NZPPA gets many questions about different ACC situations and their relationship with the Holidays Act. I will only discuss a workplace accident and apply the ACC standard scheme (pay 80% from the second week). This article does not cover non-work accidents and other ACC schemes.

My disclaimer: As always, I write from a payroll perspective for payroll practitioners. Since it is a big subject, I will cover only the main areas.

The following topics are the most common areas raised with the NZPPA PayTech AdviceLine:

• Determining the 80% that the employer pays for the 1^st week of a workplace accident
• Topping up 1^st and 2^nd week, what can be done and what leave can be used?
• What happens with the annual leave provided under the Holidays Act while on ACC?
• Do employees still get paid for public holidays while on ACC?
• What happens if the employee resigns while on ACC?

Determining the 80% that the employer pays for the 1^st week of a workplace accident

How the first week of a workplace accident is determined (the 80%) is based on Section 97 of the Accident Compensation Act 2001 and is the difference between the claimant’s earnings in the seven days before his or her incapacity commenced and the claimant’s earnings in the first week of incapacity.

Topping up 1^st and 2^nd week, what can be done and what leave can be used?

Topping up is where the employer or employee tops up the 80% paid by the ACC. Here are the three main ones that payroll may see being used for topping up:

1. The employer decides to top up out of their pocket. This top-up could be for the first week or ongoing – it all depends on what has been agreed. So in the 1^st week, the employer already pays 80%, and if they decide to top up, then the employee will get 100%. Topping up for the employer is an agreed term based on the business’s culture or policy. To make it easy for payroll to apply, it should be agreed to be paid at the employee’s ordinary pay rate (no Holidays Act calculations are involved). Anything complicated will turn into a mess for payroll to administer.
2. Employees request to use their sick leave entitlement (one day) to top up the 1^st week (if the employer does not top up in the 1^st week), and from the 2^nd week, topping up the 80% paid by ACC. Just one point: payroll or the employee’s manager has no right to use an employee’s sick leave; it is up to the employee to decide and request its use (to top up the 80%).
3. The employee has exhausted their sick leave entitlement and requests to use 1 day of annual holiday entitlement (under Section 39 of the Holidays Act). The employer does not have to agree, and the key to this section is that the employee must have exhausted their entitlement (sick leave) before even requesting to use annual holiday entitlement.

Important point: If ACC is paying 80% (2^nd week onwards) and the employee is topped up, the topped-up payment should use a secondary tax code (because the payment from ACC has become the main source of income). Payroll practitioners are not financial advisors, so you cannot direct an employee to do this or just automatically change the employee’s tax code.

While on ACC, what happens with leave provided under the Holidays Act?

This is one of the easiest areas to answer, but we still get asked about it frequently, so there is a lack of knowledge in this area overall.

Under the Holidays Act, ACC is counted as a period of continuous employment under:

• Section 16(2)(b)(iv) receiving weekly compensation under the Accident Compensation Act 2001or the former Act, as well as, or instead of, payment from the employer

So this means if the employee is off for a month or a year (whatever period of time), the whole period is counted as continuous employment (time on the job). So this means the entitlement dates or criteria for all leave provided under the Holidays Act continue (even sick leave).

Do employees still get paid for public holidays while on ACC?

MBIE has created a mess in this area with its flip-flops and vague website statements, along with NZPPA members contacting their Adviceline to get different views each time the same question is asked. I have seen on the EmploymentNZ website that employers do have to pay for public holidays while an employee is on ACC, but now it states on their EmploymentNZ website, ‘If” the employee is paid for public holidays.

This is the NZPPA’s position on this area:

The employer pays an ACC employer levy that covers workplace accidents. If an accident occurs after the second week, ACC pays 80%, and the employer is under no obligation to top up from that point. Of course, the employee has every right to top up with their sick leave or ask for annual leave if the employer agrees (if their sick leave is exhausted).

