FOR nearly seven years, Migori teacher Peter Maroa diligently saved through his Sacco. Every month, contributions were deducted directly from his salary and reflected on his payslip.
Like thousands of Kenyan workers, he trusted that the money reached the intended destination.
Then came the shock. In 2025, Maroa applied for a Sh1 million development loan to expand his family home in Kuria West and buy some cattle for his farm.
Instead of approval, he was informed that several months of Sacco contributions deducted from his salary had never been remitted by his employer and based on his total contributions, he did not qualify for the amount he wanted.
“I felt betrayed,” Maroa recalls. “The deductions were reflected on my payslip, so I believed everything was in order. It was only when I needed the loan that I discovered the money had not been remitted.”
The loan application was scaled down, forcing him to abandon part of his construction plans.
“I was forced to go for a lower amount, which derailed my plans, yet the problem was not of my making,” he says.
Maroa's experience reflects a growing crisis affecting workers across Kenya, both in public and private sectors, where employers deduct statutory contributions and other payroll obligations from salaries, but fail to remit them to the institutions meant to receive them.
The consequences often remain hidden until workers attempt to access a benefit tied to those deductions.
For some, the discovery comes during retirement. For others, it surfaces when seeking a loan, accessing healthcare or applying for government services and by then, the damage has already been done.
In Nairobi, 34-year-old receptionist Mary Wanjiku learned just how costly unremitted deductions can be. In May this year, she rushed her six-year-old daughter to a private hospital after the child developed severe pneumonia.
Wanjiku had no reason to worry about medical cover. Every month, contributions to the Social Health Insurance Fund had been deducted from her salary.
But when she arrived at the hospital, staff informed her that her account showed several months of unpaid contributions. Her employer had deducted the money but failed to remit it to the Social Health Authority.
“I was shocked and embarrassed,” she says. “My daughter was struggling to breathe and the hospital was asking for cash, saying my account was not in order.”
These incidents expose a troubling reality of workers often assuming their deductions are secure simply because they appear on payslips. In many cases, they only discover otherwise when they need the benefits most.
According to the Office of the Controller of Budget, billions of shillings in statutory deductions remain unremitted across ministries, departments, agencies, state corporations and semi-autonomous government agencies.
The National Government Budget Implementation Review Report for the first nine months of the 2025-26 financial year paints a worrying picture.
As of March 2026, outstanding obligations included Sh40.21 billion in personal emoluments arrears, Sh39.64 billion owed to health schemes, Sh26.5 billion in PAYE taxes and Sh9.22 billion in Sacco deductions.
Controller of Budget Margaret Nyakang'o has repeatedly warned that failure to remit deductions directly affects workers' welfare and morale.
“Accounting officers should ensure the timely payment of statutory deductions, as failure to do so is likely to affect staff welfare and morale,” she said.
Yet the problem persists across both the public and private sectors. Many private companies are reported to be culprits.
Labour unions report a steady stream of complaints from workers whose deductions never reach pension schemes, Saccos, tax authorities or health insurance funds. Kenyan workers are subject to several mandatory payroll deductions.
They include Pay As You Earn, National Social Security Fund contributions, Social Health Insurance Fund contributions, Affordable Housing Levy deductions, National Industrial Training Authority levies and Higher Education Loans Board repayments.
Many employees also contribute to pension schemes and Saccos through payroll arrangements.
Employers are required to deduct and remit these contributions within specified timelines, generally by the ninth or tenth day of the following month depending on the institution involved. Failure attracts penalties, interest charges and legal sanctions.
For NSSF contributions, employers face a five per cent monthly penalty on outstanding amounts.
SHA imposes a two per cent penalty on unremitted deductions, while Affordable Housing Levy defaults attract a three per cent monthly penalty.
Persistent non-compliance can also lead to legal action, loss of tax compliance status and criminal prosecution. Despite these provisions, many employers continue to treat deducted funds as temporary financing for operational expenses.
The retirement sector provides perhaps the clearest illustration of the scale of the crisis.
According to Retirement Benefits Authority chief executive Charles Machira, outstanding pension contributions reached Sh67.9 billion as of March 31, 2026.
This was up from Sh57 billion at the end of 2024 and Sh66.5 billion in December 2025.
“Employers continue to hold onto these funds to ease their own cash-flow challenges, effectively utilising employee savings as interest-free working capital,” Machira says.
The figure represents a 19 per cent increase over just a year, highlighting what the regulator describes as a “deeply concerning trend of growing non-compliance.”
“The consequences of non-remittance go far beyond numbers on a ledger. They directly destabilise the socio-economic welfare of Kenyan workers,” Machira says.
When pension contributions are not remitted, workers lose the investment returns those funds would have generated. Over time, the effect can significantly reduce retirement income as pension savings rely heavily on compound growth.
Missed contributions do not simply reduce the principal amount saved but also eliminate years of potential investment earnings.
As a result, workers retire with substantially lower benefits than they would otherwise have accumulated.The impact becomes especially severe for employees nearing retirement.
