On 3rd February 2023, the Court of Appeal in Kenya set aside a judgement delivered by the Employment and Labour Relations Court that had declared the NSSF Act, No 45 of 2013 unconstitutional. This means that the Act is now considered constitutional and legally enforceable.
Following this decision, the National Social Security Fund has commenced the implementation of the Act.
The New NSSF rates are set to begin with the February 2023 payroll. This means that both employers and employees will be required to contribute a percentage of the employee’s salary to the NSSF, in accordance with the provisions of the Act.
New NSSF Rates
- Upper Earning Limit (UEL) is KES 18,000, Lower Earnings Limit (LEL) is KES 6,000 under the Act.
- Pension contribution is 12% of pensionable wages, with equal 6% portions from employee and employer.
- The maximum deduction for employees earning above KES 18,000 is KES 2,160.
- Contributions below LEL (up to KES 720) go to Tier I account, while the rest goes to Tier II.
Lower Earnings Limit (LEL): This is the average statutory minimum wage set by the government, and it is used as a reference point for calculating contributions.
Upper Earnings Limit (UEL): This is a multiple of the National Average Earnings (NAE), which is determined by the NSSF Board. The UEL is the maximum amount of pensionable earnings on which contributions are based.
Pensionable Earnings: This refers to the lower of the member’s monthly wages and the UEL. It is the amount of earnings that are subject to the pension contribution.
Contribution Rates: The total contribution to the Pension Fund and Provident Fund is 12% of the member’s monthly pensionable earnings. This contribution is split equally between the employee and the employer, with each contributing 6% of the member’s monthly pensionable earnings.
NSSF Deduction
- Upper earning limit: Kes 18,000
- Lower earning limit: Kes 6,000
Tier I contributions
- Both employer and employee contribute 6% of the employee’s monthly earnings up to Kes 6,000.
- Total Tier I contribution: Kes 720
Tier II contributions
- Both employer and employee contribute 6% of the difference between the upper and lower earning limits (Kes 12,000).
- Total Tier II contribution: Kes 1,440
Total deductions
- Adding Tier I and Tier II contributions together, the total deduction from the employee’s salary is Kes 2,160.
How the NSSF Act, No 45 of 2013 will affect Employers
- Employers must communicate the decision to employees regarding the impact of integration with NSSF and contracting out.
- No need to review contracts of employment.
- Employers with both pensionable and contract employees must make a decision for each category of employee in relation to integration with and contracting out of NSSF.
- Employers must have board resolutions to confirm the decision to contract out of NSSF Tier II contributions.
- Employers must integrate NSSF contributions from within Scheme contributions, which is already in place in Scheme Rules.
- Employers must communicate their decisions to Trustees and request them to amend the Deed of Adherence.
- Employers must apply and get approval from RBA on intent to contract out Tier II contributions to Scheme.
- Employers must make Tier II contributions to the Scheme.
How the NSSF Act, No 45 of 2013 will affect Trustees
- Trustees must formally accept the Scheme Sponsor’s decision to apply for contracting out and integrate contract staff, if applicable.
- Trustees must amend the Scheme Trust Deed and Rules to comply with the provisions of the NSSF Act 2013, including defining Tier I, Tier II, LEL, UEL, PE, and eligibility requirements, as well as setting contribution rates, pensionable earnings, and benefits.
- Trustees must apply for a “Reference Scheme Certificate.”
- Trustees must communicate the outcome of RBA approvals to the relevant parties when received.
Employers Obligation under NSSF Act, No 45 of 2013
Some of these obligations include:
- Registering as a contributory employer with the NSSF: Employers are required to register with the NSSF as a contributory employer. This involves providing certain information about the business, such as its name, address, and nature of business.
- Remitting contributions to NSSF: Employers are required to deduct and remit the employee’s contributions to the NSSF by the 9th day of the following month. This is a mandatory requirement, and failure to remit the contributions on time may result in penalties.
- Prohibition on deducting contributions from employee’s earnings: Employers are prohibited from recovering or deducting their contributions to the NSSF from the employee’s earnings. This means that the employee’s contribution must be deducted separately and remitted to the NSSF.
- Keeping proper records: Employers are required to keep proper and up-to-date registers and records of employee earnings and particulars for periods prescribed by the NSSF Board, which is currently 10 years. Employers must be ready to produce these records upon demand by an NSSF compliance officer.
Types of funds established under the Act NSSF Act, No 45 of 2013
Pension Fund:
The Pension Fund is established to cover all employed persons in the formal sector who are above 18 years of age and have not attained pensionable age. This fund is aimed at providing retirement benefits to members.
Provident Fund :
The Provident Fund is established to cover self-employed persons and workers in the informal sector who wish to make voluntary contributions. This fund is aimed at providing social protection benefits to individuals who are not covered by the Pension Fund
