Employers, workers oppose more taxes to fund unemployment cover

Federation of Kenya Employers (FKE) executive director, Jacqueline Mugo. FILE PHOTO | FRANCIS NDERITU | NMG

Employers and workers have vowed to fight a proposed law seeking to have three percent of salaries deducted to fund a short-term monthly stipend for employees who lose jobs for reasons not of their making such as redundancies.

The Unemployment Insurance Authority Bill seeks to offer relief of up to six months for workers who involuntarily lose jobs due to unforeseen economic crises such as Covid-19.

The proposed State cushion will also ensure the beneficiaries and dependants continue to access medical cover, according to Ikolomani lawmaker Benard Shinali who has sponsored the draft Bill.

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If it becomes law, salaried workers will be deducted three percent of their basic pay, an amount that employers will match, according to the proposals by Mr Shinali.

The deductions are triple the one percent which had been proposed by the Treasury in post-Covid recovery blueprint and the Labour Ministry at the height of pandemic shocks in 2020, when the debate on creating the unemployment fund started gaining traction.

The Federation of Kenya Employers (FKE) said that company earnings and pay slips have been squeezed to the limit by multiple taxes and levies.

The latest hit has come from the Affordable Housing Levy at the rate of 1.5 percent from July. “Although in principle employers support the formation of the Unemployment Insurance Fund… it cannot be financed through more taxes or levies imposed on both workers and employers,” FKE executive director Jacqueline Mugo told the Business Daily.

“Any proposals must also consider the current national realities. FKE strongly proposes that the idea be subjected to a wide and meaningful social dialogue for purposes of building consensus on the best structure and financing model to be adopted.”

The suggestion by FKE that the scheme be financed through “funds already contributed by both employers and workers towards social security” has been resisted by the Central Organisation of Trade Unions (Cotu).

Cotu wants employers to fund the scheme.

“There is even a proposal that this Fund be funded from the NSSF. We say a ‘big NO’ because it’s employers with the sole duty to declare redundancies and sacking employees on flimsy grounds,” Cotu secretary-general Francis Atwoli said in responses to Business Daily.

“So let them finance this Fund without dragging workers into it. The burden on our pay slip can’t accommodate any more deductions.”

Employers are under the prevailing law required to compensate workers who become redundant at least 15 days’ pay for each completed year of service.

The scheme being proposed by Kenya largely mirrors that of South Africa since April 2002 where employees contribute a percentage of their pay, which is matched by employers.

The debate on the unemployment scheme was first ignited by the Kenya Association of Manufacturers and consultancy firm KPMG in September 2020 in the wake of Covid-induced shocks on earnings that prompted firms to resort to job cuts, reduced pay, and unpaid leave to survive.

The two organisations, in a policy proposal to the Treasury and Labour ministries, rooted for a scheme to enable workers either work part-time or remain “formally with the business even if not working at all to ensure quick resumption of activity once normalcy returns” in times of economic crisis.

“If you reach retirement age and a pandemic or any other major crisis has not happened, it becomes part of your pension,” KAM lead researcher Simon Githuku said in the past.

Also read: 67pc of Kenya’s jobless give up on work search

The Treasury adopted the recommendation in Post Covid-19 Economic Recovery Strategy 2020-2022 by proposing the creation of the Unemployment Insurance Fund (UIF) under the Labour Ministry to give short-term relief to unemployed workers.

The then Labour Principal Secretary Peter Tum had in July 2021 said the ministry was looking at a framework where the National Industrial Training Authority (NITA) would be roped in to facilitate re-skilling of workers who lose jobs.

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