's unique no-fault accident insurance scheme.
Before ACC (pre-1974), injured New Zealanders had to:
The "Grand Bargain":
New Zealand made a social compact in 1974:
ACC's defining feature: you can injure yourself through your own mistake and still get full cover. Trip over your own feet? Covered. Crash your car? Covered. Hurt yourself doing something silly? Usually covered. This removes blame and shame, encouraging people to seek treatment immediately rather than hiding injuries to avoid admitting fault. It also speeds up recovery—no waiting years for court cases to settle.
ACC levies are not general taxes, even though they're often collected alongside tax:
Why this matters: ACC levies can increase or decrease based on injury trends, claims costs, and scheme performance—independent of general tax policy. They're treated as insurance premiums more than taxes, even though payment is compulsory.
Imagine everyone in New Zealand contributes to a giant pot. Some people will get injured and need to draw from the pot. Most won't. The pot needs to be big enough to cover everyone who does get injured, but no individual knows in advance whether they'll need it.
Unlike car insurance where crashes increase your premium, ACC Earners Levies are the same for everyone at the same income level. Why?
However, employers in higher-risk industries do pay more—their Work Levy reflects the injury risk of their specific sector. A forestry company pays higher Work Levies than an accounting firm because forestry has more workplace injuries.
The Earners Levy increases with your income because:
Crucially, it's capped at a maximum income level—very high earners don't pay levies on every dollar they earn, because ACC compensation is also capped.
Employers pay different Work Levy rates for different industries because:
ACC classifies every type of work into categories with different levy rates based on the statistical injury risk of that work.
ACC funding comes from three separate levies, each covering different injury contexts:
Who pays: Every person earning income in New Zealand—employees, contractors, self-employed, business owners.
What it covers: Non-work injuries for earners. If you get hurt outside work (sports injury, home accident, weekend mishap), your income replacement comes from the Earners' Levy pool.
How it's calculated: Percentage of your liable income up to a maximum threshold. Everyone pays the same percentage rate on their earnings.
Collection method:
Why it exists: Income earners need income protection if injured. This levy funds that for injuries that happen outside the workplace.
Who pays: Employers, based on their employees' earnings and the business's risk classification.
What it covers: Work-related injuries. If you get hurt at work or while working, the employer's Work Levy pool pays for your treatment and income replacement.
How it's calculated: Percentage of employee earnings, with the rate determined by the business's industry classification. High-risk work = higher rate. Low-risk work = lower rate.
Collection method: Employers calculate and pay this along with PAYE deductions to IRD, who passes it to ACC.
Why it exists: Workplace injuries are employers' responsibility under the original ACC bargain. Employers pay to insure their workers against work-related harm.
Who pays: Self-employed people and contractors without employees, based on their own work risk.
What it covers: Work-related injuries for self-employed individuals. If you're a self-employed plumber and hurt yourself on the job, this levy pool covers you.
How it's calculated: Based on your liable income and your work classification risk level.
Collection method: Invoiced directly by ACC, or payable when filing tax return, or through provisional tax.
Why it exists: Self-employed people don't have an employer to pay a Work Levy, so they pay their own equivalent for work-related cover.
Who pays: Everyone who uses roads—drivers, vehicle owners, petrol buyers.
What it covers: Road accident injuries, whether you're driving, cycling, walking, or a passenger.
Collection method: Collected through vehicle registration fees and petrol tax (levies on fuel at pump).
Why it exists: Road accidents are a major injury source. Users of the road system collectively fund cover for road injuries.
Most working New Zealanders pay multiple ACC levies simultaneously: Earners' Levy on their income, Motor Vehicle levies when they buy petrol or register their car, and either Work Levy (if employed) or Working Safer Levy (if self-employed). These are separate charges for separate types of injury cover. You're not being double-charged—each levy covers different scenarios.
What happens:
Employee experience: You see a deduction on your payslip each pay period. You don't need to do anything—it's entirely automated. Your take-home pay is after ACC levy already removed.
Employer also pays separately: Employers pay the Work Levy for you based on your wages and their business classification. This doesn't appear on your payslip because you're not paying it—the employer is. It's an employer cost, like their own business expenses.
What happens:
Contractor experience: Money comes in gross (no automatic deductions). Later, you receive an ACC invoice or owe ACC levies when filing tax return. This can be a shock if not budgeted for. You need to set aside money for ACC levies throughout the year, because unlike employees, it's not automatic.
