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Higher NSSF deductions start this month: What the payslip will look like
The NSSF Act, 2013 provides leeway to pay Tier II contributions to a contracted-out scheme for employers who have already established occupational schemes or are contributing to an umbrella or individual schemes (contracted-out schemes).
The third year of implementation of the National Social Security Fund Act of 2013 starts this month and brings with it an increase in contributions.
This is because Tier I contributions will now be calculated based on Sh8,000 up from Sh7,000 while Tier II contributions will be calculated based on 200 percent of the National Average Earnings, currently set at Sh36,000 per month.Â
Tier I contributions will now increase from Sh420 to Sh480 for employees with employers matching the same. This represents 6.0 percent of Sh8,000. Tier II contributions will be calculated as 6.0 percent of the lower of employee’s pensionable earnings or Sh72,000 less Tier I contributions.
Therefore, for all employees with pensionable earnings of Sh72,000 and above, the Tier II contributions will increase from Sh1,740 to Sh3,840 with employer matching the same.Â
Overall, the monthly contributions will double from Sh2,160 to Sh4,320 for both the employees and employers which will result in more deductions from employees’ salaries and increased employers’ contributions.
As a result of this increase, employees’ disposable income will reduce thereby affecting their purchasing power, which will adversely affect the economy through reduced consumption.
This will in turn again affect production and by extension the gross domestic product. In addition, businesses will have to incur double the costs thus further stretching business cash flows in this already challenging economic time.Â
The NSSF Act, 2013 provides leeway to pay Tier II contributions to a contracted-out scheme for employers who have already established occupational schemes or are contributing to an umbrella or individual schemes (contracted-out schemes).
The regulations require employers to apply to the Retirement Benefits Authority at least 60 days prior to the intended date of contracting-out and also obtain a Contracting-out Certificate.
It is clear that there will be a decrease in employees’ disposable income and a significant increase in operational costs to businesses operating in Kenya with a greater impact on employers who have not established occupational schemes or contributing to umbrella or individual schemes.Â
Employers will also have to relook at their pension contribution provisions for the occupational, umbrella or individual schemes with possible amendments to the scheme’s trust deed and rules to allow them to offset NSSF contributions against contributions to their schemes.
This will enhance better management of costs and increase employees’ disposable income.
The writer is a Partner with PKF Kenya LLP and trustee of PKF Occupational Scheme