Why the employer's NSSF share cannot come from pay
Why a Kenyan employer cannot recover its own NSSF contribution from staff pay, how the matching shares work, their tax treatment and late penalties.
By Achekam · · 4 min read · For Running a business businesses in Kenya
Every month the payroll shows two NSSF amounts for each employee: the part taken from their pay and the part the business adds. When margins are tight, an owner sometimes asks whether staff could simply carry both. It looks like a small change on a payslip.
The NSSF Act answers the question directly, and the answer is no. This article explains the prohibition, how the two shares are calculated, how they are treated for tax, what late payment costs and how to present the contributions so that nobody is misled.
The legal prohibition
Section 22 of the National Social Security Fund Act, 2013, as consolidated on Kenya Law, forbids an employer from deducting the employer's own contribution from the employee's earnings. The employer must pay it from its own resources.
The rule is about substance, not wording. Deducting both shares from a worker's pay and remitting them as though the employer had paid its part is what the section prohibits, whatever the payslip calls the second deduction. Be careful, too, with pay packages that achieve the same effect indirectly, such as a salary described as "inclusive of the employer's NSSF" with both shares then taken from it. If an arrangement like that is proposed, take advice before anyone signs it.
Matching six per cent shares
Section 20 of the Act sets pension contributions at six per centum of the employee's monthly pensionable earnings from the employer, plus six per centum deducted from the employee, paid on the ninth day of each month. In the Fund's early years, contributions follow the Act's Third Schedule, so check the current earnings limits with NSSF before relying on any figure.
A worked example in words: for each employee, payroll works out six per cent of pensionable earnings, within NSSF's current limits, and deducts it from pay. The business then adds an equal amount of its own. Both amounts go to NSSF together. The employee's net pay falls by one share only; the business's costs rise by the other.
A quick test catches most mistakes. On the first payslip for every new employee, and after any change to the payroll set-up, look at the NSSF deduction: it should equal one share, not two. Then compare the NSSF schedule's total with the sum of both shares across the team. If the deductions alone add up to the schedule total, the business is not paying its part.
That second share is a real cost of employing someone, alongside other employer contributions; what an employee costs on top of salary puts it in context.
Tax deductibility of contributions
Section 67 of the Act makes contributions to the Pension Fund, including a contracted-out scheme, at the prescribed rates a tax-deductible expense for the employer or employee. For the business, the employer's share is an allowable cost in working out taxable profit, which softens its effect. For the employee, their own share reduces the income on which tax is charged.
Employers that contract out of the second tier to an approved scheme should read NSSF Tier II and contracting out, because the contributions then follow a different route.
The penalty for late contributions
Section 27 of the Act adds a penalty of five per cent of an unpaid contribution for each month, or part of a month, that it remains unpaid after the due date. The penalty runs month after month, so a contribution missed in a difficult quarter grows quickly.
There is a second exposure. Once the employee's share has been deducted, it is the employee's money held for NSSF. The Employment Act makes it an offence for an employer to fail to remit deductions it has made, punishable by a fine of up to one hundred thousand shillings or two years' imprisonment, and the court may also order the employer to refund the employee and pay the intended beneficiary from its own funds. Holding deductions back to ease cash flow is a serious step, discussed in holding back payroll deductions.
How Achekam posts each share
In Achekam, an approved pay run is posted to the business's own ledger as a wages journal, with the amounts owed to the tax authority and the funds shown as liabilities. Kenyan payroll calculates NSSF Tier I and II alongside PAYE, SHIF, the Affordable Housing Levy and the NITA levy, and each contribution posts to its own liability account.
In the books, the employee's share is part of gross pay that is withheld and owed to NSSF; the employer's share is an additional employment cost, also owed to NSSF. Until the payment is made, both sit as a liability, which makes an unpaid contribution visible on the balance sheet instead of hiding in a bank reconciliation.
Presenting contributions on payslips
The Employment Act requires a written pay statement showing gross pay, each deduction and its purpose, and how the net amount is paid. The employee's NSSF share is one of those deductions and belongs on the statement with a clear label.
The employer's share is not a deduction and should never appear in the deductions column. If you want employees to see the full value of their pension contributions, which is worth doing, show the employer's share separately, under a heading such as "contributions paid by your employer", clearly outside the calculation of net pay. An employee who sees both shares understands that the business is meeting its side, which is the point of the rule.
The NSSF Act on Kenya Law sets out the mandatory contributions from employer and employee, Tier I and Tier II, the schedule of earnings limits and the employer's right to contract out of Tier II.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
