Payslips shrink as new NSSF rates take effect
Business
By
Brian Ngugi
| Feb 03, 2026
Millions of Kenyan employees will see their take-home pay shrink end of February when the fourth and final phase of higher National Social Security Fund (NSSF) pension contribution takes effect, a move employers warn will squeeze workers who are already grappling with a high cost of living.
The Federation of Kenya Employers (FKE) said the mandatory hike, while supporting long-term savings, presents a “significant issue” for disposable income, amid concerns of a mounting burden from multiple statutory deductions.
“FKE supports the enhanced contribution rates as they were embedded in the contribution plan and projections at the time the new NSSF rates were introduced. Pension savings are critical in promoting a savings culture and securing employees’ post-retirement income,” said FKE Executive Director and CEO Jacqueline Mugo in a statement.
“The impact of the higher contribution bands will largely be felt by employees earning above Sh108,000 per month, as provided for under the NSSF Act. These contributions are statutory, and FKE continues to advise its members on compliance.”
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“However, FKE underscores the key concern around the cumulative effect of payroll deductions and the resulting impact on employees’ take-home pay. This is a significant issue that must be addressed at enterprise level to ensure compliance while safeguarding employees’ ability to meet their basic and survival needs.”
She added: “FKE remains committed to constructive engagement with government and social partners to achieve social protection objectives without undermining business sustainability and job creation.”
The increase that came into effect on effective February 1, raises the maximum monthly employee deduction to Sh6,480 from Sh4,320. Employers must match this, bringing the total potential contribution per worker to Sh12,960.
The change centres on two adjusted salary limits, widening the portion of income subject to the pension levy.
The Upper Earnings Limit — the cap on pensionable salary — jumps to Sh108,000 per month from Sh72,000. The Lower Earnings Limit rises to Sh9,000 from Sh8,000.
The system uses two tiers. On the first Sh9,000, employee and employer each pay six per cent (Sh540 each) marking the first tier.
On earnings between Sh9,001 and Sh108,000, the same 12 per cent total rate applies.
This expanded bracket means notably higher deductions for mid and high earners.
Advisory firms Grant Thornton and PwC on Monday captured the immediate administrative and financial burden for both employees and employers. Grant Thornton noted that “employers must update payroll systems” and that “accurate deductions and timely remittance is essential to avoid penalties.”
They noted that finance departments must “budget for increased employer contributions.”
PwC however pointed out a mitigating factor for workers.
The higher contributions qualify for tax relief, falling within the deductible pension bracket of up to Sh30,000 per month.
The new NSSF rates compound pressure from other recent deductions for workers including a 1.5 per cent Housing Levy and the new Social Health Insurance Fund (SHIF) levy at 2.75 per cent of gross salary.
“The cumulative effect of payroll deductions is the key concern,” the FKE stated, highlighting the impact on net pay.
Economists warn the collective drain on disposable income will dampen consumer spending.
“Money directed to NSSF is money not spent in shops or on services. Consumer-facing businesses should anticipate further pressure,” said independent economist Ian Njoroge.