Kenya

Breathtaking savannas, diverse wildlife, colorful culture – Kenya is all this and perhaps more. But the country is no longer just a photographer’s dream destination. It is fast becoming a destination for businesspeople who are looking to invest in an African country that has a great scope for economic growth. Kenya holds a strategic location in East Africa and is one the most promising nations in the emerging world from the perspective of conducting business.

As a multi-ethnic and multi-cultural country, Kenya boasts of a growing youthful population and a skilled workforce. This has given rise to a plethora of business opportunities that have made Kenya one of the largest economies in East Africa. From information technology to health care to banking to tourism, diverse sectors have witnessed a steady flow of foreign investment over the past few years.

At a glance

GDP¹

US$ 113 Bn

ANNUAL GDP GROWTH RATE¹

4.8%

POPULATION²

54 mn

Literacy Rate³

82%

Labour Force Participation Rate⁴

74.4%

Special Agreements & Treaties⁵

Multinational Trade System, African Continental Free Trade Area (AfCFTA), ACP/Cotonou Partnership Agreement, African Growth and Opportunity Act, Generalized System of Preferences, Bilateral Trade Agreements, U.S - Kenya Trade Engagements, U.S.- Kenya Commercial Memorandum of Understanding

Payroll Frequency

Monthly

In this article, we highlight some of the important payroll-related information that is sure to come in handy for any organization looking to set up their office in Kenya or employ the Kenyan workforce.

Online Registration:

All employers need to register online through the eCitizen online platform. This service is designed with the end user in mind and is very convenient to use. In general, it takes 1 week to 10 days to start a business in Kenya.

Link for Registration

The official website is the go-to platform for all registrations, whether for sole proprietorships, partnerships, or limited liability partnerships. The process varies for citizens and foreigners, with slight variations at the state level. Here's a summary:

Apart from the registration processes, an employer must also know the various acts and laws governing payroll here.

Employers must diligently handle Employment Law, Social Security, and Tax-related regulations and meet government deadlines to avoid penalties. Payroll regulations in Kenya are governed by various regulations, encompassing social security and statutory levies imposed by various authorities, including:

Compliance is key to smooth business operations. And to achieve that, employers must navigate the labor landscape as well. Next, we will explore employees' rights, privileges, and obligations, providing an in-depth overview of key aspects, from employment contracts to retirement benefits, to help employers understand the country's labor regulations.

The table below summarises the specifications and details of employment contracts:

Estimated range: KES 15,201.65 to 34,302.75 per month.

The minimum wage must not be less than the amount prescribed by the authorities. It may depend on the sector, industry, occupation and locality of employment. An employer who fails to pay the statutory minimum wage or provide a worker with conditions of employment mentioned under the Wages Order is deemed to have committed an offence.

1. Maximum working hours:

2. Overtime rate

Unless agreed otherwise in the contract, the employer needs to fulfill the following obligations:

Point to note:

Including overtime, an employee’s working hours cannot exceed the following for two consecutive weeks:

• Night employees: 144 hours
• Other adult employees: 116 hours

Law governing leaves: The Employment Act No. 11 of 2007 and public holidays are covered under the Public Holiday Act (Cap 110).

1. Public Holidays

2. National Holiday

The day following the dissolution of Parliament in any given year in which a general election is held.

3. Statutory Leaves

An employee is entitled to a termination notice (maximum 1 month) and redundancy payment in case of termination. The redundancy pay should not be less than 15 days’ pay for each completed year of service to the employee declared redundant. This amount will be subject to tax and social security.

1. Housing

2. Affordable Housing Levy

An itemized payslip is recommended to be provided to an employee on or before the payment day. The statement should contain the details below:

The National Social Security Fund (NSSF) in Kenya is a vital component of the country's social security system. Continue reading to learn about its key aspects.

National Social Security Fund

Governing Laws:

• The National Social Security Fund Act No.45 of 2013
• Cap 258 (NSSF Act)

The NSSF Act was established in 1965 through the Act of Parliament of the Laws of Kenya. Later, it was amended in February 2023.