Public holidays should be paid based on whether the employee is on short-term or long-term ACC. This is because payroll is trying to determine if the public holiday is an otherwise working day for the employee. If the employee was working their standard days and hours as usual based on their employment agreement, then it is easy to determine if the public holiday should be paid.  If the employee works variable hours (different days and/or hours) before the accident, that is where payroll will need to determine if the public holiday would have been an otherwise working day based on their work pattern (for more on how to determine an otherwise working day look at Section 12 of the Holidays Act).

Short-term ACC

This is where it could be possible that the employer pays the employee for a public holiday because they are only on ACC for a short period of time. This would need to be done by looking at when the employee last worked (before the accident) and when it is planned for the employee to return to work (once they are cleared).

As an example, here is a simple test (you can adapt to suit the situation):

1. Was the employee working the week before the public holiday?
2. Was the employee working on the week of the public holiday?
3. Would the employee work the following week after the public holiday?

So, if an employee is off for only a week on ACC, then a public holiday would still be an otherwise working day. If paid, the employee would need to advise ACC of this payment.

Long-term ACC

Some things I have seen stated in this area are just wrong. If an employee has been off on ACC, for example, for 12 months, on what planet should the employer pay the public holiday? ACC is paying them (80%), the employee has not worked for many months before the public holiday, or worked on the week of the public holiday, and won’t be working the week after the public holiday. The day of the public holiday is not an otherwise working day for the employee at this time.

If you are being told that all public holidays must be paid for an employee who has been on ACC for two years, this is just la la land and shows how corrupt the Holidays Act has become. Please follow common sense. But of course, as an employer, if you want to do better than the Act, that is up to you.

What happens if the employee resigns while on ACC?

While on ACC, the time is counted as continuous employment under the Holidays Act (see above). This means the longer the employee has been off on ACC, the greater the possibility the employee will have earned annual holiday entitlement (12 months of continuous employment) and receive their four weeks of annual holidays. Now, entitlement earned while on ACC is unlike what happens to entitlement earned while on parental leave where OWP is turned off and only AWE can be used (substantially reducing the annual leave rate when leave is taken on the employee’s return to work).

When taken or paid out, the annual leave entitlement earned while on ACC still uses the greater of AWE or OWP. So, if the employee has been off for over 12 months on ACC and then resigns, how does that affect the value of the leave entitlement being paid out in their termination pay?

Important point: AWE and OWP are taken when leave is paid out, based on the requirements of the Holidays Act. You do not go back and look at gross earnings before the employee’s accident.

Example:

An employee has been on ACC for over 18 months following a workplace accident and contacts their employer to tell them they have decided to resign. They have earned four weeks of entitlement while off on ACC, but for the last 12 months, they have not earned any earnings from the employer (nothing from topping up).

In this situation, the question often raised is why there would be any value to the leave, because the employee has not earned anything from the employer over the last 12 months. AWE would be zero because it is based on gross earnings from the last pay period back 12 months. However, OWP is based on the agreed week (Section 8(1)) for the employee based on their employment agreement, not what was actually earned. So, if the employee were paid based on a standard wage or a salary, annual leave would have value on termination. If the employee had been working variable hours before the accident, and the week could not be determined under OWP Section 8(1), then OWP Section 8(2) is applied, which can use a four-week average. So this is taken from the last pay period back four calendar weeks, which would be zero (as nothing was paid in the period). This is where the four weeks of annual holiday entitlement would be paid out as zero (AWE = 0 and OWP (four-week average) = 0). But as the employee resigned, there would be a notice period payable (would be paid in lieu as the employee would not be able to work it, and taxed as an extra pay), which would also be part of the 8% on termination.

In conclusion, if an employee gets a workplace injury and goes on ACC, payroll must understand how this relates to the Holidays Act (what will be paid in the first week, continuous employment, what effect it has on leave calculations, if public holidays will be paid or not paid, and what happens on termination). By ensuring you understand the requirements for ACC, you are supporting the employee, which is part of being a professional payroll practitioner.

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