If you have employees that go on ACC for an extended period (ie. more than a few months) you need to be aware of the implications below as this has caught a few businesses out lately.
They are still deemed an employee
The first implication is that they are still considered an employee while on ACC and normal employment law obligations apply. That doesn’t matter whether the injury happened at work or not. What this means is that they still accrue annual leave and sick leave, however they are not entitled to paid public holidays.
Who pays them?
If the injury happened while at work the employer must pay the first weeks pay at 80% of their usual earnings. You cannot enter this as sick leave. Any further time off is covered by ACC at 80% of their usual earnings. You can agree to top them up the remaining 20% using sick leave however this is not a legal obligation.
Accrued annual and sick leave
The thing that catches most employers out is that during the extended time on ACC, the employee is accruing annual and sick leave.
If the employee is still within the first 12 months of employment, they haven’t yet hit their entitlement to annual leave, so if termination occurs within this timeframe they are paid out as holiday pay. Holiday pay is calculated as 8% of gross earnings for that period, so if they haven’t been working then their holiday pay is $0.
However, after the first anniversary the holiday pay ticks over into annual leave, and any annual leave must be paid at the higher of either 'ordinary weekly pay' or 'average weekly earnings'. Usually, OWP will be the higher rate here, i.e. the amount of pay payable under an employee's employment agreement for ordinary working week. Any remaining portion since the last anniversary again is paid at 8% of gross earnings for that period.
The issue here is that an employee could accrue 4 weeks annual leave while on ACC for a year and once they return to work it now has a dollar value. For example, if their weekly pay is $1250 (salary of $65,000) the 4 weeks that has accrued while on ACC is worth $5,000.
We have seen examples where employees have been off work on ACC for almost 2 years without the employer understanding the implications of this. When the employee comes back to work, they are entitled to over $10,000 of annual and sick leave even though they haven’t been working. By this point it’s too late to do anything and this entitlement cannot legally be undone without running the risk of a personal grievance (which would cost even more).
If the employee has indicated they will be returning to work soon there is not much you can do, however if they haven’t or you have someone who has just gone on ACC, consider the option below.
Terminating employment
The employee can resign from their position while on ACC. However, if they don’t resign and are on ACC for a long period, it places the employer in a difficult position. The employer does not have to keep the position open indefinitely and after a few months it leaves the employer with no choice but to implement termination under grounds of medical incapacity.
This is a formal process, and the employer must reasonably accommodate an employee absence (ie. 3 months off work and not looking likely they will return any time soon) and formally consult with them prior to any decision to terminate for reasons of medical incapacity.
As every case is different there is no one-size-fits-all advice therefore you must always consult an employment lawyer before taking any action.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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