1. Introduction

 The new NSSF Act was passed by Parliament, and assented to by the President, thus coming into force on 10th January, 2013. It in effect repealed the earlier Act (Cap 258, Laws of Kenya), with savings limited to transitional provisions.

In our keen look into the provisions of the new Act, we have noted that the provisions which have great impact on Kenyan employers are provisions relating to contributions to the Fund.

2.    Contributions to the Fund

  • Registration to the Fund

Under the Act, it is a requirement that every employer, who under a contract of service, employs one or more employees shall register as a contributing member of the Fund. He is also required to register his employees as members of the Fund.

  • Definition of an employee under the Act

Any person who has attained the age of eighteen years and who is:

a) Employed in Kenya under a contract of service;

b) Ordinarily resident in Kenya and is employed outside Kenya (or partly in and partly outside Kenya) under a contract of service entered into with an employer who resides in or has a place of business in Kenya; or

c) Is ordinarily resident in Kenya and is employed under a contract of service as master or a member of the crew of any ship, or as pilot, commander, navigator or member of the crew of any aircraft, where the owner of the ship or aircraft (or managing owner if there is more than one owner) or the manager resides in or has a place of business in Kenya;

 However, the above definition does not include a person who;

a) is undergoing full-time instruction in a school, or in any such place of education or training as may be prescribed for the purposes of this definition, or who is an apprentice; and

b) Is not in receipt of wages which provide him wholly or substantially with a livelihood.

The Act makes it an offence for any employer who fails, neglects or refuses to register his employees, and provides for the following penalties;

a) Fine not exceeding Kshs. 50,000/-

b) Inability to access public services without proof of registration with the Fund.

The Act, under Section 18, creates two funds;

a) The Pension Fund, and

b) The Provident Fund.

The Act provides that on the commencement date, the members of the old Provident Fund shall automatically become members of the Pension Fund which means that the Act has created a Pension Fund and Scrapped out the Old Provident Fund.

The Provident fund is the one that was being run by the NSSF under the old Act, and the new Act provides that the Fund shall continue to run the old provident fund for the purposes of dealing with and settling all matters still outstanding under the repealed Act. The old fund, however, shall only operate for Five (5) more years and shall thereafter be scrapped.

3.   Amount of contributions
Under the old NSSF Act, contributions to the fund were in the sum of KShs.200/= from the Employer and KShs. 200/= from the Employee. In the new Act, contributions to the Fund are to be made on monthly basis at an aggregate of 12% of the aggregate monthly pensionable earnings of an employee, with the employer contributing 6% of this, and the employee making the remaining 6%.

However, in the first five years, contributions shall be deducted in accordance with the following table which is provided for under the Third Schedule of the Act

 Year  Lower Earnings Limit Upper Earnings Limit
 1  6,000 50% of National AverageEarnings
 2 7,000 1 times National Average
Earnings
3 8,000 2 times National AverageEarnings
4 9,000 3 times National AverageEarnings
 Year 5 onwards Lower Earnings Limit as
provided in regulation
2(a) of this Schedule.
4 times National Average Earnings

Further to Third Schedule, the contributions to the Employee’s account shall be made in two tiers, that is, Tier I and Tier II.

(i)Tier I;- these are defined as contributions for any month, in respect of pensionable earnings up to the Lower Earnings Limit

(ii)Tier II;- refers to contributions in respect of pensionable earnings above the lower earnings limit.

In other words, the lower and upper earning limits are in respect of the gazetted minimum wages. Therefore if you are making contributions for an employee who is paid the minimum wage, this shall be credited to Tier I, while an employee who is paid at the upper earning limit, which is calculated at 4 times of the minimum wage, his contributions shall be credited to Tier II contributions.

4.  Computation illustration
Tier I contributions

For employees earning the amounts demonstrated below:

Scenario Employee Earning  Pensionable Earning Employee Deduction Employee Contribution Total Contribution
 1.  3,000.00 3,000.00 180.00 180.00 360.00
 2. 4,500.00 4,500.00 270.00  270.00 540.00
 3. 6,000.00 6,000.00 360.00  360.00 720.00
 4.  10,000.00 6,000.00 360.00  360.00 720.00
 5.  14,000.00 6,000.00 360.00  360.00 720.00
 6.  18,000.00 6,000.00 360.00    360.00 720.00
 7.  20,000.00 6,000.00  360.00  360.00  720.00

NOTE: The contributions for employers with salaries above Kshs. 18,000/- for Tier I are subject to a maximum of Kshs. 720/-

