Key takeaways
- Tier I and Tier II Explained
- Employee Deduction vs Employer Cost
- How to Calculate NSSF Contributions
- Why the Phased Limits Matter
The National Social Security Fund (NSSF) provides retirement benefits to workers in Kenya. Under the NSSF Act, contributions are split into Tier I and Tier II, with the employer and employee contributing equal amounts. This makes NSSF both a payslip deduction and an employer-side payroll cost, so it must be visible in payroll summaries, accounting reports, and cash-flow planning.
This guide was refreshed on 1 July 2026 using the NSSF Year 4 notice issued for contributions effective from February 2026. Check the latest NSSF notice before filing because contribution limits are phased.
Tier I and Tier II Explained
Tier I applies to pensionable earnings up to the Lower Earnings Limit. Tier II applies to pensionable earnings above the lower limit and up to the Upper Earnings Limit. For Year 4 contributions effective from February 2026, the NSSF notice sets the Lower Earnings Limit at KES 9,000 and the Upper Earnings Limit at KES 108,000. Both employee and employer contribute 6% within the applicable tier.
| Tier | Earnings Band (KES/month) | Employee Rate | Employer Rate | Max Employee (KES) | Max Employer (KES) |
|---|---|---|---|---|---|
| Tier I | Up to 9,000 | 6% | 6% | 540 | 540 |
| Tier II | 9,001 - 108,000 | 6% | 6% | 5,940 | 5,940 |
| Total | - | - | - | 6,480 | 6,480 |
Employee Deduction vs Employer Cost
The employee NSSF amount reduces the employee's net pay. The employer NSSF amount does not reduce net pay, but it increases the company's payroll cost. This distinction matters when management reviews staff cost, branch profitability, project cost, or cash requirements for the month. A payroll report that only shows net salary can understate the real cost of employment.
| Gross pay (KES) | Employee NSSF | Employer NSSF | Total NSSF remittance |
|---|---|---|---|
| 30,000 | 1,800 | 1,800 | 3,600 |
| 50,000 | 3,000 | 3,000 | 6,000 |
| 80,000 | 4,800 | 4,800 | 9,600 |
| 108,000 and above | 6,480 | 6,480 | 12,960 |
How to Calculate NSSF Contributions
For an employee earning KES 50,000 per month under the Year 4 limits, Tier I is 6% of KES 9,000, which gives KES 540 from the employee and KES 540 from the employer. Tier II is 6% of the pensionable amount between KES 9,000 and KES 50,000, which gives KES 2,460 from each party. The employee deduction is therefore KES 3,000 and the employer contributes another KES 3,000, for a total remittance of KES 6,000.
NSSF contributions are tax-deductible within the applicable legal limits. The employee's share reduces taxable employment income before PAYE is calculated, while the employer's contribution is an employer payroll cost and business expense. Payroll reports should therefore show employee NSSF and employer NSSF separately.
Why the Phased Limits Matter
Many Kenyan businesses still have spreadsheet templates built around older NSSF figures. That creates three problems: payslips understate employee deductions, the employer under-budgets the matching contribution, and the PAYE taxable income may be wrong if the employee deduction is not updated. A good payroll system should store effective dates for rates so a February 2026 payroll and an older payroll run are not calculated using the same limits.
How to Audit NSSF in a Payroll Run
- 1Filter employees by gross pay bands and check that the Tier I and Tier II limits are being applied consistently.
- 2Confirm that employer NSSF equals employee NSSF for each employee unless a legitimate correction has been posted.
- 3Compare the payroll NSSF schedule with the amount submitted through the NSSF portal.
- 4Check new employees, casual workers converted to permanent employment, and employees with unpaid leave.
- 5Save the NSSF schedule, portal confirmation, and payment receipt with the approved payroll summary.
Compliance and Remittance
Employers must remit NSSF contributions by the 15th of the following month through the NSSF portal, bank, or M-Pesa. Late payment attracts a penalty of 5% of the contribution amount per month. Employers must also register new employees within 30 days of their start date. Keeping accurate payroll records and generating timely reports helps avoid compliance issues.
Common Mistakes to Avoid
- Using the old flat rate of KES 200 instead of the tiered system under the NSSF Act.
- Using outdated Tier I and Tier II limits after NSSF publishes a new phased-rate notice.
- Failing to include allowances that form part of pensionable pay in the calculation.
- Not registering casual or contract workers who are also eligible for NSSF.
- Missing the remittance deadline and accumulating penalty charges.
- Deducting only the employee share without matching it with the employer contribution.