As per the recent amendment, the Court of Appeals has provided consent to the full implementation of the NSSF Act which specifies the mandatory contributions to the fund and has been a welcome change:

The contribution to the fund is divided into 2 tiers based on salary levels. The details are as follows:

Tier 1:

• Contributions to be made to actual pensionable earnings (KES 8000 or below)
• Amount to be submitted as the first tier of contributions to a mandatory pension plan - The National Pension Plan run by NSSF
• Pensionable earnings mean the actual monthly basic wage.

Tier 2:

• Contributions to be made to pensionable earnings (between KES 8,000 and 72,000)
• Amount to be submitted as the second tier of contributions to a mandatory pension plan for enhanced benefits such as age/retirement, survivors, invalidity, withdrawal & emigration
• It should be submitted to NSSF if not already covered by an employee-preferred pension fund duly authorized by the Retirement Benefits Authority (RBA).

Building on the SHIF, the Social Health Insurance Fund (SHIF) assumes a pivotal role in Kenya's healthcare system, serving as a crucial element of the nation's social security framework. Its authoritative provisions and purpose are explained below.

Social Health Insurance Fund

Governing Laws:

• Social Insurance Fund Act
• SHIF replaces NHIF under the Social Health Insurance Act, 2023, aiming to provide universal health coverage.

The government in Kenya set up the NHIF Act w.e.f. April 01, 2015.

Gross salary refers to the total earnings an employee receives before any deductions are made. There is no employer contribution for SHIF

In addition to NSSF and SHIF, the National Industrial Training Levy contributes towards fostering employee development and enhancing social security. Here, we explore its key aspects and requirements.

National Industrial Training Levy

Governing Laws:

Industrial Training Act 2022 (NITA). The NITA Act has established the Industrial Training Levy Fund

In Kenya's financial realm, the Income Tax Act stands as the ultimate authority. This robust guide unveils the precise tax withholding rules for employers and employees, delivering a straightforward grasp of core concepts, exemptions, and tax rates that shape financial responsibilities.

Governing Laws:

The Income Tax Act (ITA)

Governing body:

Kenya Revenue Authority (KRA)

Explained below are the definitions of salary and different exemptions based on which the taxable income is derived

Salary

1. Cash and non-cash benefits above KES 5,000/month are taxable
2. Taxable income encompasses wages, salaries, bonuses, commissions, allowances, overtime pay, pensions, and more, regardless of their designation
3. Club admission and subscription fees once deducted are taxable
4. Effective July 1, 2025, Excess mileage reimbursement to employee higher than rates provided by Automobile Association of Kenya

Allowable Deductions

1. Mortgage Interest: Deductible for residential loans from the top five listed financial institutions (ITA Schedule IV) taken during that year of income, maximum KES 3,60,000 yearly
2. Pension Contributions: Deductible up to KES 30,000 monthly
3. Post-Retirement Medical Fund: Effective from 27th December 2024, Contributions to a Post-Retirement Medical Fund (PRMF) up to a limit of KES 15,000 per month are allowed as a deduction from the taxable income.
4. Affordable Housing Levy (AHL): Full amount contributed towards the Affordable Housing Levy (AHL) are allowed as a deduction

Tax Relief

1. Personal Relief: Residents receive KES 28,800 yearly (KES 2,400 monthly)
2. Insurance Premiums Relief: 15% tax relief, up to KES 5,000 per month (KES 60,000 per annum) for life, health, or education insurance premiums for self or family.

Based on the above taxable income, PAYE is levied at the personal tax rates and bands effective July 1, 2023, as provided below:

Points to Note:

• Non-residents working for a Kenyan employer or at a Kenyan establishment pay the same income tax rates as residents
• Non-residents not eligible for Personal and Insurance Relief

Having a reasonable grasp of the laws that govern employee rights and employer obligations is crucial as failing to comply with them has repercussions