Tier II contributions

For earnings demonstrated below

Scenario Employee Earning  Pensionable Earning  Employee Deduction  Employee Contribution  Total Contribution
 1.  3,000.00  0.00  0.00  0.00  0.00
 2.  4,500.00  0.00  0.00  0.00  0.00
 3.  6,000.00  0.00  0.00  0.00  0.00
 4.  10,000.00  4,000.00  240.00  240.00  480.00
 5.  14,000.00  8,000.00  480.00  480.00  960.00
 6.  18,000.00  12,000.00  720.00  720.00  1,440.00
 7.  20,000.00  14,000.00  720.00  720.00  1,440.00

NOTE: contributions for employees earning Kshs. 18,000/- and above are subject to a maximum of Kshs. 720/-

NOTE: The totals for both Tier I and Tier II should give you the total for an employee’s contributions towards the Tier.

Under the Act, an employer making contributions for employees who are paid at the upper limit, which are credited to Tier II, he may opt out of the Fund and pay his contributions to a contracted scheme that it participates in or opts to establish or to participate in.

5. The procedure for opting out by an employer
a)The employer shall issue a Sixty (60) days opting request/notice to the Retirement Benefits Authority setting out such details of the Scheme as the authority may require.

b)On finding out that the scheme meets the test of contracting out schemes, the authority shall within Thirty (30) days give its approval or reject the request.

c)On approval, Tier II contributions of its employees shall be transferred to scheme.

The Act strictly provides that Tier I contributions shall be paid to the pension fund.

NB;-It is important to note that, the employer is only permitted under the Act to recover the employee’s contribution to the Fund from the employee’s earnings but shall not be entitled to recover his own contributions from the employee’s earnings but shall make contributions from his own resources.

6.Intervals for making contributions
Contribution intervals shall be one month after the end of the month in which the last contribution was made to the Fund.

7.Penalty for default in payment and incorrect contributions
Any amounts unpaid at the last day of previous payment shall be added 5% of the amount owing.

8.Persons exempt from registration in the Fund
1.Persons exempt from contribution to social security under international covenant.

2.Persons not ordinarily residents of Kenya and employed in Kenya for a period not exceeding three years.

9.Offences under the Act
1.Evading payment of any contribution

2.Knowingly making or causing to be produced any false statement

3.Making or causing to be made a statement a false statement in order to benefit another person.

4.Willfully misrepresenting or failing to disclose any material facts or failing to make payments within the prescribed period

5.Receiving a benefit from a non-disclosure or misrepresentation

6.Failing to comply with any regulations made under the Act, as a result of which loss is occasioned to the Fund.

7.Obtaining any consent required under this Act under duress

8.Deducting from the employee’s earning in respect of any contributions to the fund greater than the employee’s share of the statutory contribution.

10.Penalties
1.For offences 1,2,3 or 5, to remit the contributions plus interest at mean bank rates, and for 2, to produce the record in question and 3 or 5 a fine equivalent to the amount owed

2.For offence number 4 fine not exceeding Kshs. 500,000/- or imprisonment for period not exceeding three years.

3.Under offence number 6 to pay in full the loss occasioned to the fund

4.For offence number 7 to a fine not exceeding Kshs. 500,000/-

5.In respect to offence number 8 to refund the excess deductions to the employee together with interest at mean bank rates.

6.For offences which are not provided under the Act, a fine not exceeding

Kshs. 500,000/- may be imposed on conviction or a sentence not exceeding three years.

Conclusion

In light of the foregoing, the foregoing analysis of the provisions of the Act, it is our opinion that employers will face a challenge in meeting the contributions to the fund, for the simple reason that there has been an increase imposed by the new law.

The Act makes it mandatory that every employer should be registered as a contributing member to the Fund; however, the employer has an option of not making the contributions to the NSSF Fund, if the same are of Tier II category.

It is also important to note that, failure of an employer to register as a contributor to the fund will be met with very serious ramifications, which are;

a)An employer will not be able to access public services without proof of membership.

b)A fine not exceeding Kshs. 50,000/- will be sanctioned against defiant employers.

c)In-case of late submissions of contributions, the late submissions will attract a penalty of 5% of the outstanding contributions.

The only reprieve for Employers is that the Commencement Date for the new remittances has been moved to the 31st of May 2014. This allows a reasonable transition period to enable Employers adjust/comply with the new legal provisions. In the meantime, the contributions shall continue at the previous rates.