Our guide to Payroll in Kenya

Doing Business in Kenya

Investing in Kenya

The Kenyan government is usually identified as investment-friendly and has represented numerous regulatory reforms to simplify both foreign and local investment.  Kenya has a well-developed social and physical infrastructure.  It is considered the main alternative location to South Africa, for major corporations seeking entry into the African continent.

Basic Facts about Kenya

Common Phrases

Hello: Jambo
Good Morning: Habari Ya Asubuhi
Good Evening: Habari Ya Jioni
Do you speak English?: Unajua Kizungu?
Goodbye: Kwaheri
Thank you: Asante
See you later: Tutaonana

Registrations and Establishing an Entity

Small-scale businesses are providing more and more jobs in Kenya. With increased but simplified regulations, they are able to blossom into large, legitimate businesses that can eventually create more jobs and government revenue.

The step-by-step guide to registering a company in Kenya is:

• State registration of legal entity, statistical, and tax registration with the Center for Public Registration
• Stamp the memorandum and articles of association, and a statement of the nominal capital
• Pay Stamp Duty at a designated bank
• Sign the Declaration of Compliance before a Commissioner of Oaths or a Notary Public
• Register with the Registrar of Companies at the Attorney General Chambers in Nairobi
• Register with the Tax Department for the single taxpayer identification number online (PIN)
• Apply for a Business Permit
• Register with the National Social Security Fund (NSSF) & National Hospital Insurance Fund (NHIF)
• Make a company seal after a certificate of incorporation has been issued

Banking

It is not mandatory to make employee salary payments from an in-country bank account, however, it is mandatory to make third party authority payments from an in-country bank account.

The Central Bank of Kenya is tasked with formulating and implementing monetary and fiscal policies.

Banks are open from 9:00am to 3:00pm Monday to Friday. Some branches open on Saturdays from 9:00am to 11:00am.

Working Week

Most businesses in Kenya are open from Monday to Friday, though some also trade on Saturday. Business hours are 9:00am to 5:00pm, closing for an hour over lunch (1:00pm – 2:00pm). 

Employment Law

Holiday Accrual

The period that the employee is entitled to is a minimum of 21 working days and the employee is entitled to full pay.  However, many contracts and collective agreements provide for annual leave of between 30 to 45 days.  On average, Kenyan employees enjoy an annual leave allowance of 24 days. 

Maternity Leave

A female employee in Kenya is entitled to 3 months of maternity leave with full pay in addition to any annual and sick leave.

The employee will be entitled to maternity leave if she gives no less than seven days written notice in advance, or a shorter period as may be reasonable in the circumstances.  She must, however, provide a certificate from a qualified practitioner or midwife confirming her condition.

On the expiry of the maternity leave, the employee shall be entitled to return to the job that she held prior to maternity leave. 

Paternity Leave

The law allows a male employee two weeks of paternity leave with full pay.

Sick Leave

The minimum period of entitlement for sick leave is seven days with full pay and seven days with half-pay for every twelve months, subject to production of a certificate of incapacity to work duly signed by qualified medical practitioner.  However, some companies will pay more on the designation of personnel.

National Service

There are no compulsory National Services in Kenya.

The Tax Year in Kenya runs from 1st January to 31st December.

The key legislative authorities in Kenya are:

• Kenya Revenue Authority (KRA)
• National Social Security Fund (NSSF)
• National Industrial Training Authority (NITA)
• National Industrial Training Authority (NITA)

Payroll providers do not need to be licenced to make any tax or social security filings on behalf of their clients in Kenya.

All tax returns should be completed by 30th June.

Income Tax 

Income tax is charged on the income earned by anyone resident in Kenya.  

A resident is an individual who has permanent residence in Kenya and has spent any part of the working year in the country or has spent 183+ days working in the country.  A foreign employee in a non-Kenyan firm who is resident in Kenya is subject to tax on all emoluments.

Income tax is a direct tax charged on incomes of individuals from:

• Employment
• Self-employment
• Profits from business entities
• Income taxes such as rent incomes, dividends, interests, pensions, royalties, income from management or professional fees

The method of collecting tax at source from individuals in formal employment is called Pay As You Earn (PAYE).  