Many only discover contribution gaps when they begin processing retirement benefits and by then, recovering the missing funds can become a lengthy and uncertain process.
In some cases, pension schemes struggle to pay benefits because they never received the contributions reflected on members' payslips. Workers who spent decades planning for retirement suddenly find themselves confronting financial insecurity.
RBA data shows the problem is overwhelmingly concentrated within public institutions.The public sector accounts for 92 per cent of the Sh67.9 billion in outstanding pension arrears.
Public universities are the largest defaulters, owing approximately Sh31.4 billion, with county governments following closely with Sh20.4 billion.
The health sector accounts for Sh2.4 billion, while agricultural institutions owe around Sh1.6 billion.
According to Machira, engagements with public institutions reveal a combination of inadequate budget allocations, cash-flow constraints and possible fiscal indiscipline.
Public universities continue to struggle with declining revenues, rising operational costs and large payroll obligations.
County governments face their own challenges, including bloated wage bills and weak local revenue collection. But regulators insist these difficulties cannot justify withholding workers' savings.
“There is a possibility of financial indiscipline among those charged with the responsibility of prudent financial management,” Machira told the Star.
The problem, he says, reflects a failure to prioritise statutory obligations despite the serious consequences for employees.
The private sector is regarded as highly compliant, with unremitted pension contributions in thesector accounting for just eight per cent (about Sh5.4 billion) of the national backlog.
Trade unions argue that employees should never suffer because of failures committed by employers.
The Central Organisation of Trade Unions has repeatedly described non-remittance of statutory deductions as a serious violation of workers' rights.
Secretary general Francis Atwoli argues that employers who deduct contributions but fail to remit them effectively deny workers access to benefits they have already paid for.
The federation has called for stronger enforcement mechanisms and legal reforms to criminalise the withholding of deducted funds.
Consumer advocates share similar concerns. The Consumers Federation of Kenya secretary general Stephen Mutoro said employers who fail to remit deductions breach a fundamental trust relationship.
“Non-remittance of statutory deductions is not a payroll lapse. It is a breach of statutory trust. Money lawfully deducted from an employee's pay ceases to be the employer's,” Mutoro said.
He said workers continue to suffer because enforcement remains inconsistent.
“Defaulting employers, including government entities, rarely face real consequences,” he said.
The Federation of Kenya Employers says the surge in unremitted pension deductions is a matter of great concern to employers.
This, even as it moves to clarify that non-remittance remains high in the public sector.
FKE executive director and CEO Jacqueline Mugo said the problem in the public sector is largely attributable to chronic cash-flow challenges and delayed exchequer disbursements to entities such as county governments, public universities, sugar factories, and parastatals.
“FKE supports the timely remittance of all statutory deductions, including pension contributions, to safeguard employees’ benefits and avoid loss of returns on retirement savings,” she said.
Among reforms FKE is proposing include the introduction of a structured repayment arrangements that allow employers, with genuine financial difficulties, to clear arrears over an agreed period while remaining compliant with current obligations.
It also proposes the re-introduction of the statutory clearance mechanism to make it difficult for non-compliant employers to access government disbursements or statutory funds, and ensuring timely disbursement of funds to public entities by the government to reduce the accumulation of unremitted statutory deductions.
Faced with growing arrears, the RBA has shifted from persuasion to enforcement.
The regulator is pushing payroll integration reforms designed to ensure pension contributions are remitted automatically once salaries are processed.
The government's Integrated Human Resource Information System is expected to reduce opportunities for delayed remittances. More significantly, amendments to the Retirement Benefits Act have strengthened recovery powers.
Under Section 53B, pension trustees can seek approval from the RBA to appoint Kenya Revenue Authority as a collection agent where employers fail to settle arrears.
KRA can issue a 21-day notice, freeze bank accounts and recover funds directly from defaulting entities.
The authority has also established dedicated investigation and enforcement teams tasked with auditing schemes and pursuing chronic defaulters.
Machira says the era of leniency is ending. “Pension deductions are not a secondary operating luxury, they are a legal obligation and property of the employee,” he said.
“Employers who systematically fail to remit statutory deductions are effectively engaging in wage theft.”
The law provides several penalties for employers who fail to remit deductions.
Outstanding pension contributions attract interest penalties designed to compensate for lost investment returns and trustees can sue employers for recovery of unpaid contributions and associated costs.
Accounting officers, including managing directors, vice chancellors and county executives, can face personal criminal liability for failing to safeguard employee funds.
In the private sector, directors may be fined, imprisoned or compelled to personally settle outstanding obligations. Companies also risk losing tax compliance certificates, potentially locking them out of government contracts and other commercial opportunities.
FKE however says while existing challenges do not justify the diversion of employees’ retirement savings, the proposed punitive measures, including freezing accounts, asset seizure, and deactivation of PINs—appear overly punitive and potentially counterproductive.
“Such measures risk crippling entire organisations, ultimately harming the very employees they are intended to protect,” Mugo said.
