Your guide to Kenya payroll

When hiring employees in Kenya, it’s important to understand and implement a payroll system that complies with local labor laws and regulations. A compliant payroll process helps maintain legal adherence, reduce penalties, and maintain transparency with employees.

International payroll systems frequently demonstrate the value of local knowledge. Kenya payroll isn’t complicated, but it does demand a clear understanding of the Kenya Revenue Authority (KRA) requirements, National Health Insurance Fund (NHIF) contributions, and National Social Security Fund (NSSF). 

The fusion of employment law and tax legislation influences everything from leave entitlements to statutory contributions, making it vital to manage payroll in Kenya with a combination of accuracy and regulatory awareness.

In these situations, companies may benefit from using an integrated workforce and payroll management solution, such as Payoneer Workforce Management, which offers local expertise with a worldwide reach. In this guide, we will cover all you need to understand about payroll in Kenya.

Kenya payroll: Wages and other payments

Employers must comply with local labor laws, including determining base pay, allowances, and statutory entitlements, and maintaining equitable and transparent compensation practices, in line with Kenya’s regulatory framework for fair treatment of employees, to reduce legal penalties and promote workplace trust.

Payroll cycle

The payroll cycle in Kenya is monthly, with salaries typically paid at the end of the month or as specified in the employment contract. 

While the Employment Act 2007 does not mandate a fixed payday, it requires employers to make timely and consistent payment of wages. 

Minimum wage

In Kenya, the minimum government-set wage varies by sector and location. The minimum wage in Kenya is 36,360.92 KES per month. 

Overtime pay

In Kenya, labor laws permit overtime work, specifying rates and maximum hours in the Regulation of Wages (General) Order, 1982, and the Employment Act, 2007.

Any work beyond 52 hours per week is considered overtime.

• Overtime pay rates
  • Weekday overtime: Paid at 150% (1.5×) of the regular hourly rate.
  • Public holidays and rest days: Paid at 200% (2×) of the regular hourly rate.

• Standard working hours have been set at 45 hours per week for normal employees (52 hours per week in some cases) 

Sick leave and pay

• An employee in Kenya is eligible for sick leave after having been in employment for two consecutive months with the same employer.

• Depending on the law, he or she should be granted at least 7 days of fully paid sick leave, with an additional 7 days at half pay over 12 months.
• The initial 12 months for sick leave begin from an employee’s first day of employment and are then reset annually on each hiring anniversary.
• Employees must also produce a proper medical certificate when they are absent for more than two working days, as required by Section 30 of the Employment Act 2007.

Maternity and paternity leave

Kenyan labor laws have provided maternity and paternity leave benefits, including paid leave, under the Employment Act of 2007.

1. Maternity Leave
   • Three months (90 calendar days) of paid maternity leave are granted to female employees.
   • Following maternity leave, the employee has the right to either return to her former position or be employed in a position with similar or better terms and conditions.
   • If an employee goes on further leave, for example, sick leave or annual leave, immediately after maternity leave (with the employer’s consent), then the return date of the employee shifts to the end of that combined leave.
   • The employee is required to give at least 7 days’ written notice before proceeding on maternity leave, or a shorter period if necessary.
   • Maternity leave does not affect the number of annual leave days to which the employee is granted.

2. Paternity Leave: A male employee is entitled to two weeks of paid paternity leave within a year from the date of birth of the child.

Severance and termination benefits

Employees are also entitled to some benefits on termination under the Employment Act 2007 (Kenya). Key provisions include:

• Notice pay: Employees with one or more months of consecutive employment should be provided with notice before termination.
  • During probation, a 7-day notice
  • After probation, 28 days’ notice
• Severance pay: Employees who have completed at least 12 months of service are entitled to 15 days of pay for each completed year of employment, calculated based on their most recent salary.

Payroll Kenya: Contributions and deductions

Employers managing payroll in Kenya must also comply with deducting various taxes and contributions from employee wages. These obligations, as required by the Kenyan tax and labor laws, apply to both the employer and the employee.

Pay as you earn (PAYE) tax

Under the progressive tax system, Kenya charges individual income tax varying from 10% to 35%. The current tax bands are: 

National Health Insurance Fund (NHIF)

According to the declaration delivered by the Government of Kenya, all citizens of the country are required to contribute to the National Health Insurance Fund (NHIF). 

This initiative, under the Social Health Authority (SHA), aims to ensure universal access to quality and affordable healthcare services throughout the country. 

Both salaried and non-salaried employees will contribute to the fund, with specific procedures in place for each group to ensure fairness and inclusivity.

• For salaried persons, 2.75% of gross salary is paid as a monthly NHIF contribution. Employers must deduct these amounts from the salaries and make remittances to the Social Health Authority.
• For self-employed individuals, informal workers, or those without a fixed income, the contribution rate is 2.75% of their annual household income.