The employer deducts a certain amount of tax from the employee’s salary or wages on each payday then remits the deductions to the KRA.

The four main taxes include: 

• Customs and Excise
• Income Tax
• Value Added Tax (VAT)
• Motor Vehicle Road Licenses and Driving Licenses

Income tax is taxable to individuals and limited companies (including trusts). The income of a partnership is charged to the partners who share the income.  Apart from collecting taxes directly, the commissioner may employ agents to collect taxes on his behalf and remit that tax (and account for) to him. The monthly personal relief is KES 2,400 per month.

Tax Rate

 

Monthly contributions are made to the tax authority by the ninth of the following month.

Social Security

The National Social Security Fund (NSSF) is a statutory savings scheme to provide for retirement. Both employers and employees contribute 6% of the gross income (up to KSH 2,160) per month. Kenya is a member of the International Social Security Association.
The NSSF is divided into 2 tiers. Tier one is 6% of the first KSH 9000 to a maximum of KES 540 . Tier two is also 6% up to a maximum of KES 5940.

Payroll

It is legal in Kenya to provide online pay-slips and there are no procedures to be followed.

Reports

Payroll reports must be kept for between 7 and 10 years depending on the type of report.

New Employees

New starts have to be registered with local authorities only if they do not have an existing Personal Identification Number (PIN), National Social Security Fund (NSSF) and National Hospital Insurance Fund (NHIF) numbers.  They must be registered prior to the payroll run being completed.

For setting up a new start, the details required include:

• Full name
• Bank details
• PIN
• NSSF
• NHIF 

This process should also be followed for any expats.  There is no set timeline for this to happen.

Leavers

Employers cannot unfairly terminate the employment of an employee.

Employers must prove justified reasons for the termination of an employee’s employment. The termination must be investigated and an appeal heard before resorting to termination. If the employer fails to adhere to this then it will be considered unfair.

Employee Benefits

Expenses

Any benefits that the company provides will be at the company’s discretion.

Any general expenses can be either a reimbursement if employees use their own money or a deduction if they do not provide receipts for expenses.

Car mileage can be reimbursed in terms of a fuel allowance provided receipts are given and the company can decide on a limit.

Company cars are usually included as a car benefit. This amount is calculated at 2% of the value of the car and this value is then taxed at 30%.

Work Permits

All non-Kenyan citizens must be in possession of an entry/work permit or exception that is issued by the Office of the Director of Immigration Services, before they can take up employment in Kenya, whether paid or unpaid.

Any non-Kenyans seeking to carry out short-term business assignments like assembling machinery, maintenance or performance whether paid or unpaid must obtain a Kenya Special Pass from The Director of Immigration Services.

There are various classes for such permits, depending on the motive for coming to Kenya.

These are detailed below:

• Class D: This is issued to a person who is offered specific employment by a specific employer who is qualified to undertake that employment.
• Class I: Work/Residence permit issued to a member of missionary society approved by the Government of Kenya and whose presence is beneficial to the country.
• Class B: Work permit issued to a person wishing to invest in Agriculture and Animal Husbandry
• Class A: Issued to a person who intends to engage in prospecting for Minerals or Mining
• Class G: Work permit issued to investors in specific Trade, Business or Consultancy
• Class K: Residence Permit issued to a person who has an assured income derived from sources outside and undertakes not to accept paid employment of any kind
• Class M: Work Permit issued to Conventional Refugees. 

Applications for renewal of entry permits should be done three months prior to the expiry date.

These permits are normally issued for a period of two years.

• KRA requires e-filing via the iTax system
• Employee data must be validated before tax filings
• Regional cost-of-living and salary differences may apply
• SHA-led social security reform is ongoing

Further Information

For more information, or assistance with Kenya tax enquiries, please contact: gi@activpayroll.com

About This Payroll and Tax Overview

This document offers general guidance and should not be considered a definitive or comprehensive account of legal, regulatory, or tax obligations. Always consult a professional for specific advice. activpayroll accepts no liability for reliance on its contents.