Kenya Payroll Outsourcing, Payroll Software and Employer Of Record (EOR) services.
Contact us for a payroll simulation, ask a practical question or download our free country guide for Kenya.
KENYA
Deploy one employee or payroll thousands. Why not just contact us to find out how?
Save time! Don't spend hours researching!
Contact us for a payroll simulation, ask a practical question or find out how things work in the country.
Kenya Payroll and Employer of Record: Employment Contracts
Kenya has Several classes of work permits:
-
Class A: Those who intend to perform mining or mineral sourcing and trade in Kenya are awarded Class A work permits. To obtain this permit, one must disclose all of the funds and resources required in the business. A 10,000 Kenyan shilling processing fee would be levied.
-
Class B: Those who want to invest in agriculture and animal husbandry are given a Class B work permit. A evidence of land ownership or lease, capital to invest, a copy of the PIN, and a non-refundable charge of 10,000 Kenya shillings should all be presented.
-
Class D: Class D visas are provided to those who desire to work for a certain employer who has been approved by the government to hire international workers. You must pay a non-refundable fee of 10,000 shillings for this class and renew it every year for a fee of 20,000 shillings.
-
Class G: People who seek to start a specific trade, business, or consulting are given a Class G license. You must show that you have the funds, that you have already invested $100,000 USD in a specific firm, that you have paid the $10,000 shilling processing charge, and that you are prepared to renew it at a cost of 100,000 Kenyan shillings per year.
-
Class I: A member of a missionary society is given Class I status, and he or she must demonstrate to the government that his or her presence benefits Kenyans. A copy of the organization’s registration should be provided, as well as a processing cost of 10,000 shillings. You’ll have to renew it every year for 5,000 shillings. It’s also a good idea to have access to academic and professional papers.
-
Special Pass: This is a document issued to individuals who wish to enter Kenya or remain in Kenya for a limited period of time in order to apply for a review of a decision denying a permit, apply for a permit or pass, or temporarily conduct any business, trade, or profession (i.e. specific employment by a specific employer) for a period of time not exceeding three (3) months.
Probation Periods
-
A probationary period should normally last no longer than six (6) months, however it can be extended for another six (6) months with the approval of the employee in question. This indicates that the probationary term cannot be longer than one (1) year in total.
Notice Periods
The length of the notice period prior to termination and/or dismissal is determined by the nature and terms of the employment contract. However, in the lack of clear notice provisions, the Employment Act specifies that:
-
If the employee is working under a daily pay contract, the contract can be terminated at any time without prior warning by either side.
-
If the employee is hired on a weekly or biweekly basis, the notice period will be one or two weeks, or an equivalent in place of notice will be paid.
-
If the contract specifies that wages or salary will be paid on a monthly basis, the notice period must be 28 days in writing or the equivalent of one month’s salary must be paid in lieu of notice.
-
Either party may terminate a probationary contract by giving at least seven days notice or paying the equivalent of seven days pay in lieu of notice.
Minimum Wage
-
The government sets Kenya’s minimum wage rate based on location, age, and skill level; the lowest urban minimum wage was 10,107.10 shillings per month, and the lowest agricultural minimum wage for unskilled laborers was 2,536 shillings per month, excluding housing allowance.
Working Hours
-
Working hours for daytime employees in Kenya are 52 hours per week. Employees who work at night, on the other hand, must work 60 hours a week.
-
It is important to remember that no daytime worker should work for more than 116 hours in a two-week period, regardless of the job. Similarly, no employee should work more than 144 hours in a two-week period.
Overtime
-
All overtime is optional, and it can only be worked if both the company and the employee agree.
-
Employers must pay employees 150 percent of their usual day’s salary when they work extra.
Non Compete
Contracts in restraint of trade
Any agreement or contract which contains a provision or covenant whereby a party thereto is restrained from exercising any lawful profession, trade, business or occupation shall not be void only on the ground that the provision or covenant is therein contained:
Provided that—
-
the High Court shall have power to declare the provision or covenant to be void where the court is satisfied that, having regard to the nature of the profession, trade, business or occupation concerned, and the period of time and the area within which it is expressed to apply, and to all the circumstances of the case, the provision or covenant is not reasonable either in the interests of the parties, inasmuch as it affords more than adequate protection to the party in whose favour it is imposed against something against which he is entitled to be protected, or in the interests of the public, inasmuch as the provision or covenant is injurious to the public interest;
-
where a minor has entered into any agreement or contract containing any such provision or covenant, the court shall also take into consideration whether it was for his benefit that he did so.
