By Sandip Jivan, Manager - Advisory
Following the recent Court of Appeal decision regarding the National Social Security Fund (NSSF) Act, 2013, and the subsequent public clarification issued by the NSSF Board, employers face critical updates regarding statutory payroll compliance. This brief outlines the current legal standing of the Act, the immediate impact on monthly contributions, and the actionable steps your organization must take to manage risk and align with current governance requirements.
Background
The constitutionality and implementation of the NSSF Act, 2013 has been the subject of prolonged litigation. In a judgment delivered on 19 September 2022, the Employment and Labour Relations Court (ELRC) declared the NSSF Act, 2013 unconstitutional, null and void on several grounds, including:
- Alleged failure to involve the Senate during the legislative process.
- Concerns that the Act created an unfair advantage in favour of NSSF over private pension schemes.
- Certain provisions being inconsistent with constitutional and statutory mandates of other institutions.
- Restrictions affecting access to public services by unregistered persons.
- Mandatory participation requirements despite existing retirement benefit arrangements.
Following the ELRC decision, the NSSF Board of Trustees filed an appeal and sought a stay of execution of the judgment pending determination of the appeal.
In considering the application for stay, the Court of Appeal applied the established legal principles requiring an applicant to demonstrate:
- That the appeal is arguable; and
- That the appeal would be rendered nugatory if a stay is not granted.
The Court found that the appeal raised arguable legal issues, including questions regarding the nature of NSSF and the legislative process leading to enactment of the Act. However, the Court held that NSSF had not sufficiently demonstrated that failure to grant a stay would render the appeal nugatory. Consequently, the application for stay was dismissed.
Importantly, the Court observed that the previous NSSF legislation (Cap. 258) would continue to provide a legal framework and therefore no legislative vacuum would arise.
Subsequent to the above court developments, NSSF issued a public statement clarifying its position regarding NSSF contributions.
According to the statement, NSSF maintains that:
- The NSSF Act, 2013 remains operational and enforceable.
- The pending matters before the Court of Appeal do not affect the contribution rates currently applicable under the Third Schedule of the NSSF Act.
- Employers and employees should continue remitting NSSF contributions at the enhanced rates currently in force.
- Employers are advised not to revert to the previous KES 200 contribution regime unless directed otherwise by the courts or through statutory amendments.
- NSSF remains committed to implementing all court decisions while safeguarding members' retirement benefits and contributions.
NSSF has further urged employers and stakeholders to disregard reports suggesting an immediate reversion to the former contribution structure and to continue complying with the current contribution requirements pending final determination of the matter.
Practical Implications for Employers
Continue Applying Current NSSF Rates
Employers should continue deducting and remitting NSSF contributions based on the prevailing contribution structure currently being administered by NSSF.
No Immediate Change Required
There has been no official directive from NSSF requiring employers to revert to the previous contribution rates under the former NSSF Act.
Monitor Ongoing Court Proceedings
The substantive appeal remains pending before the Court of Appeal and the final determination may have implications on future administration of NSSF contributions.
Maintain Compliance
To avoid potential penalties, interest and compliance challenges, employers should continue meeting their NSSF obligations as currently prescribed until further guidance is issued by the courts, NSSF or the relevant regulatory authorities.
Our Recommendation
In view of the latest NSSF communication and the absence of any formal directive changing the applicable contribution rates, we recommend that employers continue processing and remitting NSSF contributions under the current framework while closely monitoring developments in the pending appeal.
We will continue to monitor the matter and shall provide further updates should there be any significant legal or regulatory changes affecting employer obligations.
Should you require assistance in reviewing your payroll compliance, NSSF calculations, or understanding the implications of these developments on your organization, please do not hesitate to contact us.
