The effect of the Supreme Court Judgment on the NSSF Contributions

Introduction

On 21st February 2024, the Supreme Court delivered its judgment in Petition No. E004 OF 2023 as consolidated with Petition No. E002 OF 2023; KTGA & 2 Others v. The NSSF Board of Trustees & 6 Others. The subject of the dispute concerns the constitutionality of the National Social Security Fund Act, 2013 (“the Act”). Initially, on 19th September 2022, the Employment and Labour Relations Court (“ELRC”) had delivered a judgment declaring the Act unconstitutional on the basis, among others, that the Act had the effect of making NSSF the sole provider of social and security services.

The Court of Appeal in a judgment delivered on 3rd February 2023 overturned the decision of the ELRC finding, among others, that the ELRC did not have jurisdiction to hear the dispute as it did not concern an employer-employee dispute but was rather an issue relating to the constitutionality of statute which, in the Court of Appeal’s view, was within the jurisdiction of the High Court.

As at 3rd February 2023 therefore, the Act was declared constitutional, and became operational. Pursuant thereto, employers have been making deductions of pension contributions at the cumulative rate of 12% (6% contribution by the employee and 6% contribution by the employer). This was an increase from the Kshs.400 contribution under the National Social Security Fund Act No. 28 of 1965 to a maximum of Kshs.2, 160 under the Act for employees whose earnings are more than Kshs.18, 000/- per month.

On 21st February 2024, the Supreme Court overturned the Court of Appeal decision, finding that the ELRC had jurisdiction to hear and determine the dispute as presented. The Supreme Court thereby remitted the matter back to the Court of Appeal for hearing on the substantive appeal from the decision of the ELRC on a priority basis.

Conclusion

Our view on the implication of the Supreme Court Judgment is as follows:

  1. The decision of the ELRC delivered on 19th September 2022 is the operative position pending the hearing and determination of the appeal by the Court of Appeal.

Employers are advised to make arrangements to submit their contributions in accordance to the new NSSF Act as set out below:

Year 1 contribution rates, 2023

 NSSF Pension contributions rate is 12% of the pensionable earnings; 6% from the employee and 6% from the employer below subject to an upper limit of Kshs.2,160 /= as outlined in the next slide:

Year 2 contribution rates, 2024

 National Social Security Fund (NSSF) notify all employers of the NSSF Contribution Rates for the Second Year as indicated below.

Timelines - This came into effect from the February 2023 Payroll.

CPA Nimrod Kurgat 

CEO/ Lead Partner

CPA Virginia Kamau

Tax Team Leader

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