What happens:
Self-employed experience: Multiple ACC obligations. Must manage cashflow for levy payments that aren't automatic. ACC invoices arrive based on previous year's income, then adjusted when actual income known. Requires active financial planning.
This confuses many New Zealanders. Here's why:
Why this design? Employees have withholding at source (PAYE system already deducts tax). Adding ACC to that withholding is simple. Contractors are paid gross by clients who aren't responsible for their tax/levies—so collection happens through IRD or ACC directly later.
By paying ACC levies, you're entitled to:
If you're injured and can't work:
This is why Earners' Levy is income-based: Higher earners pay more levy because they'd receive more compensation if injured. Lower earners pay less because their compensation would be lower. It's proportional.
What you might still want:
Critical distinction: ACC is for injuries (sudden events causing physical harm). It does NOT cover illness, disease, gradual degeneration, or mental health conditions (except in limited work-related circumstances). Break your leg skiing? Covered. Develop cancer? Not covered by ACC (but covered by public health system). This is why many people still buy health and income protection insurance for non-injury scenarios.
Reality: ACC levies are compulsory insurance premiums, not general taxation.
Why the confusion: Collected alongside tax (PAYE), appears on payslips, goes to government entity, is compulsory. Feels like tax.
Why it's different: Ring-fenced for specific purpose (injury cover), actuarially calculated, returns direct benefit to you if injured. Taxes go to general spending; ACC levies buy you specific insurance coverage.
Reality: You and your employer pay different levies for different types of injury.
What you pay (Earners' Levy): Covers non-work injuries. Weekend sport, home accidents, recreational activities.
What employer pays (Work Levy): Covers work injuries. Hurt on the job, work-related accident, workplace illness/injury.
Why both needed: Injuries happen at work and outside work. Each levy pool funds its respective injury context. Not double payment—two separate insurance policies for two separate scenarios.
Reality: ACC is insurance. Most people pay premiums and never claim—that's how insurance works.
The value:
Not a waste: Hope you never need ACC, but if you do, it's there. That's the entire point of insurance.
Reality: ACC only covers injuries from accidents, not illness or disease.
What ACC covers: Broken bones, cuts, burns, sprains, concussions, accident-related damage.
What ACC doesn't cover: Cancer, heart disease, diabetes, mental health (except specific work-related cases), chronic pain from degeneration, gradual wear-and-tear.
Why this matters: Many people assume "I pay ACC, so all health costs are covered." False. Illness and disease go through public health system or private health insurance. ACC is injury-specific.
Reality: Contractors pay ACC levies—just differently from employees.
Employee: ACC deducted automatically every pay period (visible immediately).
Contractor: ACC owed on all income, but paid via invoice or tax return (visible later, often as lump sum).
The shock: Contractors sometimes don't realise they owe ACC until a large invoice arrives or tax return is calculated. Must budget for it proactively.
Reality: ACC replaces a high percentage of your income, but not necessarily all of it, and there are caps.
What to expect:
Planning implication: Some high earners buy top-up income protection insurance to cover the gap between ACC payments and their actual income needs.
Reality: ACC cover is compulsory for everyone in New Zealand. No opt-out.
Why people think this: Some self-employed people don't receive ACC invoices immediately, or don't see deductions, so they assume they're not covered or don't have to pay.
The truth: You're covered whether you pay or not (legally entitled), but you must pay your levies. ACC will invoice you or collect through tax system. Can't escape it by ignoring it—you'll owe it plus penalties if you don't pay.
Reality: Your individual Earners' Levy rate is the same as everyone else earning the same amount, regardless of your lifestyle.
Why it's flat:
Exception: Businesses in high-risk industries pay higher Work Levies, because their industry's collective injury rate is higher. But individuals within that industry all pay the same Earners' Levy rate regardless of personal safety record.
Reality: Separate charges, collected together for administrative efficiency.
PAYE: Income tax on your earnings, goes to government general revenue, funds all government services.
ACC Earners' Levy: Insurance premium for injury cover, goes to ACC specifically, funds only accident compensation.
Why collected together: Both are deducted from wages at source by employers, so piggyback on same withholding system. Simpler for employers, IRD, and ACC to coordinate. But they're distinct payments with distinct purposes.
Reality: You must lodge an ACC claim for cover to activate.
How it works:
Not automatic: Paying levies entitles you to cover, but you must claim it. ACC doesn't know you're injured unless you tell them. Many people delay claiming, not realising ACC only helps if you actually lodge a claim.
Quiz on ACC Levies Understanding
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