ACC Employer Issues – A Quick Guide for N.Z Employers
ACC-employment related issues commonly arise when employees are injured and absent from work for extended periods.
While ACC provides no-fault personal injury cover, employers retain important legal obligations under both the Accident Compensation Act 2001, the Holidays Act 2003 and the Employment Relations Act 2000. Misunderstanding how these regimes interact can expose employers to holiday pay errors, leave miscalculations, and personal grievance risk.
What ACC Covers (and What It Does Not)?
ACC provides compensation for personal injuries suffered by employees, whether work-related or not. This includes:
Weekly compensation payments (generally 80% of pre-injury earnings).
Medical treatment and rehabilitation support.
Return-to-work assistance.
Importantly, ACC does not replace employment law obligations. Employers must still comply with the Employment Relations Act 2000 and Holidays Act 2003 while an employee is on ACC.
Employer Obligations When an Employee is on ACC
The First Week of Incapacity
For work-related injuries:
Employers are required to pay the employee 80% usual earnings for the first week of incapacity.
Annual leave and sick leave may be used, by agreement, to top this up to full pay, i.e. from 80% to 100% such as utilising one day’s paid sick leave for each week of the employee’s incapacity and absence from work.
After the first week, ACC usually takes over weekly compensation payments.
Keeping Employment Ongoing
Being on ACC does not automatically end employment. Employers must:
Keep the employee employed, unless there is a substantive justification for termination, and
Follow a fair medical incapacity process if employment is at risk (for example, due to long-term incapacity).
Termination decisions must be based on medical evidence, business impacts, and proper consultation – not simply the fact that an employee is on ACC and inconveniencing the employer due to their absence.
ACC and Holidays Act Obligations
One of the most common compliance failures relates to managing leave entitlements and holiday pay while an employee is on ACC.
Annual Leave
Annual leave continues to accrue while an employee is on ACC.
Annual leave entitlement always remains payable – the employer must pay it at the correct “greater of” rate under section 21 the Holidays Act 2003.
Public Holidays
Public holidays are paid only if they fall on a day the employee would otherwise have worked.
If an employee would not have worked due to ACC incapacity, the public holiday is not paid since it is not an ‘otherwise working day’ for the purposes of public holiday entitlements.
Sick Leave
Sick leave can be used while an employee is off work on ACC – usually to top-up an employee’s earnings while they are on ACC.
Key Risk Area – Calculating Holiday Pay After a Period of ACC
Extended periods on ACC can distort an employee’s pay history, making holiday pay calculations complex. Employers must ensure they:
Use the correct ordinary weekly pay (OWP) or average weekly earnings (AWE) calculation when calculating annual leave entitlement (paid holiday leave after an employee has completed 12-months of continuous service). The employer must pay the employee the higher rate.
Return to Work and Rehabilitation
Employers have obligations to:
Support early and safe return-to-work where medically appropriate.
Consider modified duties or reduced hours.
Engage with ACC, the employee, and medical providers in good faith.
Failure to consider reasonable return-to-work options can increase exposure to disadvantage or dismissal claims.
Managing Long-Term ACC Absences
Where ACC incapacity becomes prolonged, employers may eventually consider termination due to medical incapacity. Key considerations include:
Seeking up-to-date medical evidence from the employee and their medical specialists.
The employee’s prognosis and likely return timeframe.
The operational impact on the business.
Whether further accommodations are reasonable.
Employers must consult with the employee before making decisions and allow them a genuine opportunity to respond.
Employer Pro has an Employer Toolkit available for managing a ‘Medical Incapacity and Disengagement Process’, including step-by-step guidelines, practical walk-throughs, legal commentary, employer-focused template letters and documents.
Practical Employer Examples
High-risk approach: Stopping holiday accrual during ACC or not paying an employee for annual leave entitlement that arises during a period of absence on ACC.
Compliant approach: Continuing accrual, correctly calculating leave entitlements, and documenting all ACC-related decisions and communications.
Employer Takeaways
ACC does not displace employment law obligations.
Annual leave continues to accrue during ACC.
Holiday pay calculations following ACC are a high-risk compliance area.
Long-term ACC absences require careful, fair process management before termination.
Payroll and HR systems should be reviewed regularly for ACC-related accuracy.
Compliance Warning
ACC-related employment issues carry significant compliance risk, particularly where employers misunderstand the interaction between ACC entitlements and the Holidays Act 2003, or fair process obligations arising under the Employment Relations Act 2000 in terms of medical incapacity-based terminations.
Errors in leave accrual, holiday pay calculations, employment terminations or return-to-work management can result in arrears, penalties, and personal grievance liability. Employers should ensure ACC absences are actively managed, properly documented, and supported by accurate payroll processes and fair decision-making.
This article is provided for general information only and does not replace professional advice. Employers should seek advice specific to their circumstances from Employer Pro if in doubt on their matters involving ACC employer considerations, including holiday and leave obligations, terminations based on medical incapacity, or health issues and other matters relevant to the Accident Compensation Act 2001, Holidays Act 2003, or Employment Relations Act 2000. Employer Pro has a range of employer focused resources and services available through our competitive Employer Protection Packages.
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