NSSF Tier 1 & Tier 2 Contributions in Kenya (2026 Guide)

Understanding NSSF Tier 2 Contributions in Kenya

For many employers operating in Kenya, the tiered system for National Social Security Fund (NSSF) contributions remains a frequent source of questions. The NSSF Act No. 45 of 2013 replaced a simple flat-rate contribution with a two-tiered model that requires careful calculation. Understanding the rules for NSSF Tier 2 contributions Kenya requires is essential for accurate payroll and avoiding statutory penalties. This guide breaks down the system, explaining how both tiers work as of July 2026.

The objective of this tiered structure is to improve social security coverage by increasing retirement savings for employees. It achieves this by dividing pensionable earnings into two levels, each with a specific contribution rule.

What are NSSF Tier I Contributions?

Tier I is the mandatory foundation of the NSSF scheme. It applies to every formally employed person in Kenya, irrespective of their total monthly salary. The contribution is calculated on pensionable earnings up to the Lower Earnings Limit (LEL), a figure set by the government.

For the 2026/2027 financial year, the LEL is KES 7,000 per month.

The total Tier I contribution is 12% of the employee's pensionable pay, capped at this limit. This amount is shared equally between the employee and the employer.

• Employee's share: 6% of earnings up to KES 7,000, for a maximum deduction of KES 420.
• Employer's share: 6% of earnings up to KES 7,000, for a maximum contribution of KES 420.

This means the total mandatory Tier I amount remitted to the NSSF for any employee earning KES 7,000 or more is KES 840. You can find a more detailed breakdown in our complete NSSF Kenya 2026 guide.

How NSSF Tier 2 Contributions Kenya are Calculated

Tier II contributions are only required for employees whose monthly pensionable earnings are above the Lower Earnings Limit of KES 7,000. This is the part of the calculation that often causes confusion.

The Tier II amount is calculated on the portion of an employee's salary that falls between the LEL (KES 7,000) and the Upper Earnings Limit (UEL). For the 2026/2027 contribution year, the UEL is KES 36,000 per month.

The contribution rate is 12% of this specific salary band, again split equally at 6% from the employee and 6% from the employer.

A Practical Calculation Example

Let us take an employee with monthly pensionable earnings of KES 50,000.

1. Tier I Contribution: Calculated on the first KES 7,000 of earnings. The amount is fixed at KES 840 (KES 420 from employee, KES 420 from employer).
2. Tier II Contribution: This is based on the earnings bracket between KES 7,001 and KES 36,000. The applicable salary for the Tier II calculation is the difference between the UEL and the LEL (KES 36,000 - KES 7,000 = KES 29,000).
3. The total Tier II contribution is 12% of KES 29,000, which equals KES 3,480. This is split into KES 1,740 from the employee and KES 1,740 from the employer.
4. Total NSSF Contribution: For this employee, the total NSSF remittance is KES 840 (Tier I) + KES 3,480 (Tier II) = KES 4,320. The employee's payslip will show a total NSSF deduction of KES 2,160, and the employer contributes a matching KES 2,160.

Since the employee's salary of KES 50,000 is above the UEL, their NSSF contribution is capped. The calculation does not apply to earnings above KES 36,000.

The Option to Contract Out of Tier II

The NSSF Act allows employers to opt out of remitting Tier II contributions to the NSSF. This is possible only if the employer operates a qualifying private pension scheme for its employees. This process is known as 'contracting out'.

To qualify for contracting out, an employer must:

• Maintain a private pension or provident fund that is registered and in good standing with the Retirement Benefits Authority (RBA) of Kenya.
• Ensure the contribution rates to the private scheme meet or exceed the statutory minimums required for NSSF Tier II.
• Apply to the RBA and be issued a formal contracting-out certificate for their specific scheme.

If an employer has a valid certificate, they still must remit the mandatory Tier I contributions (KES 840 per employee) to the NSSF. The Tier II portion is then channelled to the approved private fund. This provides employers and employees with more choice regarding fund managers and investment strategies.

Remittance Process and Deadlines

Correct calculation is only half the task. Timely remittance is crucial for compliance. All monthly statutory deductions in Kenya, including NSSF, Pay As You Earn (PAYE), the Social Health Insurance Fund (SHIF at 2.75%), and the Affordable Housing Levy (AHL at 1.5%), must be paid by the 9th day of the following month.

The standard NSSF remittance procedure involves these steps:

1. Prepare the NSSF File: Your payroll software should generate a specific file format, often called the SF24 byproduct, detailing each employee's contribution breakdown.
2. Upload to the Portal: You must upload this file to the NSSF Self-Service portal, which is accessible via the official NSSF website.
3. Generate Payment Slip: After successful validation of the file, the portal generates a unique payment reference number, known as a U-bill or e-slip.
4. Complete the Payment: This e-slip reference is used to make the payment through designated bank branches or approved mobile money platforms.

Errors or delays in this process can lead to significant penalties. For many organisations, particularly international ones, managing these monthly deadlines is a major administrative challenge. Our expert payroll processing services ensure your calculations and remittances are always accurate and on time.

Common Compliance Pitfalls for Employers

As HR and payroll advisors, we consistently see companies struggle with a few specific compliance areas.

• Using the Wrong Pensionable Earnings: NSSF contributions must be calculated on an employee's gross pay. This includes the basic salary plus any regular cash allowances such as house, travel, or commuter allowances. It excludes non-cash benefits and reimbursements. Using only the basic salary for the calculation is a common mistake that results in underpayment.
• Missing the 9th of the Month Deadline: The deadline is absolute. Late payments attract a penalty of 5% of the total outstanding contributions for every month or part of a month they remain unpaid.
• Incorrectly Managing Contracted-Out Schemes: An employer who has contracted out must be diligent in separating Tier I (for NSSF) and Tier II (for the private fund) payments. Any mix-up creates difficult reconciliation issues.
• Failing to Register New Employees: All new staff must be registered with the NSSF promptly. Failing to do so complicates their payroll and can cause compliance gaps.

For foreign companies hiring in Kenya without a registered local entity, these obligations can be impossible to meet directly. In such cases, an Employer of Record (EOR) service provides a fully compliant solution by acting as the legal employer and handling all statutory responsibilities.