The Minister for ACC is proposing to use a formula to apply interest more flexibly. The Minister also proposes to amend the rate of penalty interest when someone doesn’t pay their levies on time, as well as amend the rate of credit interest if the amount collected is more than anticipated.
Payment plans
The vast majority of businesses pay their ACC levy invoice on time and in full. However, ACC allows businesses and self-employed people who are unable to pay on time to pay their work or earners’ levy in instalments.
Currently, three payment plans are available:
- paying the levy invoice over 3 months or 6 months at 0% interest
- paying the levy invoice over 10 months at 2.73% interest.
Instalment plans are common in other contexts. For example, taxes can be paid by instalments, subject to an interest charge from Inland Revenue.
The interest rates that we charge currently are too low, which encourages customers to delay paying levies. This is unfair to the majority of levy payers who pay their levy invoice in full and on time.
How will payment plans interest be applied?
The Minister for ACC is proposing to apply interest on all levy payment plans using the formula below.
Interest rate = Levy invoice X [((Base rate + Use of money adjustment) / 12) / 2] X length of plan
The below table outlines what each of the variables in that formula means.
|
Variable
|
Explanation
|
Proposed value
|
|
Levy invoice |
The total amount due on a customer’s final invoice |
Will vary from customer to customer |
|
Base rate |
An economic indicator which changes to reflect interest rates in the wider economy |
Based off the Reserve Bank of New Zealand’s (RBNZ) floating first mortgage new customer housing rate as at 1 April each year.
Currently at 8.63%. |
|
Use of money adjustment |
The expected investment return ACC would have made if the customer had paid their levy invoice in full and on time, taking into account the base rate above |
2.5% |
|
Length of plan |
The length of the payment plan ACC has agreed with the customer |
Will vary from customer to customer
|
Using a formula to calculate the interest rate, rather than a flat rate specified in regulations, means that the rate can respond to changes in the wider economy without the need to update legislation. The rates would be reviewed on 1 April each year.
The Minister is also proposing conditions in which ACC may cancel or waive interest from the payment plan. These conditions are listed in the table below.
|
Category |
Description |
|
Aged debt |
All debts that are time-barred by statute. |
|
Insolvent debt |
All debts that fall under legal insolvency. |
|
Ceased trading debt |
All debts with entities that are no longer trading and have no funds or assets. |
|
Decreased debt |
All debts issued to decreased estates. |
|
GNA (Gone No Address) debt |
All debts that have not had an address or means of contact for four years or more. |
|
Hardship debt |
All debts unpaid due to financial or medical hardship. |
|
Unreleased Invoices |
All debts with invoices that have been withheld or not sent out for more than four years. |
|
Administrative error |
All debt created due to administrative error. |
|
Review decision |
All debt where ACC’s review process has changed a previous decision that ACC has made. |
Penalty interest
A small number of levy payers do not (or will not) pay their levy invoices. It’s not fair to levy payers who pay their levies in full and on time, if others do not pay their levies and receive no effective penalty.
ACC currently charges a penalty interest of 1% on outstanding invoices, compounded monthly. The penalty rate hasn’t changed since 2008 and is out of step with wider interest rates in the economy.
How will penalty interest be applied?
The Minister for ACC is proposing to amend the rate of penalty interest to align it with the proposed formula for calculating interest on instalment plans using the formula below.
Interest rate = (Base rate + Use of money adjustment / 12) + 1%
The below table outlines what each of the variables in that formula means.
|
Variable |
Explanation |
Proposed value |
|
Base rate |
An economic indicator which moves according to interest rates in the wider economy |
Based off the Reserve Bank of New Zealand’s (RBNZ) floating first mortgage new customer housing rate as at 1 April each year.
Currently at 8.63%. |
|
Use of money adjustment |
The expected investment return ACC would make if someone paid their levy invoice in full and on time, taking into account the base rate above |
2.5% |
The interest rate calculated by the formula would compound monthly. This would help encourage levy payers to pay their levy in full, as quickly as possible, or to set up a payment plan. The rates would be reviewed on 1 April each year.
Credit interest
ACC applies credit interest if the amount collected from levy payers through provisional levies (invoices based on an estimate of the levies payable) is $1,000 or more than the final levy assessment. ACC does not charge employers interest if provisional levies are less than the final levies.
Self-employed and private domestic workers are not charged provisional levies, so aren’t eligible for credit interest.
The credit interest rate hasn’t been updated since 2021 when interest rates were at historic lows and does not reflect market conditions. If the credit interest rate is too low, then ACC is not fairly reimbursing levy payers who overpay their levy. If the rate is too high, then levy payers are incentivised to overpay their levies and accrue interest.
How will credit interest be applied?
The Minister for ACC is proposing to update the credit interest rate payable on overpayments to align to the three-year Government Bond Rate. This would increase the credit interest rate for overpayments from 2.2% to 4.05%. The rate would be reviewed on 1 April each year.