Severance
-
Under Section 40 of the Employment Act, an employer can only terminate a contract of service when an employee is no longer useful or making an impact. Therefore every employer firing an employee is giving them a right for the pay. In addition, the employer has an obligation to pay the employee at the rate set under the Employment Act. However, firing an employee based on indiscipline does not allow them severance pay. Moreover, an employee has a right to severance pay if he or she is a member of gratuity. A Registered Pension fund, or any other scheme provided by an employer whose terms are more favourable.
-
Severance pay in Kenya, is equivalent to 15 days basic wages for each completed year of employment. Calculating the severance pay, is dividing the employee’s monthly pay by 30 days to get the pay per day. Similarly, multiplying the pay per day by 15 days and finally by the total number of years in service. If, on the other hand, the contract of employment provided a higher severance pay than the one under the Act. The employer must pay the higher amount. If the contract provided a lower pay, then the employer pays the one stipulated under the Act.
Termination
Termination of employment by agreement
-
This is where both the employer and employee agree to bring a contract of employment to an end in accordance with the agreement. For example, when an internship ends.
Resignation
-
This happens when an employee due to breach of contract decides to resign from employment
-
Automatic termination
-
A contract can automatically come to an end in the, for instance, death or loss of the business. When the specified terms of a contractual relationship come to an end.
Termination of employment by an employer
-
An employer can also terminate the contract. However, there is a need to agree with the law and contract relating to letting go of an employee.
What can make an employer terminate me?
-
According to the Employment Act sections 45(2) and 46. An employer has to prove for termination of employment in Kenya. Otherwise, it is termed as illegal. An employer can let go of an employee due to:
Poor performance
Misconduct
Physical Incapacity
Participation in an illegal strike
Retrenchment
Collective Bargaining
The Labour Relations Act defines a collective agreement as “a written agreement between a trade union and an employer, group of employers, or organization of employers respecting any term or condition of employment.” This is preceded by a collective bargaining procedure.
Although the practice of collective bargaining is not officially mandated by law, there are some prerequisites that must be met before parties may advance with the process. The Labour Relations Act, No. 14 of 2007, contains such provisions. The trade union must have legal recognition in law that is officially registered by having a constitutional jurisdiction, according to section 54 of the Labour Relations Act.
Enforcement
-
There are numerous tribunals available in Kenya.
PAID TIME OFF
Annual Vacation
Kenyan employees are allowed to take a minimum of 21 days off every year. According to the legislation, these days count as annual leave days and are compensated. However, the leave may only be taken if the individual has worked for the same employer for the previous 12 months.
Sick
When an employee has worked for the same firm for a year, they are entitled to 14 days of sick leave. The first seven days of sick leave are paid at 100% of the usual pay rate, with the remaining days paid at 50% of the regular pay rate. To be eligible for these benefits, the employee must have worked at their current location for at least two months. Furthermore, workers must present a medical certificate before they may use their sick leave.
Maternity
-
In Kenya, women can take up to 91 days off for maternity leave, which is reimbursed in full by their employers.
-
The sole requirement of the legislation is that the lady give her employer seven days’ notice before taking time from work so that appropriate modifications may be made. Moreover, the woman has to produce a medical certificate.
Paternity
The law allows a male employee two weeks paternity leave with full pay.
Family
Leave of compassion (a new amendment is in Bill Stage but if passed this leave will be added in the Act):
In Kenya, compassionate leave permits an employee to attend to personal catastrophes that are frequently unplanned and can occur at any moment, such as the death, illness, or accidents of family or friends. As a result, it’s usually up to the company’s policy to decide how to address compassionate leave.
National Holidays
-
13 Paid National Holidays
Other Paid Time Off
-
Election days are declared national holidays
STATUTORY EMPLOYEE BENEFITS
Unemployment
-
Kenya is yet to enact a Unemployment fund. The proposed change is planned for July of 2022
Workers Compensation
-
Workers Injury Benefits Act (WIBA) is the acronym for Workers Injury Benefits Act in Kenya. Businesses and organizations are required to insure themselves against reimbursement for accidents caused by their personnel.
