How to Calculate New NSSF Rates 2023

The National Social Security Fund (NSSF) is a key social protection system in Kenya, formed through the Act of Parliament No. 45 of 2013. It provides vital social security for members and their dependents. However, 2023 ushered in a new era for the NSSF, with changes to contribution rates following an extensive legal journey. This article will explain everything you need to know about these new NSSF rates and how to calculate them.

H2: The Path to the New NSSF Rates

H3: The 2013 NSSF Act and Court Battles

The new NSSF rates are rooted in the NSSF Act of 2013, which set out to increase employee retirement savings by changing how contributions were calculated. Under the previous regime, employers and employees would contribute a flat rate of KES 200 each, totaling KES 400 monthly.

However, the new law proposed changing this structure to a 12% contribution of an employee's monthly salary. This would be split equally, with 6% from the employee and 6% from the employer.

Despite the Act's consent into law on 24th December 2013, it faced numerous legal challenges. Employers filed a case in the Employment and Labor Relations Court (ELRC), leading to the declaration of the NSSF Act as unconstitutional in September 2014.

The NSSF Board of Trustees, displeased by this, launched an appeal arguing that the ELRC lacked jurisdiction to determine the constitutional validity of the Act. The case escalated to the Court of Appeal, which overturned the ELRC decision in February 2023, paving the way for implementing the new rates.

Calculating the New NSSF Rates

The key factor in the new NSSF rates is the percentage of the monthly salary used to calculate contributions. Under the new Act, 12% of an employee's salary is now contributed to the NSSF, with half coming from the employee and the other half from the employer.

To clarify things, the new NSSF rates are broken down into Tier I and Tier II. Employees earning KES 18,000 or more monthly contribute KES 2,160, with the employer matching this amount. This contribution is known as the Tier II contribution.

For employees earning below KES 18,000 per month, contributions are set at KES 1,440, with the employer contributing KES 720. This contribution is referred to as the Tier I contribution.

Impact of the New NSSF Rates on Employees

The shift from a flat rate to a percentage of salary means that employees will see significant changes in their take-home pay. For example, an employee earning KES 18,000 per month will now contribute KES 1,080 to the NSSF, compared to the previous KES 200. The employer matches this contribution, leading to a total NSSF contribution of KES 2,160. This represents a notable increase in retirement savings for the employee.

The effect is the same for those earning more than KES 18,000, but the total contribution is capped at KES 2,160. This means that no matter how high the salary, the total NSSF contribution from both employer and employee will not exceed KES 2,160.

Summary: New NSSF Rates 2023:

Next Steps for Employers

With implementing the new NSSF rates, employers must adjust their contributions accordingly. This involves deducting the correct amount from employees' salaries and matching it. They must also ensure these payments are made on time to avoid penalties.

The process involves updating payroll systems to reflect the new rates and ensuring correct deductions based on employees' earnings. The HR department must also clearly communicate these changes to employees and ensure they understand their net salaries' impact.

Employers are required to make their monthly NSSF contributions by the 15th day of the following month. Any delays will attract penalties as per the NSSF Act, which may include a 5% fine of the total amount due for each month delayed.

Impact on the Economy

The new NSSF rates are expected to boost the fund's assets significantly. This means more funds for investment, leading to potentially higher returns for members in the long run.

The increase in contributions also implies more cash inflows into the economy, especially the capital market, as the NSSF is a significant investor in government securities and the Nairobi Securities Exchange. This can lead to economic growth as these investments often spur job creation and other positive economic impacts.

However, some critics argue that the increased deductions may lead to reduced disposable income for workers, which could impact consumer spending and overall economic activity.

READ ALSO: New NSSF Rates: A Must-Read for Employers and Employees in Kenya

Conclusion

Understanding the new NSSF rates and their calculation is crucial for employers and employees. While this change means a decrease in take-home pay for employees, it also signifies a substantial increase in their retirement savings.

For employers, adjusting payroll systems and ensuring employees understand the changes. On a macroeconomic level, the change promises to inject more funds into the economy and the NSSF's investment portfolio, potentially fostering economic growth and enhancing the welfare of the fund's members in the long run.

Regardless of the various views surrounding this change, the new NSSF rates have come to stay. It is now up to individual employers and employees to adjust to this new reality and make the most of the situation.