NAIROBI, KENYA – Employers who deduct statutory contributions from their employees' salaries but fail to remit the funds to the respective agencies will now face criminal charges, National Treasury Cabinet Secretary John Mbadi announced on Tuesday, November 18, 2025. This marks a significant policy shift from the current regime of fines and penalties to the possibility of prosecution and imprisonment for defaulting company directors.

Speaking before the National Assembly's Departmental Committee on Finance and National Planning, CS Mbadi revealed that he has submitted legislative amendments to the Retirement Benefits Act to the Senate. "We have made a legislative proposal to the Senate to criminalize non-remittances of pension benefits. We hope it will be fast-tracked," Mbadi stated. He emphasized that the current situation, where the practice is not expressly illegal, has allowed the problem to fester, leaving many retirees destitute.

"Pension benefits are non-negotiable because somebody has offered services to this country and ought to enjoy their retirement with dignity," the Cabinet Secretary added.

A Multi-Billion Shilling Problem

The move to criminalize non-remittance is a direct response to the staggering scale of default by both public and private sector employers. Billions of shillings in deductions for pensions, the National Social Security Fund (NSSF), the Social Health Insurance Fund (SHIF), and Pay As You Earn (PAYE) taxes are being illegally withheld by employers, often diverted to cover operational expenses like paying suppliers.

According to a report presented to the finance committee, as of December 31, 2024, several public pension schemes were owed substantial amounts. The Local Authorities Pension Trust was short Sh8.8 billion, the University of Nairobi pension scheme was owed Sh8.3 billion, and the Local Authorities Provident Fund had unremitted funds amounting to Sh6.8 billion. Further data from September 2025 showed that unremitted deductions by government agencies alone had surged by Sh6.09 billion in the preceding financial year, with outstanding PAYE hitting Sh23.39 billion and pension arrears reaching Sh34.7 billion.

CS Mbadi identified county governments and public universities as some of the most prominent defaulters.

The Human Cost of Non-Compliance

The failure to remit these mandatory deductions has severe consequences for Kenyan workers. Employees are often the last to discover the default, typically at their most vulnerable moments: when seeking medical care, applying for a loan, or upon retirement. Non-remittance to SHIF can lead to a denial of healthcare services, while unremitted NSSF and pension contributions mean retirees face delays or a complete inability to access their life savings. Furthermore, employees can face personal compliance issues with the Kenya Revenue Authority (KRA) if their employer deducts PAYE but fails to remit it.

To curb this in the public sector, the Treasury has written to the Head of Public Service, Felix Koskei, proposing the integration of the government payroll. "We need to integrate the payroll so that once money has been deducted from employees, it can't be used for any other purpose. If it's meant for NSSF, it goes there; if it's for pension, it goes there directly," Mbadi explained.

A Shift from Fines to Jail Time

Under existing laws, the penalties for non-remittance are purely financial. The Retirement Benefits Act, for instance, imposes a penalty of 5% of the unremitted contributions or Sh20,000, whichever is higher. Similarly, late NSSF payments attract a 5% penalty, while SHIF defaults lead to a 2% penalty. These measures have proven insufficient to deter the practice.

The proposed criminalization of the offense would hold employers personally liable, a significant escalation intended to enforce compliance and protect workers' social security. This aligns with the government's broader goal of ensuring accountability in the management of employee welfare funds.

Economic Pressures and Employer Concerns

While worker protection groups are expected to welcome the move, employer associations have previously voiced concerns over the increasing burden of statutory deductions. The Federation of Kenya Employers (FKE) has highlighted that a growing number of deductions are shrinking employee take-home pay and placing businesses under immense pressure. In January 2025, the FKE warned that many employees' deductions were exceeding the legally mandated one-third of their gross salary, a situation that could lead to social unrest.

Employers argue that a challenging economic environment, coupled with significant pending bills owed by the government, makes it difficult to meet all financial obligations on time. The new proposal to criminalize non-remittance will likely intensify the debate between enforcing employee rights and maintaining a sustainable business environment. As the legislative proposal moves to the Senate for debate, all eyes will be on how lawmakers balance the urgent need to protect workers' lifelong savings against the economic realities faced by Kenyan businesses.