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Key Tax Update: Significant Changes to NSSF Contributions: What You Need to Know

Starting February 1, 2025, significant changes to the National Social Security Fund (NSSF) contributions will affect salaried Kenyans, their take-home pay, and employers’ financial obligations.

Here's a detailed overview of these changes and their impact:

Key Changes to NSSF Contribution

1. Doubling of NSSF Deductions

Employees will now contribute 6% of their gross salary to NSSF, with employers matching the contribution.

For example, employees earning KES 72,000 or more will see a substantial increase in their monthly contributions — from KES 2,160 to KES 4,320.

While this increase is designed to enhance retirement benefits, it will inevitably reduce employees' current take-home pay.

2. Increase in Tier 1 Contribution Base

The Tier 1 contribution base will rise from KES 7,000 to KES 8,000. Employees earning up to this threshold will now contribute at the higher rate.

3. Increase in Tier 2 Contribution Base

The Tier 2 contribution base will be adjusted from KES 36,000 to KES 72,000, applying to higher-income earners.

This increase will allow for greater pension contributions, improving retirement benefits for higher earners.

Impact on Employees

1. Reduced Take-Home Pay

With the increased NSSF deductions, employees will experience a reduction in their net salaries. For example, an employee earning KES 50,000 will feel the strain, especially after accounting for additional deductions like the Social Health Insurance Fund and housing levy.

2. Financial Strain on Employees

The combination of higher NSSF contributions and the rising cost of living could put additional pressure on household budgets. Employees may need to re-evaluate their spending habits, savings plans, and financial priorities to adjust to the reduced disposable income.

Impact on Employers

1. Higher Operational Costs

Employers will also be affected, as they are now required to match employee contributions. This will result in increased operational costs. For businesses already facing financial constraints, there may be a need to reassess their budget or potentially pass some of the additional costs on to customers.

Adapting to the Changes

Though these changes are intended to secure better retirement outcomes, the immediate financial burden will affect both employees and employers. To successfully navigate these adjustments:

• Employees: Review and adjust personal budgets to align with reduced disposable income.
• Employers: Explore strategies to manage higher costs, optimize operations, and support employees through the transition.

Stay informed and prepare in advance for the NSSF changes taking effect on February 1, 2025.