Does ACC Wind You Up!?!

How many times have I heard the phrase "F#&%*@! ACC"? Quite a few. Followed by a rant at the inadequacies of the state insurer. Why does ACC wind us up?

Usually this anger is placed at the ACC because they haven't paid on a claim, or the claim wasn't what was expected. This is a nightmare scenario as it can cause a financial disaster for those involved.

For a great majority ACC offers an amazing service but for a few it can be a very stressful and frustrating ordeal. One group get it worse than most. The self employed.

If you don't take wages from your business and rely on drawings then ACC may cause frustration at claim time. If you are taking drawings I recommend that you speak to a financial adviser about ACC Cover Plus Extra. Cover Plus Extra will allow you to manage your fees and the amount of cover that you have.

Why the frustration?

Some of the frustration comes from dealing with the big bureaucracy and the faceless corporation. You don't get independent ACC advisers to help with claims unlike private insurnace. However for self-employed it can be more than that, it can be the huge disparity between what is earned and what is paid in compensation.

ACC compensation is based on your last tax receipts. This isn't a problem if you're PAYE and earning a weekly wage. Accident happens, if your wage is below the monthly maximum 80% of your income could be coming your way. Not so easy if you're self employed and taking drawings. Could be even worse if the earninigs are split between shareholders, when one of the shareholders doesn't contribute to the earnings. A wife that does the books and admin for example.

Very quickly you can go from earning good money, to having an accident. A trip to the hospital later, it's long term, a quick calculation by ACC and income is slashed, business expenses are still there and it's time to downsize.

How Can That Happen?

This clusterbourach surrounding expected vs actual compensation for the self-employed happens because of the company structure, myths about ACC and accountancy. If the company has a shareholder that takes a dividend but doesn't actually bring in any revenue the taxable income can be far lower than earnings. The earnings are not what ACC pay compensation on.

If Alex earns $300,000 of revenue for their self-employed business, ACC won't cover all that. The cost of doing business is $150,000, ACC won't cover that. Now, if 50% of the profit goes to the other shareholder, ACC won't cover that. Basically, if Alex last tax return said $75,000, ACC will cover 80% of that, or $60,000. Alex may have been expecting 80% of $300,000 but instead receives only $60,000 and that doesn't even cover the company expenses. It's not long before finances are becoming strained, especially if the other shareholder is a spouse.

If Alex spouse, the shareholder that doesn't take a wage but gets a dividend for doing the books and admin part-time, if they have an accident it might mean so claim at all. Despite paying, what could be unecessarily high ACC levies for years there could be no claim as Alex spouse isn't going to experience a financial loss. The dividend will still be paid unable to work or not. This may not bring the business or home down but it will cause unwanted stress when supporting an injured spouse ... and finding book keeping staff.

The Solution Please?

Yeah, there is a solution. The smart money is investing some time speaking to an independent financial adviser. They will be able to work with your situation to come up with a tailored plan using ACC Cover Plus Extra.

It is important to consider personal and ACC solutions together when building an insurance plan. We have to take into account what happens at claim time by altering the amount of ACC. A good idea is check the codes are right, many admin staff are paying the same rate as the profession. A wife that does a few hours admin a week for her builder husband will be paying the same ACC levy. This can be thousands extra a year.

By understanding how ACC works and using personal policies to fill gaps a strong saftety net can be built. One that can cover almost 100% of income and almost 100% of business expenses. We do understand and we'll be happy to help find your business the perfect solution.

Cover Yours Ltd (FSP769531) and Marc Hamilton (FSP306046) are registered Financial Service Providers and you can search the register here. Marc Hamilton is a member of the FSCL Disputes Resolution Service. Cover Yours Ltd and Marc Hamilton’s disclosures can be found here or by emailing marc@coveryours.co.nz