NSSF Contiributions Mandatory for all Formal Entities and Employers

Acting managing director of the National Social Security Fund (NSSF), Mr. Patrick Ayota announced a 30-day window effective 28th March, 2023, for all formal entities and employers to register and start remitting contributions to the NSSF on behalf of their employees irrespective of the number of employees. Once this window closes, any registration will attract tougher penalties. These changes are aimed at effecting the provisions of the NSSF Amendment Act, 2022, which requires all employers in specified categories to be enrolled for the Pension Fund Contributions.

It is mandatory for every eligible employee to register as a member and make contributions to the NSSF. Every employer is also obliged to register with the NSSF as a contributing employer. The employee’s contribution amounts to 5% of his monthly wage while the employer’s contribution amounts to 10% of the employee’s monthly wage. According to the Old Law (the National Social Security Fund Act, 1985), an employer would register its employees for NSSF membership and contribution of its employees numbered at least five or more.

However, the amended Act under Section 4(b) which amends Section 7(2) of the principal Act provides that “every employer, irrespective of the number of employees, shall register with the Fund as a contributing employer and shall make regular contributions for his or her employees in accordance with this Act and regulations made under this Act.” This repeals the provision allowing cancellation of registration of a member if in the 2years immediately preceding their application, the member has employed less than the minimum number of employees required (i.e., 5employees) for compulsory registration. Previously, employers were only eligible for compulsory registration and contribution if they employed five people. However, voluntary registration for employers that did not meet this threshold was acceptable.

The amended Act also redefines an “employer” to include “the Government; a company registered or incorporated under the Companies Act, 2012; a partnership registered under the Partnership Act, 2010, a trustee incorporated under the Trustees Incorporation Act, Cap. 165; a business registered under any other law for the time being in force governing the establishment of business entities; the governing body of an unincorporated association; and a manager or a subcontractor who provide employees for the principal contractor; but where a person enters into a contract by which some other person is to provide employees for any lawful purpose of the manager and it is not clear from the contract which of the two persons is the employer, the manager shall be deemed for purposes of this Act, to be the employer.”

Penalty: Section 44(1)(f) of the NSSF Act provides that “Any person who fails to pay at or within the time prescribed under or by the Act or the regulations any contributions or payment which he or she is liable under this Act to pay commits an offence and is liable to a fine not exceeding ten thousand shillings or to a term of imprisonment not exceeding six months or both.”

Given that the law came into force a year ago, employers should have registered and started remitting social security contributions for their employees effective January 7, 2022. However, implementation of these provisions was overshowed for months by the claims, allegations and counter-claims by NSSF bosses and the Gender Minister who is the political co-supervisor of the Fund as per Section 29(3) of the NSSF Act.

In addition to the above, the amendment also introduced greater flexibility for individuals to receive payments from the NSSF: mid-term access to benefits by members who are 45years and above and have made contributions to the NSSF for at least 10years. Further, every worker can voluntarily save with NSSF, over and above the mandatory combined 15% contribution. Any self-employed persons or any other person may also apply for membership and make voluntary contributions to the NSSF.

The rationale of these amendments is to help expand social security contribution coverage and booster the Fund’s financials. In addition, the amendment is also meant to correct the defects in the old law- the NSSF Act which was enacted in 1985, considering the fact that since then, the labour market, the country’s demographics, the standard of living, member’s social security needs, and even the country’s social-economic development needs have all changed.

In conclusion, Kakuru and Co. Advocates advises to all companies, partnerships and other employers who fall under the above definition to register with NSSF before the deadline in compliance with the regulatory processes.