INTRODUCTION
In a bid to enhance savings culture amongst its employees and its citizens as a whole, the Parliament enacted the National Security Social Fund Act, 2013 (NSSF Act). The Act sought to increase the amount deductible from an employee’s salary into the fund from Kshs. 200 to at least 6% of the employee’s salary. This was the first increase in over decade since last increase from Kshs. 160 to Kshs. 200 in 2001.
The NSSF Act has however been subject of litigation since 2014. Kenya Tea Growers Association and 14 others had moved to the Employment & Labour Relations Court (ELRC), contesting the constitutionality of the NSSF Act, claiming public participation was not carried out effectively and the senate was not involved in the legislative process. The Court on 19th September 2022 agreed with the petitioners and declared the law unconstitutional.
An appeal was instituted before the Court of Appeal. On 3rd February 2023, the appellate court held that the ELRC had no jurisdiction to hear and determine the matter as it did not involve employer-employee dispute. The appellate court also held that the ELRC had no jurisdiction to question constitutionality of the NSSF Act which mandate is the preserve of the High Court.
The judgment in part read:
“We find that the Employment and Labour Relations Court (ELRC) made a mistake in declaring the Act unconstitutional when it had no jurisdiction to question validity of the law as that was a preserve of the High Court.”
Effectively, the appellate court overturned the decision of the ELRC and allowed the implementation of the NSSF Act consequently allowing for the increase in monthly deduction as outlined by the NSSF Act 2013 among other amendments.
The National Social Security Fund Board of Trustees, the Retirement Benefits Authority and Federation of Kenya Employers are set to implement the NSSF Act with effect from 9th March 2023.
SALIENT FEATURES OF THE ACT
Employers are mandated to register their employees with NSSF
Section 19 of the Act mandates employers to register their employees with the National Social Security Fund (the Fund). Failure to register constitutes an offence on part of the employer.
Employers are mandated to make monthly contributions for their employees.
Section 20 mandates the employers to make monthly contributions to the Fund on the 9th day of every month. The employee is to pay 6% of their monthly salary to the Fund and employer is also to pay an additional 6% of the employee’s monthly salary to the Fund. What is the implication of this to both employers and employees? Inevitably the employees will have to dig deeper from their salaries to pay the new NSSF remittances. On the other hand, employers have an additional operational cost to sustain each employee.
Section 22 prohibits the employer from deducting the employer’s contribution from the employee’s salary. This means that the employer is to pay the employer’s contribution from their pockets and not deduct it from the employee’s salary.
Consequences of late NSSF remittance by the employer
Under Section 27 of the Act, if an employer delays to remit the NSSF contribution for an employee, he will be liable to pay an additional 5% of the 6% monthly contribution payable which is added to the contribution for each month or part of a month that the amount due remains unpaid. Therefore, employers have a chip on their shoulders to ensure that the employer’s contribution to their employee is remitted on time lest they face the penalty on any amount remitted late.
Protection of the funds of the members
Section 30 of the Act, protects the funds of the members and provides that any benefit payable out of a member’s account under this Act shall not be: assigned, pledged, transferred or sequestered; set off against any debt of the member entitled to the benefit; or attached, levied or executed in any form under a judgment or order a court of law.
The sum in the Fund is meant to ensure that members live a decent life post their working life. Therefore, Section 30 protects members funds from being utilized for other purposes such us setting off debts, assigned to someone else or even used to execute court judgments.
There is however an exemption to an instance where the member has taken a mortgage loan and used their NSSF contributions as security.
Employee can secure a loan with the NSSF contributions.
As mentioned earlier section 31 allows for a prescribed portion of the members funds to be used in securing a mortgage loan from a bank, building society or other financial institution.
An employee with two employers benefits with contribution from both employers. Under section 32, provides that a member of the Fund who is concurrently employed by more than one employer, each individual employer is responsible for the contribution under the Act. This means that an employee who is engaged by more than one employer is allowed to benefit from the employer’s contribution from each individual employer.
The increase in contributions in the midst of the current economic turmoil has not sat well with most employers. With changes in NSSF contributions, the Federation of Kenya Employers released a statement requesting the government to give them time to allow them adjust to their budgets accordingly to accommodate the new changes lest businesses risk closing shop on account of the increased operational costs.
Currently, the County Pensioners associates have filed an appeal before the Supreme Court and an application seeking to stay the orders issued by the Court of Appeal pending the hearing of their appeal. The matter was before the Deputy Registrar of the Supreme Court on 6th March 2023 who directed that the Chief Justice should constitute a bench to hear and determine the case. At the time of this writing, the Supreme Court is yet to issue conservatory orders staying the implementation of NSSF Act meaning that the provisions of the Act are currently in effect.
Inevitably, whether or not the Act will be fully be implemented will have to await the Judgment of the Supreme Court.
NOTE: This article is for general information and does not constitute legal advice. If interested in getting legal advice or guidance in respect of the above area, kindly do not hesitate to contact us.
PUBLISHED ON 8TH MARCH 2023
WRITTEN BY;
GODE DENNIS OCHIENG
gode@knlawkenya.co.ke
DAISY MUYA BLANDINA
daisy@knlawkenya.co.ke
© 2023 Kiingati Ndirangu & Associates
KN LAW KENYA
