Starting February 1st, Kenyan salaried employees will face significantly increased National Social Security Fund (NSSF) deductions as the government implements the third phase of its contribution plan.
Under this framework, both employees and employers will contribute 6% of an employee's salary to NSSF. This translates to a minimum contribution of Sh480 per month, up from Sh420. High-income earners will see a substantial increase, with maximum contributions reaching Sh4,320 compared to the previous Sh2,160.
The new contribution rates apply to salaries between Sh8,000 and Sh72,000, a considerable expansion from the previous Sh7,000 to Sh36,000 range. Consequently, individuals earning above Sh72,000 will bear the brunt of these adjustments.
For example, an employee earning Sh50,000 per month will now contribute a total of Sh3,000 to NSSF, a significant jump from the current Sh2,160. This increase, coupled with existing deductions for Social Health Insurance Fund (2.75%), housing levy (1.5%), and income tax (approximately 35%), will significantly impact disposable income.
Background:
The NSSF Act of 2013 mandated a gradual increase in contributions to 6%. While initially scheduled for 2014, implementation faced legal challenges and was delayed until 2023.
Government Rationale:
The government aims to amass Sh1 trillion through these increased contributions by 2027. President Ruto has defended the new framework as "fair, equitable, and progressive."
Concerns and Criticism:
Despite the government's assurances, both employers and employees have expressed concerns about the financial burden of these increased deductions. Employers particularly worry about the impact on their operating costs.
Impact on Individuals:
Financial analysts estimate that employees earning Sh50,000 will take home approximately Sh39,000 after all deductions, while those earning Sh100,000 will retain around Sh72,000.
This significant increase in NSSF contributions adds another layer of financial pressure on Kenyan workers, particularly amid rising living costs.
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