NSSF contributions have undergone some changes, and the impact will be felt starting February 2025.
The implementation of the National Social Security Fund (NSSF) Act, 2013 is entering its third year with contributions expected to increase as from this February. At the time the act was enacted in 2013, it introduced a raft of changes including a new contribution rate and structure in a bid to ensure all employees in Kenya are financially secure after they retire.
Legal Challenges
However, as soon as the Act was enacted, several petitions were filed before the Employment and Labor Relations Court (ELRC) challenging the Act. The ELRC declared the Act unconstitutional and issued orders halting its Implementation. However, the NSSF Board of Trustees appealed to the Court of Appeal (COA) which overturned the ELRC decision on the grounds that the ELRC lacked jurisdiction to hear the Petitions.
When the matter was further appealed to the Supreme Court (Kenya Tea Growers Association & 3 Others vs The National Social Security Fund Board of Trustees & Others (Petition No. E004 of 2023) the Supreme Court decided that the ELRC did have jurisdiction to hear the Petitions hence it referred the appeal back to the Court of Appeal to be determined on merit.
Though the appeal is yet to be determined afresh by the COA, the Supreme Court did not set aside the orders of the COA issued in February 2023 hence setting into motion the implementation of the Act.
What You Should Know: Increased Contribution Rates
Since February 2023, the Act has gone through 2 phases/years of implementation and we are now getting into year 3 commencing February 2025. This means the below provisions will now kick in:
- MANDATORY REGISTRATION AND CONTRIBUTION
All individuals subject to the Employment Act, 2007 who are 18 years or older and have not yet reached retirement age are expected to contribute to the Fund.
2. CONTIRUBUTIONS RATE AT 12% OF SALARY
Both the employee and the employers will each contribute 6% of an employee’s salary to NSSF.
3. TIERED CONTRIBUTIONS
- Tier I Contributions
Applies to monthly earnings of up to the lower limit which progressively increases depending on the year of implementation. This year, the lower earnings limit has increased to Kes. 8,000 from Kes. 7,000 last year.
- Tier II Contributions
Applies to earnings above the lower limit up to an Upper Earnings Limit. This year, the Upper earnings limit has increased from Kes, 36,000 to Kes. 72,000.
4. FLEXIBLE CONTRIBUTIONS
Employers and employees can opt to direct Tier II contributions to private pension schemes approved by the Retirement Benefits Authority (RBA).
5. PENALTIES FOR DEFAULT
- Failure to comply attracts a penalty of 5% of unpaid contributions per month
| YEAR | TIER | RATE | EMPLOYEE CONRIBUTION | EMPLOYER CONTRIUTBION | TOTAL |
| YEAR 2 – FEB 2024 | TIER I | 6% OF LOWER LIMIT (7,000) | 420 | 420 | 840 |
| TIER II | 6% OF 29,000 = UPPER LIMIT (36,000) MINUS LOWER LIMIT (7,000) | 1,740 | 1,740 | 3,480 | |
| TOTAL NSSF CONTRIBUTION IN 2024 | 4,320 | ||||
| YEAR 3 – FEB 2025 | TIER I | 6% OF LOWER LIMIT (8,000) | 480 | 480 | 960 |
| TIER II | 6% OF 64,000 = [UPPER LIMIT (72,000) MINUS LOWER LIMIT (8,000)] | 3,840 | 3,840 | 7,680 | |
| TOTAL NSSF CONTRIBUTION FROM FEB 2025 | 8,640 | ||||
WHAT IT MEANS FOR EMPLOYEES: TRIMMED EARNINGS
For employees, the increased contributions mean increased retirement benefits and financial stability in the long term. However, in the short term, their take-home pay is significantly reduced hence reducing their purchasing power.
What This Means for Employers
From an employer’s standpoint, these changes mean one thing: Increased operation costs.
This change will drive up staffing costs and heighten compliance requirements, particularly considering other statutory deductions introduced in recent years, including the Social Health Insurance Fund, the Affordable Housing Levy, and the revised upper PAYE bands
Despite the controversy and uncertainty over the implementation of the Act, NSSF issued a notice requiring all employers and employees to remit their pension contributions as per the Act. Employers are therefore left with no choice but to significantly adjust their staffing costs while employees will have to tighten their pockets with less money to dispose of. All in all, it is paramount to stay informed and compliant to avoid penalties.
For more information on what this information means to you and how to comply, feel free to reach out to us on info@mmw.legal for guidance tailored to your unique circumstances.
Written by:
- Stella Muraguri | Managing Partner MMW Advocates LLP
- Micheal Muya | Tax Lead MMW Advocates LLP