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September 25, 2024
2024-1766

Kenya employers to begin making contributions to Social Health Insurance Fund

  • A new public notice requires employers to transition to the Social Health Insurance Fund, requiring deduction and remittance of contributions beginning on 1 October 2024.
  • This transition had been postponed and was in doubt due to court challenges of underlying legislation.
  • The Court of Appeal recently stayed application of a lower-court decision that had held the underlying legislation unconstitutional. The stay remains in effect pending the determination of the substantive appeal, which means employers must be prepared to comply with the 1 October effective date.
 

Executive summary

The Ministry of Health has issued a public notice notifying employers of the transition to the Social Health Insurance Fund (SHIF) with effect from 1 October 2024 and provided the requisite transition guidance.

The Social Health Insurance Act, Primary Health Care Act and Digital Health Act came into operation on 22 November 2023, followed by the gazettement of the Social Health Insurance Regulations (the Regulations) on 8 March 2024 to operationalize the Primary Healthcare Fund, the SHIF and the Emergency, Chronic, and Critical Illness Fund. The Regulations required every person resident in Kenya to register with the Social Health Authority before 30 June 2024. Employers' deduction and remittance of contributions was expected to commence on 1 July 2024.

However, implementation of the requirements faced challenges, leading to a postponement of the kick-off date, Specifically, the High Court declared the Acts unconstitutional, but the Court of Appeal stayed application of the High Court decision, pending the determination of the substantive appeal. Therefore, employers must comply with the extended 1 October 2024 effective date.

What this means for employers

Following the Court of Appeal's ruling dated 20 September 2024, the three Acts of Parliament remain in force. To this end, employers are required to comply with the requirements to register with the Social Health Authority (SHA) and make contributions to the SHIF.

Further, a public notice issued by the Ministry of Health declared 1 October 2024 as the first date of transition to SHIF. This notice, as issued, shifts the registration obligation from employees to their employers, implying that employers will now be responsible for registering their employees.

Contributions

The contributions to SHIF are as follows:

  1. For salaried employees, the monthly contribution rate is 2.75% of the gross salary with a minimum contribution of 300 Kenyan shillings (KES 300) per month and no maximum contribution. Employers must make this remittance by the ninth day of subsequent month.
  2. For non-salaried persons, the household will make an annual contribution set at a rate of 2.75% of the household income with a minimum contribution of KES 300 per month (and no maximum amount payable annually) within 14 days before the lapse of the annual contribution.

The Regulations further stipulate that data will be collected on non-salaried households to determine and estimate the household's ability to pay SHIF contributions based on housing characteristics, accessibility to basic services and household composition and characteristics.

Offenses and penalties

Failure to make timely payment of contributions will result in a penalty equivalent to 2% of the unpaid contribution for the period in question, and the total annual contribution must also be paid at the same time.

Any employer who fails to pay contributions to the fund as a contributing employer or who makes unauthorized deductions from employees shall be liable for a fine not exceeding KES 2m or imprisonment for a term not exceeding three years, or both. Any person who, for the purpose of obtaining a benefit, makes any false statements or representation shall also be liable for a similar fine or imprisonment.

Next steps

Kenyan citizens, foreigners who are ordinarily resident in Kenya and persons including employers should register with the SHA.

Note that the hearing and determination of the substantive appeal on the validity of the three Acts of Parliament is pending and, thus, employers and non-salaried persons should keep themselves abreast of latest developments.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young (Kenya), Nairobi

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
 

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