Economy

Fund for sacked employees now inches closer to reality

chelugui

Cabinet secretary for labor Simon Chelugui. PHOTO | LUCY WANJIRU | NMG

The Labour ministry has completed stakeholder mapping and is now ready to move to the next stage of establishing an Unemployment Fund which will offer salaried employees a temporary relief after being fired.

Labour Principal Secretary Peter Tum says the proposed Unemployment Insurance Fund (UIF) has now received backing from within the government, paving the way to engage the Federation of Kenya Employers (FKE) and the Central Organisation of Trade Unions (Cotu).

Under the plan, salaried workers who become jobless due to unforeseen economic shocks will continue receiving a portion of their pay for six months, after which they would be expected to have acquired skills to help them secure another job.

“Before we engage the stakeholders, the government — working as one unit — must be able to understand the direction we are going so that once it’s conceptualized, we are on the same page and then stakeholder engagement comes in,” Mr Tum told the Business Daily.

“We have finished with stakeholder mapping and we will now do stakeholder engagement before we start the process of making it the law.”

The proposed Fund, which is a reaction to Covid-19 shocks, will see employees contribute one percent of their monthly pay to be matched by employers.

This could generate at least Sh43.94 billion to the fund annually on implementation, going by an estimated wage bill of Sh2.197 trillion in the public and private sector in 2020.

The labour ministry is however expected to receive a push back from FKE which has raised concerns on the effectiveness of the contributory fund since it will only offer a short-term monthly stipend to workers.

The employers’ lobby has instead proposed the creation of an Employment Insurance Fund (EIF) which will give cash-strapped firms cash to enable them to keep workers on the payroll during unforeseen crises until the economy stabilises.

Such a scheme, FKE argues, will enable struggling firms to remain productive while the worker maintains a disposable income, supporting the economy through a crisis like the Covid-19 pandemic shocks on corporate earnings.

“Enterprises should not be left to their fate. We need to build enterprise resilience and recovery at the same time if we are to absorb and retain our people in decent jobs,” FKE executive director Jacqueline Mugo said at a past engagement.

The unemployment scheme being proposed by Kenya mirrors that which has been in place in South Africa since April 2002 where employees contribute one percent of their pay which is matched by employers.

Ms Mugo has, however, insisted such schemes have worked well in either developed or upper-middle-income countries which have a comprehensive social protection framework.

Kenya, she says, will need “wide and meaningful social dialogue for purposes of building consensus on the best structure and financing model to adopt”.

The proposal for the unemployment fund was first fronted by the Kenya Association of Manufacturers and consultancy firm KPMG in September 2020 before it was adopted by the National Treasury in the Post Covid-19 Economic Recovery Strategy 2020-22.

Tum says once employees who become involuntarily jobless are put on temporary state relief, the Kenya National Employment Authority will be at hand to provide them with information on “skills you are most likely to be employable”.

On the other hand, the National Industrial Training Authority will facilitate re-skilling of the employees to match the demand of the job market.

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