The National Social Security Fund (NSSF) has issued a notice to all employers regarding adjustments in contribution rates for year 2, aligning with the 3rd Schedule of the NSSF Act Cap 45 of 2013.
This move has significant implications for both employees and employers.
The revised lower limit for Tier I contributions is set at Sh7,000, up from the current Sh6,000. This results in a deduction increase from Sh360 to Sh420.
Employers are required to match this contribution with Kes 420.
The upper limit for Tier II contributions has increased from 0.5% of the national average wage to 1%.
Consequently, the deduction doubles from Sh720 to Sh1,740. Employers must match this Tier II contribution with Sh1,740.
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The new contribution rates will come into effect on February 9, 2024. It's crucial to note that Tier II deductions are still based on the national average wage reported in 2013/14.
How new deductions will affect Kenyans' pay slips
The new deduction means that Kenyans earning more than Sh36,000 will see their NSSF deduction double from the current Sh1,080 to Sh2,160.
This means that employees will witness a reduction in their take-home pay, further impacting their ability to navigate the challenging economic landscape.
Employers will also be required to match the Sh2,160. The total money to be remitted to an employees NSSF account will be Sh4,320.
The heightened cost of basic necessities, coupled with the high fuel prices and inflation, has left many Kenyan workers grappling with a reduced spending power.
The situation is particularly challenging for those in lower-income brackets, where every shilling holds significant weight in meeting day-to-day expenses.
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As NSSF contributions rise, employees may find themselves tightening their belts even further, affecting discretionary spending and potentially leading to challenges in meeting financial obligations.
On the employer's side, the increased contribution rates directly translate to elevated payroll costs. With the employer mandated to match the employees' contributions, businesses are confronted with higher wage bills.
This scenario poses a dilemma for employers who are already contending with various operational challenges, including rising operational costs, taxes, and economic uncertainties.