•Starting end of this month, Kenyan workers will see a deduction of up to Sh880 more from their monthly net pay
•Employers have appealed to the government to provide a stable, predictable, and less costly operating environment.
Employers now want the implementation of the new NSSF rates pushed to July, to enable them to restructure their cash flows to accommodate the new changes.
In a raft of new measures, the Federation of Kenya Employers (FKE) are calling for more stakeholder engagement before implementing the NSSF Act 2013, which seeks to grow employees’ contribution to six percent of their income.
The high cost of doing business, high cost of living, rising interest rates, the war in Ukraine, and the prolonged dry weather, they say, have adversely affected the economic activity in the country, hitting businesses hard.
The federation was this week dealt a blow after the Court of Appeal gave a nod for the immediate implementation of the 2013 Act.
According to the government, an increase in the statutory deductions will enhance basic social security protection, and increase the adequacy of social security benefits paid out by the National Social Security Fund.
The directive by the Appellate court means that starting end of this month, Kenyan workers will see a deduction of up to Sh880 more from their monthly net pay, after employers start implementing the revised rates.
However, the employers claim there are several issues yet to be sorted before the increase is implemented.
The federation’s national president, Habil Olaka, has warned that rushing the implementation of the new rates without stakeholder involvement will result in an increase in business operating costs, sinking more businesses into the informal sector.
“This will shrink the formal wage employment as many businesses especially the MSMEs will not be able to afford the costs associated with operating in the formal employment sector,” said Habil Olaka
FKE executive director and CEO, Jacqueline Mugo, said the rates have been hastily enforced, even before employers got clarity on what pensionable earnings are.
Mugo adds that the state is yet to clarify how to treat gratuity; automatic opting out from tier II for employers with private pensions schemes that are licensed and regulated by the Retirement Benefits Authority (RBA) to avoid the two months waiting period; and clarity on taxing pension benefits.
“Why save for the worker then take 30 per cent away from them when he or she accesses her benefits? This defeats the purpose of saving for pension,” said Mugo.
Olaka said many businesses especially MSMEs will not be able to afford the costs associated with operating in the formal employment sector.
In the flower sector, eight companies have reportedly closed shop in Kenya in the last two years due to the high cost of business, as well as many retail stores which include small businesses.
Over 11 companies listed on the NSE have issued profit warnings in the last two years.
“The weak shilling and high costs of imports of raw materials are continuously affecting our manufacturing. We are seeing multinationals closing shop in Kenya while others continue to scale down their presence as they opt for better production locations,” he said.
Employers have appealed to the government to provide a stable, predictable, and less costly operating environment.
“The government needs to commit to a long-term development plans and give adequate time for businesses to adjust their budgets when policies are introduced in the labour sector,” Olaka said.
Employers have also called on the government to work towards removing barriers to business operations, productivity, and growth.
“Kenya can benefit from many trade deals and integration efforts such as the African Continental Free Trade Area Agreement only if Kenyan businesses are competitive,” Olaka added.
FKE has called on the government to embrace social dialogue in a bid to create an enabling environment for Foreign Direct Investment (FDI).
It said that this is critical in easing the growing state of youth unemployment in the country, and is key in the journey towards the attainment of a sustainable universal social protection system.
The Federation has rallied support for the widening of the tax base and generation of more tax revenues to fund the government’s bottom-up economic development plan.
It is, however concerned with the unintended adverse effect the initiatives have on the business environment and livelihoods of citizens.
Olaka said that the high cost of living remains the greatest challenge Kenya faces and may distort into a social crisis of a monumental level.
The bottom-up policy needs to help spur increased production and consumption thereby spurring business activity while creating formal income opportunities for the masses," he said.
“As income rises, the majority will enter into tax-paying brackets and pay taxes. In addition, when enterprises generate more revenues and profits, the taxes they pay will increase,” he said.
The Federation wants the government to work with employers to reduce the tax wedge on labour.