NSSF targets casuals with new pension savings rules
Members of Public outside the Social Security House building that houses NSSF. Photo/FILE
What you need to know:
To rope in the casuals, NSSF has revised the legal definition of casual work that has been pegged on employment not exceeding 30 days and for which one is paid daily.
Employers have requested a four-month reprieve, saying the far-reaching regulations on casuals were pushed though too late in the day for most of them to opt out.
The National Social Security Fund has included casual workers in the list of mandatory contributors to its newly established national pension scheme.
This significantly increases employers’ pension obligations under the scheme, which will take in larger and larger contributions over the next few years.
Previously locked out of the NSSF-managed provident scheme, casual workers are now required to contribute six per cent of their earnings to the national pension fund regardless of the number of days contracted and their contributions matched by employers.
This is the same arrangement in place for full-time employees. The amount is set to increase gradually over a transition period that ends in 2018.
The new NSSF guidelines that were published last Friday require employers to “deduct and remit contributions for the casuals in accordance with the provisions of the Act.” To rope in the casuals, the NSSF has revised the legal definition of casual work that has been pegged on employment not exceeding 30 days and for which one is paid daily. It is now relying on a broader definition of contract of service (including written and oral contracts) to have employers contribute towards securing the casuals’ old age.
The NSSF accuses employers of exploiting the legal void to avoid contributing to their workers’ retirement.
“We realised that some employers have used this legal loophole to perpetually keep some workers casual,” the NSSF managing trustee Richard Lang’at said, adding that everybody in employment under a contract orally or implied now qualifies to contribute.
Mr Lang’at termed as pathetic the plight of construction site workers who stay on projects for more than three months without any savings towards their old age. Urban construction workers are paid up to Sh500 a day, translating to Sh12,500 a month.
The new law requires employers of such labour to contribute Sh750 a month and the workers to pay a similar amount to the NSSF.
Under the Act a contract of service means “an agreement, whether entered into orally or in writing, and whether express or implied, to employ or to serve as an employee for a period of time and includes a contract of apprenticeship or indentured learnership.” The employer will thus be required to forward the names and contributions of the casual workers paid in any given month along with those on the permanent staff list.
Sundeep Raichura, the managing director of Alexander Forbes, however, warned of the challenge that lies in keeping track of the small amounts forwarded by the millions of casual labour employers.
“It would be important to distinguish between self-employed service providers and contracted casuals,” he said.
Self-employed providers are expected to make their own pension contributions.
Employers reacted sharply to the new regulations, insisting that the NSSF needs to consult before applying them.
Jacqueline Mugo, the Federation of Kenyan Employers (FKE) executive director, said it was not fair for the NSSF to release such far-reaching regulations so late in the day denying everyone the opportunity to opt out of the scheme as provided for in the Act.
“There is no clarity as to who qualifies as a casual,” Ms Mugo said even as she questioned the rationale of putting low-income earners on the graduated NSSF rates that have replaced the flat rate of Sh400.
The FKE is asking for a four-month reprieve from the regulations that came into effect at the beginning of June.
Under the previous Act, casuals contracted for a period of less than 30 days were exempted from contributing to NSSF but had the option of joining private retirement schemes as voluntary members.
The Retirement Benefits Authority (RBA) has recently established a fund dubbed “Mbao Pension Scheme” that allows casuals and those in informal employment to save a minimum of Sh20 a day for their old age. The scheme has 55,000 members who have so far saved more than Sh85 million.
The NSSF said it will be working with the Kenya Revenue Authority (KRA) and the National Hospital Insurance Fund (NHIF) to enforce contributions.
Mr Lang’at said that most firms were quick to register staff they considered as casuals with the NHIF to avoid medical bills but did not do the same with retirement contributions. He said that through a partnership with the NHIF, the NSSF has roped in more than 80,000 new contributors since the beginning of the year mainly from security firms.
To avoid making the NSSF payments, companies with casual employers have been offering them 30-day contracts that are then renewed to keep them on the job.
The NSSF admits enforcing the rules will be a tough job that will force it to rely heavily on the goodwill of employers. Previous attempts to enlist casual workers, including domestic servants, have been futile.
Last year the NSSF warned of an impending door-to-door inspection to ensure that the more than 100,000 house helps and farm hands are included in the pension programme. The proposed actions were challenged in court leaving the fund without a means to administer compliance.
Under the new regulations monthly contribution will increase from a flat figure of Sh400 shared equally between the employer and the employee to 12 per cent of the employee’s salary, also shared equally by the two. Companies with private pension schemes will be allowed to opt out for amounts exceeding Sh720 upon approval by the RBA.
