NSSF Tier II and contracted-out employers
How a payroll bureau should handle NSSF for a Kenyan client that has contracted out of Tier II, when Achekam's payroll does not model contracting out.
By Achekam · · 5 min read · For Accountants & audit firms in Kenya
A new Kenyan client hands over its payroll and mentions, almost in passing, that it is "contracted out of Tier II". The company runs its own approved retirement scheme, and the client's finance manager expects the bureau to know what that does to every payslip, every NSSF remittance and every liability in the books.
It is a detail that is easy to miss on onboarding and expensive to discover later. If the bureau deducts and remits full NSSF on both tiers for a contracted-out employer, money goes to the wrong body, the scheme is short, and unwinding it takes months of correspondence.
This article explains the two tiers, what contracting out changes, and how a bureau should run such a client on Achekam, which calculates both tiers for everyone and does not model contracting out.
How the two tiers split pensionable pay
At the time of writing, and from February 2026, NSSF contributions are 6% from the employee and 6% from the employer, on pensionable pay up to KES 108,000. Each side therefore pays at most KES 6,480 a month.
That contribution is divided into two bands:
- Tier I covers pensionable pay up to KES 9,000, a contribution of KES 540 from each side.
- Tier II covers pensionable pay from KES 9,000 to KES 108,000, up to KES 5,940 from each side.
For a low earner, almost everything sits in Tier I. For a senior employee, most of the contribution sits in Tier II, which is why contracting out matters most for clients with well-paid staff.
What contracting out changes
Contracting out concerns the second band only. An employer that runs a retirement scheme approved for the purpose may arrange for that scheme to take the place of the NSSF for Tier II. Tier I continues to go to the NSSF regardless.
The legal basis is in the statute itself: Kenya Law's consolidated National Social Security Fund Act sets out the mandatory employer and employee contributions, the two tiers, the schedule of earnings limits and, in section 21, an employer's right to contract out of Tier II to an approved scheme. Read that section with the client's own scheme documents before the first run, because the scheme's documents and its administrator's instructions govern how the Tier II portion is paid over.
For the bureau, the practical questions are narrow:
- Which employees are covered by the contracted-out arrangement? It may not be everyone.
- What does the scheme require for the Tier II band, and by when?
- Who at the client holds the evidence of approval, and has the bureau seen it?
What Achekam calculates, and what it does not
For a Kenyan employer, Achekam's payroll computes PAYE, the Affordable Housing Levy, NSSF, SHIF and the NITA levy, and prepares the P10, SHIF, NSSF and NITA schedules and each employee's P9A card for a person to file. NSSF is calculated on both Tier I and Tier II.
Contracting out of Tier II is not modelled. There is no setting that sends the Tier II band to a private scheme instead of the NSSF. For a contracted-out client, that means:
- the payslip shows the full NSSF deduction under NSSF, Tier II included;
- the NSSF schedule includes the Tier II band;
- each contribution posts to its own liability account, so the NSSF liability in the wages journal includes the band that belongs to the scheme.
None of this is wrong for an ordinary employer. It is wrong for this one, and the bureau needs a deliberate way of dealing with it.
Before any of these figures exist, the firm must confirm its own copy of the 2026 Kenyan table: Achekam ships its payroll tables pre-loaded but unconfirmed, and no run uses one until a named person at the firm confirms it.
A manual path for contracted-out clients
There are two honest options. The first is to tell the client, before taking the work on, that Achekam does not yet handle its arrangement, and agree whether the bureau runs it elsewhere for now. The second is to run the payroll on Achekam and correct the Tier II band by hand each month. If the bureau chooses the second, write the procedure down and follow it every period:
- Keep a contracted-out schedule outside Achekam. List the covered employees and, for each, the Tier II amount due to the scheme under its rules, signed off by someone other than the preparer.
- Adjust the NSSF schedule before filing. Achekam's schedules download as its own CSV layout and a PDF, not in the authority's template, so the figures are retyped anyway. Remove the Tier II band for covered employees when transferring them, and keep the original PDF with a note of the adjustment.
- Remit the Tier II portion to the scheme. Follow the scheme administrator's instructions and keep the proof with the month's file.
- Reclassify the liability. Whoever keeps the client's books moves the scheme's share out of the NSSF payable account, so the balance clears when the NSSF is paid.
- Explain the payslip. Tell covered employees that the NSSF line includes an amount paid to the company scheme, until the payslip can show it separately.
Review the procedure whenever the client's scheme changes or Achekam's release notes mention NSSF.
Paying the right body
Contracting out adds a payee; it does not change who collects everything else. KRA collects PAYE and the Affordable Housing Levy, but not SHIF, NSSF or the NITA levy. NSSF contributions, Tier I in every case and Tier II where the employer has not contracted out, go to the NSSF by the 9th.
Achekam does not file or pay Kenyan payroll returns. A person files on the authority's portal and records the reference it gave, a second person confirms each payment, and each schedule is finalised by someone other than the person who prepared it. For a contracted-out client, add one more check to that routine: the reviewer compares the NSSF schedule as filed with the Achekam PDF and the contracted-out list, and confirms that the difference equals the Tier II amounts paid to the scheme.
The full set of Kenyan deductions, and which authority takes each one, is laid out in Kenyan payroll deductions and who collects them. At year end, the same clients need P9A cards; see P9A cards for a Kenyan client's employees, and remember that a contracted-out client's employees may ask why their pension figure differs from what the NSSF shows.
Ask every new Kenyan client one question at onboarding, in writing: is any part of your workforce contracted out of NSSF Tier II? A clear answer on day one costs far less than a correction after the first remittance.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