National Social Security Fund (NSSF)

The NSSF contributions are compulsory for all employees in Kenya.

• Employee contribution: 6% of pensionable pay
• Employer contribution: 6% of pensionable pay

Mandatory Kenyan employee benefits

According to the employment law of Kenya and the official regulations on the adoption of mandatory benefits, employers are required to provide a minimum set of benefits to ensure fair treatment and social protection.

• Annual leave: Employees are entitled to a minimum of 21 days of fully paid annual leave after completing one year of continuous service.
• Public holidays: Paid leave is mandatory on all government-declared 12 public holidays.
• Sick leave: The full salary is paid for up to 7 days of sick leave, followed by an additional 7 days at half pay, within every 12 months.
• Social Security Contributions: Both employer and employee shall contribute towards NSSF, NHIF, and the Affordable Housing Levy.
• Overtime Pay: Overtime must be paid at premium rates as specified by law.

These statutory rights are set down in the Employment Act 2007 of Kenya and related regulations and should be integrated into every employer’s payroll systems in Kenya strategy.

Your options for payroll in Kenya

If you’re looking to grow your business in East Africa or are working with professionals based in Kenya’s remote regions, you need to be aware of the legal and practical aspects of payroll in Kenya. 

Foreign and local companies, regardless of size, structure, or industry, have three principal options for meeting payroll requirements in Kenya, each with separate tax and administrative considerations. 

1) Establishing a local entity

Creating a legal entity in Kenya allows you complete authority over the way you hire and pay Kenyan employees. But this strategy has significant operational overhead:

• Registering with the Kenya Revenue Authority (KRA) for a Personal Identification Number (PIN) for tax compliance.
• Deducting statutory dues such as PAYE, NSSF, NHIF, and the Affordable Housing Levy.
• Drawing up your employment contracts in compliance with the Employment Act, 2007.
• Maintaining a monthly payroll cycle, accurate payslips, and mandatory filings on the KRA iTax platform.

2) Hiring independent contractors

Some companies in Kenya ultimately opt to hire independent contractors to avoid paying benefits, taxes, and administrative overhead. While the situation seems flexible, it’s essential to proceed with caution.

Danger of misclassification

• Kenyan labor laws distinguish between employees and contractors. Wrongful classifications of employees as independent contractors result in penalties.
• Independent contractors file their own taxes, including PAYE and NHIF contributions; however, the employer may be held liable in some disputes.

3) Partnering with an Employer of Record (EOR)

To pay employees most efficiently in Kenya, especially for foreign companies, a partnership with an Employer of Record is advisable.

An EOR such as Payoneer Workforce Management:

• Onboards the employees on your behalf and acts as a legal employer in Kenya
• Operates Kenya payroll software and supports compliance with tax laws and statutory deductions (including PAYE, NHIF, and NSSF)
• Provides a transparent process in salary disbursement, all required benefits, and HR support
• Facilitates rapid workforce expansion without setting up a legal entity
• Helps manage payroll management for startups in Kenya and global enterprises alike

The Kenyan payroll system is regulated under structured employment laws and tax regulations, including the Employment Act, 2007, the Income Tax Act, and the latest updates from the Kenya Revenue Authority (KRA). 

There are several statutory contributions to consider, including PAYE, NHIF, and NSSF. All should be paid correctly and punctually.

That’s where Payoneer Workforce Management comes in. 

As a reliable EOR in Kenya, we assist with onboarding, payroll in Kenya, navigating local labor laws, benefits administration, time-off management and more. 

Our local knowledge, combined with our robust platform, streamlines workforce management for you, allowing you to expand with confidence and grow operations smoothly.

Book a free demo today. 

FAQs

1) How can I pay employees in Kenya as a foreign employer?

Most foreign companies achieve this by partnering with a local payroll provider or utilizing an Employer of Record (EOR) service, such as Payoneer Workforce Management, for engaging and paying employees while staying compliant with Kenyan labor and tax laws. This streamlines the processes of onboarding, salary disbursement, and tax payment in Kenya.

2) What income tax do employees in Kenya pay?

Kenyan tax is progressive, with rates ranging from 10% to 35% based on income. This tax is deducted at the source by the employer and submitted to the Kenya Revenue Authority, and is crucial for effective payroll in Kenya.

3) Who oversees payroll and tax compliance in Kenya?

The Kenya Revenue Authority (KRA) regulates payroll processes, tax rates, and reporting requirements. Additional oversight is provided by the Social Health Authority (for NHIF) and the NSSF. Staying updated with their guidelines is essential for correct Kenya payroll management.