-
Under the Labour Laws regarding Health and Safety Act 2007, the WIBA Insurance coverage protects you as an employer from legal liability.
-
The price of a WIBA Insurance Policy in Kenya varies depending on the insurance company you choose. However, the cost will vary depending on the coverage package you choose.
-
It might be expensive or cheap, depending on the coverage plan you choose to meet your organization’s or company’s insurance needs.
-
It’s important to note that the benefits are determined depending on your employees’ salaries as well as the kind of work-related illnesses and disorders. It’s critical that you maintain track of your employees’ earnings in order to make determining compensation benefits easier.
Social Security
-
National Social Security Fund – National social security fund (NSSF) : both employer and employee contributes 6% of maximum salary capped at KES 18,000.
-
National Industrial Training Levy – 50 KES per month
Retirement
-
Furthermore, there are private retirement benefits schemes governed by the Retirement Benefits Act of 1997, in which private employers and their employees contribute to retirement. A Retirement Benefits Authority was established to regulate, supervise, and promote retirement benefit schemes, which have largely been adopted by formal employers and employees.
Health
-
The N.H.I.F. is a State Parastatal that was founded in 1966. The Fund’s primary mission is to offer medical insurance to all of its members and their stated dependents (spouse and children). Membership in the NHIF is accessible to all Kenyans over the age of 18 and with a monthly salary of more than Ksh 1000. NHIF has 61 totally independent branches located around the country. Each of these divisions provides all NHIF functions, including benefit payments to hospitals, members, and employers. The NHIF submits claims by hospitals in Kenya once the member has been discharged from hospital. This means that contributors do not have to worry unnecessarily about funds as the NHIF fund takes care of it for them. It also means that cases of stranded patients with NHIF cards in Kenya, which is a somewhat ordinary occurrence in some hospitals, will not occur.
PRIVATE EMPLOYEE BENEFITS
Workers Compensation
-
No Private worker’s compensation available.
Retirement
-
Private retirement schemes available.
-
A defined contribution pension is the most common type of pension. On retirement, the amount your defined contribution pension is worth depends on how much money you’ve contributed and the performance of your investments. Most modern workplace and personal pensions are defined contribution pensions.
-
A defined benefit pension (also called a ‘final salary’ pension) is a type of workplace pension that pays you a retirement income based on your salary and the number of years you’ve worked for the employer, rather than the amount of money you’ve contributed to the pension.
-
Early retirement available at 55 for defined contribution schemes.
Health
-
Private health insurance available.
-
Many private providers.
-
You can claim for in-hospital care, as well as additional benefits like disease tests, day-to-day expenses like medicine or GP visits, and dental treatment, depending on your medical aid plan.
Insurance
-
Group life insurance available.
-
Approved and unapproved insurance.
-
Approved means premiums are tax deductible. Pay-out is taxable.
-
Unapproved means premiums are taxed as income. Pay-out is not subject to tax.
PERSONAL INCOME TAX
Tax Year
-
Tax year runs from January 1st to December 31st
Tax Tables
The local currency in Kenya is KES. The lowest tax percentage for the first income tax bracket is 10% whilst the highest is 35%.
Taxation Method
-
Tax is calculated on an annual basis but applied each payroll period.
-
A monthly employee’s tax is calculated by working out their annual tax year to date and applying tables. A credit is applied in the event the employee has paid too much tax.
Double Taxation
-
Kenya is signatory to multiple double taxation agreements, also known as a DTA.
Residence Requirements
In Kenya, a person is regarded to be a tax resident if they:
-
have a permanent home in Kenya and were present in Kenya for any period in a particular year of income under consideration, or do not have a permanent home in Kenya but were:
-
present in Kenya for 183 days or more in that year of income, or;
-
present in Kenya in that year of income and the two preceding years of income for periods averaging more than 122 days in each year of income.
Payroll Calendars
-
There are no predetermined dates on which employees must be paid.
-
Weekly, Bi-weekly, fortnightly and monthly payrolls are acceptable.
Rebates & Tax Credits
In Kenya there is little personal tax relief.
