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Employers seek delay in NSSF Act implementation, cite labor sector woes
The Federation of Kenya Employers (FKE) has requested that the government reschedule the implementation date of the National Social Security Fund (NSSF) Act 2013 to 1st July 2023 to give employers the opportunity to adjust their budgets and restructure their cashflow to accommodate the new regulations.
Jacqueline Mugo, the Executive Director and CEO of FKE, said that employers have several concerns with the NSSF Act 2013 that need to be addressed before its implementation. These include clarity on pensionable earnings, how to treat gratuity, automatic opting out from tier II for employers with private pensions schemes that are licensed and regulated by RBA to avoid the 2 months waiting period, and clarity on taxing pension benefits.
Mugo also raised questions about the age of employees and whether NSSF contributions are mandatory for those above 60 years of age. She also asked whether employers are expected to remit Tier II for employees who are paid gratuity instead of joining a company pension scheme at the end of their contract.
Mugo said that FKE had raised these issues with both the Ministry of Labour and the NSSF Board since 2014. They also met with the Cabinet Secretary for Labour, the PS, and senior ministry officials on 22nd February 2023 to propose a way forward on these issues. The Cabinet Secretary promised to resolve the issues in two weeks.
Mugo expressed her hope that the government and NSSF Board will engage with FKE in good faith and resolve these issues before implementing the NSSF Act 2013.
“Why save for the worker then take 30% away from them when he or she accesses her benefits? This defeats the purpose of saving for pension!” Mugo exclaimed.
Kenyan employers have raised concerns about the gloomy state of the labor sector due to several factors affecting businesses in the country.
Speaking after the first meeting of the year, Dr. Habil Olaka, National President of the Federation of Kenya Employers (FKE), said that the high cost of doing business, the cost of living, rising interest rates, drought, and the war in Ukraine were adversely affecting economic activity. According to Olaka, many businesses are struggling and several companies have closed shop in the country in the last two years.
He said, “The Flower sector has reported that eight companies closed shop in Kenya in the last 2 years due to high cost of business; many retail stores have closed down including the small businesses; we have many empty retails business spaces; the drought has brought our agriculture sector to its knees; over 11 companies listed on the Nairobi Security Exchange have issued profit warnings in the last 2 years; the weak shilling and high costs of imports of raw materials are affecting our manufacturing; we have also seen several multinationals closing shop in Kenya while others continue to scale down their presence in Kenya as they opt for better production locations.”
Olaka urged the government to embrace social dialogue to create an enabling environment for foreign direct investment that would help ease the growing youth unemployment in the country.
He also called for the reduction of the tax wedge on labor to help spur increased production and consumption, thereby spurring business activity while creating formal income opportunities for the masses.
Olaka said, “Any policy action that is detrimental to jobs both in the short-term and in the long-term, no matter how well-intentioned, may be, should be avoided. We call upon the government to work with the employers to reduce the tax wedge on Labor. The current high Labor costs are unsustainable.”
On the state of the business environment, employers appealed to the government to provide a stable, predictable, and less costly operating environment. The FKE called upon the government to work towards removing the red-tape and barriers to business operations, productivity, and growth.
Olaka added, “Kenya can benefit from the many trade deals and integration efforts such as the African Continental Free Trade Area Agreement only if Kenyan businesses are competitive.”
Lastly, the FKE called for reforms in the National Social Security Fund (NSSF) to address the pertinent issues raised by employers. Olaka said that embracing social dialogue was key to the journey towards the attainment of a sustainable universal social protection system.
He added that only 15% of the country’s wage employment was in the formal sector, so formal workers and formal employers should not solely shoulder the government’s burden of funding the universal social protection system.
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