(Nairobi) – Many companies are failing to remit statutory deductions to Saccos and pension funds, jeopardizing employee benefits and financial stability.
A growing number of companies in Kenya are retaining statutory deductions from employees’ salaries as they struggle to cope with a challenging economic environment. This practice has left workers at risk of missing out on crucial benefits such as Sacco dividends, loans, and health coverage, while retirees face reduced payouts.
A review of various Saccos, the National Social Security Fund (NSSF), and the newly introduced Social Health Insurance Fund (SHIF) shows that both private and public institutions owe billions of shillings in unremitted contributions, with Saccos being the most affected.
The CEO of a Sacco that serves professionals from industries like technology, finance, and media revealed that 10 out of 19 employers have failed to remit deductions since March. Speaking anonymously, he said, “This is extremely worrying. Despite numerous correspondences, most firms only make empty promises. Members cannot access loans and may miss dividends in February. It is concerning that salaries and taxes are paid, yet deductions are not remitted.”
Top Saccos such as Stima Sacco, Nation Sacco, and Harambee Sacco are facing similar challenges. Many hope for legislative reforms to penalize defaulting companies.
| Sector | Non-Remitted Funds (KES) | Non-Remitted Funds (USD) | Percentage of Total |
|---|---|---|---|
| Public Universities/Tertiary Colleges | 958.07 million | ~6.49 million | 37% |
| County Governments | 865.12 million | ~5.86 million | 33.41% |
| State Corporations | 162.89 million | ~1.10 million | 3.08% |
| Total | 2.59 billion | ~17.55 million | 100% |
The Sacco Societies Regulatory Authority (Sasra) reported that in 2023, unremitted funds owed to regulated Saccos totaled KES 2.59 billion (approximately USD 17.55 million), slightly down from KES 2.67 billion in 2022. Sasra noted that state agencies remain the largest defaulters, citing inadequate funding as the primary excuse. These defaults have disrupted financial stability, reducing members’ access to loans and other benefits.
Sasra Chairperson Jack Ranguma proposed a policy shift where funds deducted from employees’ salaries would be directly transferred to Saccos through the National Treasury. “This remains the most viable solution to this menace, especially since private-sector defaults are relatively low,” he said.
Co-operatives, Micro, Small, and Medium Enterprises (MSMEs) Development Cabinet Secretary Wycliffe Oparanya recently announced that legislative reforms are underway. The proposed Co-operative Bill 2024 and Sacco Societies Amendment Bill 2024 aim to strengthen legal protections for members’ deposits. Oparanya also highlighted a new “Whistleblowing Policy” to encourage reporting of fraud and misconduct within institutions.
The proposed laws include severe penalties for non-compliance. Employers who fail to remit deductions within seven days will face a five percent monthly interest on the outstanding amounts. Additionally, the government may appoint agents to recover funds owed to Saccos.
| Key Legislative Proposals | Expected Impact |
| Direct deduction of Sacco contributions at source | Ensures timely remittance of funds |
| 5% compound interest on delayed payments | Penalizes defaulters and deters future violations |
| Whistleblowing Policy for fraud reporting | Promotes transparency and accountability |
| Agents to recover funds owed to Saccos | Enhances debt recovery mechanisms for affected institutions |
The pension sector is also grappling with a similar crisis. The NSSF has reported a significant rise in unremitted employee contributions, with defaults growing at an alarming annual rate of 157% since 2022. This includes state corporations, government agencies, and private entities.
Financial analyst Andrew Ocholla called for stricter laws to safeguard employees’ financial security. “It is fraud for companies to deduct from salaries but fail to remit the amounts. Tough laws are necessary,” he said. However, some business owners caution against overly punitive measures, arguing that firms are reinvesting these deductions in their operations to stay afloat amid economic hardships.
One hotel owner in Nairobi, Gerald Kariuki, commented, “Many businesses are using these funds to keep operations running, hoping to clear the arrears later. Harsh penalties might scare away investors.”