The National Social Security Fund (NSSF) provides retirement benefits to workers in Kenya. Under the NSSF Act 2013, contributions are split into two tiers. Both the employer and the employee contribute equally to each tier, making NSSF a shared obligation. Understanding the tier structure is critical for accurate payroll processing and compliance.
Tier I and Tier II Explained
Tier I is mandatory for all employees and covers pensionable earnings up to the lower earnings limit of KES 7,000 per month. The contribution rate is 6% of pensionable pay, split equally between employer and employee at 6% each on the amount up to KES 7,000. Tier II covers earnings between KES 7,000 and the upper earnings limit of KES 36,000 per month, also at 6% each from employer and employee.
| Tier | Earnings Band (KES/month) | Employee Rate | Employer Rate | Max Employee (KES) | Max Employer (KES) |
|---|---|---|---|---|---|
| Tier I | Up to 7,000 | 6% | 6% | 420 | 420 |
| Tier II | 7,001 - 36,000 | 6% | 6% | 1,740 | 1,740 |
| Total | - | - | - | 2,160 | 2,160 |
How to Calculate NSSF Contributions
For an employee earning KES 50,000 per month, the Tier I contribution is 6% of KES 7,000 = KES 420 from the employee and KES 420 from the employer. The Tier II contribution is 6% of (KES 36,000 - KES 7,000) = 6% of KES 29,000 = KES 1,740 from each party. The total employee deduction is KES 2,160 and the employer also contributes KES 2,160, for a combined remittance of KES 4,320.
NSSF contributions are tax-deductible. The employee's share (up to KES 2,160) is deducted from gross pay before calculating PAYE, reducing the taxable income. The employer's contribution is a tax-deductible business expense.
Compliance and Remittance
Employers must remit NSSF contributions by the 15th of the following month through the NSSF portal, bank, or M-Pesa. Late payment attracts a penalty of 5% of the contribution amount per month. Employers must also register new employees within 30 days of their start date. Keeping accurate payroll records and generating timely reports helps avoid compliance issues.
Common Mistakes to Avoid
- Using the old flat rate of KES 200 instead of the tiered system under the 2013 Act.
- Failing to include allowances that form part of pensionable pay in the calculation.
- Not registering casual or contract workers who are also eligible for NSSF.
- Missing the remittance deadline and accumulating penalty charges.
- Deducting only the employee share without matching it with the employer contribution.