-
The personal relief applicable for the period January 2020 to March 2020 is KES 16,896 per annum or KES 1,408 per month. However, the government raised the assistance to KES 28,800 per year or KES 2,400 per month beginning in April 2020 in order to cushion employees from the economic shocks of the COVID-19 epidemic. When an employee works for more than one employer, they can only claim personal relief credit via one of them.
-
In 2022, it was stated that 25% of the KES 1,700 NHIF payment will be deducted from the employee’s total income tax. This adds further relief to taxpayers bringing the total to KES 2,825.
Health Insurance
-
Employer-paid premiums for health insurance are exempt from federal income and payroll taxes. Additionally, the portion of premiums employees pay is typically excluded from taxable income.
Unemployment
-
Currently there is no provision in law for unemployment insurance and benefits.
-
The State however targets implementing a unemployment fund within the next financial year starting July 2022.
-
Employees will contribute one percent of their pay that will be matched by employers towards the fund that aims at generating at least Ksh45 billion (about $415 million) annually on implementation.
Social Security
-
The National Social Security Fund (NSSF) is a statutory savings scheme to provide for retirement. Both employers and employee’s contribute 6% of maximum salary capped at KES 18,000.
-
Employees in Kenya must contribute to the NHIF. There is no matching employer contribution. Contributions are tiered, with the current maximum payment of KES 1,700 per employee for employees earning more over KES 100,000 per month.
PAYROLL ELEMENTS
Income
Income tax is a tax charged for each year of income, upon all the income of a person whether resident or non-resident, which is accrued in or was derived from Kenya.
Income Tax is imposed on:
-
Business income from any trade or profession
-
Employment income
-
Rent income
-
Dividend and Interests
-
Pension income
-
Income from a Digital Marketplace
-
Natural resource income among others
Bonuses
-
Bonuses are added to the monthly income of the individual.
Allowances
All benefits are taxable at the higher of cost and the fair market value except:
(a) Tax-free benefits
-
First KShs. 150,000 for the disabled.
-
Deduction of KShs. 50,000 on drugs treatment and home care service for the disabled allowed as a deduction.
-
Medical, school fees (if employer taxed), registered provident/pension contributions (except contributions to non-registered funds or in excess of relief for registered funds where the employer is tax exempt).
-
Passage for expatriates.
-
Canteen/cafeteria established/operated by employer or a tax registered third party where value of meals provided to staff does not exceed KShs. 4,000 per employee per month.
-
Gratuity up to KShs. 240,000 p.a. paid into a registered pension scheme by an employer
-
Group life premiums that do not confer benefit to employee.
-
Contributions paid to a registered or unregistered pension scheme, pension fund or individual retirement fund.
-
Bonuses, overtime and retirement benefits to employees whose taxable employment income before bonuses and overtime does not exceed KShs.134,164 per annum in 2017 and KShs.147,580 per annum in 2018.
(b) Non-cash taxable benefits
-
Exempt if the aggregate cost does not exceed KShs. 36,000 p.a.
-
Tax-free medical benefits for directors (and their beneficiaries) owning over 5% shareholding limited to KShs. 1 million p.a.
-
Tax-free medical benefits for partners and sole proprietors limited to KShs. 1 million p.a.
(c) Reimbursements
-
For employees working out of station the first KShs. 2,000 per diem is deemed to be reimbursement and not taxable. Reimbursement expenses are generally not taxable but require to be supported.
-
Double taxation relief for Kenyan citizen artistic performers and sportsmen.
(d) Motor vehicles
-
The benefit is the higher of 2% p.m. of the initial cost of the vehicle or prescribed scale rates. For leased vehicles the benefit is the cost of leasing. Employees with restricted private usage can apply for a lower benefit valuation.
(e) Housing
-
Non-working directors: The higher of 15% of total income, fair market rental value and rent paid.
-
Whole time service directors: The higher of 15% of emoluments, fair market value and rent paid.
-
Agricultural employees: 10% of emoluments less any rent charged to the employee
-
Other employees: The higher of 15% of emoluments or rent paid by the employer under an arms-length agreement with a third party.
(f) Loans to employees
-
Fringe benefit tax is payable by the employer at the rate given by the Commissioner less actual rate paid by employee. The tax rate to be applied is the corporate rate.
(g) Other benefits
-
Furniture 1% of cost p.m.
-
Telephone 30% of cost p.m.
-
Taxable benefit for employee share ownership plan (ESOPs) is the difference between the market price of shares and option grant price. The benefit accrues at the end of the vesting period.
Benefits in Kind
All benefits are taxable at the higher of cost and the fair market value except:
(a) Tax-free benefits
-
First KShs. 150,000 for the disabled.
-
Deduction of KShs. 50,000 on drugs treatment and home care service for the disabled allowed as a deduction.
-
Medical, school fees (if employer taxed), registered provident/pension contributions (except
-
contributions to non-registered funds or in excess of relief for registered funds where the employer is tax exempt).
-
Passage for expatriates.
-
Canteen/cafeteria established/operated by employer or a tax registered third party where value of meals provided to staff does not exceed KShs. 4,000 per employee per month.
-
Gratuity up to KShs. 240,000 p.a. paid into a registered pension scheme by an employer.
-
Group life premiums that do not confer benefit to employee.
-
Contributions paid to a registered or unregistered pension scheme, pension fund or individual retirement fund.
-
Bonuses, overtime and retirement benefits to employees whose taxable employment income before bonuses and overtime does not exceed KShs.134,164 per annum in 2017 and KShs.147,580 per annum in 2018.
(b) Non-cash taxable benefits
-
Exempt if the aggregate cost does not exceed KShs. 36,000 p.a.
-
Tax-free medical benefits for directors (and their beneficiaries) owning over 5% shareholding limited.
-
to KShs. 1 million p.a.
-
Tax-free medical benefits for partners and sole proprietors limited to KShs. 1 million p.a.
(c) Reimbursements
-
For employees working out of station the first KShs. 2,000 per diem is deemed to be reimbursement and not taxable. Reimbursement expenses are generally not taxable but require to be supported.
-
Double taxation relief for Kenyan citizen artistic performers and sportsmen.
(d) Motor vehicles
-
The benefit is the higher of 2% p.m. of the initial cost of the vehicle or prescribed scale rates. For leased vehicles the benefit is the cost of leasing. Employees with restricted private usage can apply for a lower benefit valuation.
(e) Housing
-
Non-working directors: The higher of 15% of total income, fair market rental value and rent paid.
-
Whole time service directors: The higher of 15% of emoluments, fair market value and rent paid.
-
Agricultural employees: 10% of emoluments less any rent charged to the employee.
-
Other employees: The higher of 15% of emoluments or rent paid by the employer under an arms-length agreement with a third party.
(f) Loans to employees
-
Fringe benefit tax is payable by the employer at the rate given by the Commissioner less actual rate paid by employee. The tax rate to be applied is the corporate rate.
(g) Other benefits
-
Furniture 1% of cost p.m.
-
Telephone 30% of cost p.m.
-
Taxable benefit for employee share ownership plan (ESOPs) is the difference between the market price of shares and option grant price. The benefit accrues at the end of the vesting period.
Investment Income
Withholding Tax
This is a tax that is deductible from certain classes of income at the point of making a payment, to non-employees.
WHT is deducted at source from the following sources of income:
-
Interest
-
Dividends
-
Royalties
-
Management or professional fees (including consultancy, agency or contractual fees)
-
Commissions
-
Pensions
-
Rent received by non-residents
-
Other payments specified
Retirement Funding
National social security fund (NSSF) : both employer and employee contributes 6% of maximum salary capped at Ksh. 18,000.
Health Insurance
-
Premiums paid for education policy, health policy or life insurance can be deducted from tax payable, provided that the employee has proof of the payment to the policy, and that the premiums paid for the policy have a maturity period of at least 10 years. If the policy is surrendered before its maturity all the relief granted to the policy holder is repayable to KRA. The deduction for the insurance relief is at a 15% of premiums paid subject to a maximum KES 5,000 per month and/or KES 60,000 per annum (Income Tax Act, section 31).
Risk Insurance
-
Premiums paid for education policy, health policy or life insurance can be deducted from tax payable, provided that the employee has proof of the payment to the policy, and that the premiums paid for the policy have a maturity period of at least 10 years. If the policy is surrendered before its maturity all the relief granted to the policy holder is repayable to KRA. The deduction for the insurance relief is at a 15% of premiums paid subject to a maximum KES 5,000 per month and/or KES 60,000 per annum (Income Tax Act, section 31).
Taxable Income
Examples of amounts an individual may receive, and from which the taxable income is determined, include;
-
Remuneration (income from employment), such as, salaries, wages, bonuses, overtime pay, taxable (fringe) benefits, allowances and certain lump sum benefits
-
Profits or losses from a business or trade
-
Income or profits arising from an individual being a beneficiary of a trust
-
Director’s fees
-
Investment income, such as interest and foreign dividends
-
Rental profit or losses
-
Income from royalties
-
Annuities
-
Pension income
-
Certain capital gains
Allowable Deductions
-
Premiums paid for education policy, health policy or life insurance can be deducted from tax payable, provided that the employee has proof of the payment to the policy, and that the premiums paid for the policy have a maturity period of at least 10 years. If the policy is surrendered before its maturity all the relief granted to the policy holder is repayable to KRA. The deduction for the insurance relief is at a 15% of premiums paid subject to a maximum KES 5,000 per month and/or KES 60,000 per annum (Income Tax Act, section 31).
-
In addition, Section 22A (2) specifies that deductions in respect of contributions made to registered funds of the employer shall be limited to 20, 000 shillings per month of service or a maximum of 240,000 shillings per annum. The benefits payable under retirement benefit schemes are tax relief.
PAYROLL TAXES AND EMPLOYER CONTRIBUTIONS
Payroll Taxes
- National Social Security Fund – both employer and employee contribute 6% of maximum salary capped at KES 18,000.
-
National Industrial Training Levy – 50 KES per month.
- Housing Levy – 1.5% of gross salary for both the employee and employer.
Unemployment
-
Currently there is no provision in law for unemployment insurance and benefits.
-
The State however targets implementing a unemployment fund within the next financial year starting July 2022.
-
Employees will contribute one percent of their pay that will be matched by employers towards the fund that aims at generating at least Ksh45 billion (about $415 million) annually on implementation.
Social Security
-
The National Social Security Fund (NSSF) is a statutory savings scheme to provide for retirement. Both employer and employee contributes 6% of maximum salary capped at KES 18,000.
-
Employees in Kenya must contribute to the NHIF. There is no matching employer contribution. Contributions are tiered, with the current maximum payment of KES 1,700 per employee for employees earning more over KES 100,000 per month.
Workers Compensation
-
Workers Injury Benefits Act (WIBA) is the acronym for Workers Injury Benefits Act in Kenya. Businesses and organizations are required to insure themselves against reimbursement for accidents caused by their personnel.
-
Under the Labour Laws regarding Health and Safety Act 2007, the WIBA Insurance coverage protects you as an employer from legal liability.
-
The price of a WIBA Insurance Policy in Kenya varies depending on the insurance company you choose. However, the cost will vary depending on the coverage package you choose.
-
It might be expensive or cheap, depending on the coverage plan you choose to meet your organization’s or company’s insurance needs.
-
It’s important to note that the benefits are determined depending on your employees’ salaries as well as the kind of work-related illnesses and disorders. It’s critical that you maintain track of your employees’ earnings in order to make determining compensation benefits easier.
ADMINISTRATION
Income
-
Income tax is filed monthly using the online KRA E-Filing service.
-
Payments are due by the 9th of the month. If the 9th falls on a weekend or public holiday then the payments are due on the prior working day.
-
Penalty of 5% of the amount due is levied for late payment and then 1% per month on the unpaid tax until the tax is paid in full.
Payroll Taxes
-
NHIF and National Industrial Training Levy Payments are paid over when paying over employee income tax.
- Housing Levy – 1.5% of gross salary for both the employee and employer.
Unemployment
N/A
Social Security
-
NSSF payments are paid over when paying over employee income tax.
Workers Compensation
-
WIBA contributions are paid once per year.
Statutory Benefits
-
NSSF payments are paid over when paying over employee income tax.
Employee Benefits
-
Life Insurance, Medical Aid and Pension Benefits are available.
LEGISLATION
-
The Employment Act, 2007
-
The Labour Relations Act, 2007
-
The Occupational Safety and Health Act, 2007
-
The Work Injury Benefits Act, 2007
-
The Labour Institutions Act, 2007
STATUTORY BODIES
Salaries and Remuneration Commission
-
The Salaries and Remuneration Commission is a Kenyan government commission created under the Salaries and Remuneration Commission Act of 2011. The Kenyan Constitution guarantees its independence.
