Statutory Deductions For Employers in Kenya

Employees’ salaries or wages are a very important subject especially when it comes to managing monthly deductions in Kenya. These statutory deduction figures and the other organization’s monthly deductions continue changing due to the country’s law amendments.

The Employment Act of Kenya, Section 19(1), permits the employer to deduct any amount from an employee’s wage as a contribution to a fund or program that the employee has consented to support and that has been approved by the commissioner for labor.

Related: KENYAN EMPLOYERS GUIDE ON PENSION AND BENEFITS

Existing Statutory Deduction in Kenya

Statutory deductions are a legal requirement and failure to register some of the mandatory deductions like PAYE may result in a serious penalty and this can cost a business or individual money. Any voluntary deductions may be opted out of by the employee at any time; however, they must be made and paid by the deadlines and other conditions stated in the arbitration agreement, court order, or law agreement. Among the fundamental statutory deductions are; –

• Pay as You Earn (PAYE)

• National Hospital Insurance Fund (NHIF)
• National Social Security Fund (NSSF)
• National Industrial Training Authority (NITA)

Pay as You Earn (PAYE)

This is a method for collecting taxes from both domestic and foreign workers. The PAYE must be deducted by the employer and remitted to the KRA, typically before or on the ninth of the succeeding month; it is only applicable to people earning Ksh 24000 and above. However, some incomes are not subject to PAYE, such as;

• Medical coverage provided by an employer,
• Tax relief is designed to reduce the taxpayer’s tax burden (currently standing at Kshs 2,400 per month or Kshs 28,800 per year),
• An insurance relief is provided to an employee who has paid his life, health, and insurance premiums, or for his family.
• Meals provided to employees by the employer up to a limit of Ksh 4000 per month or Ksh 48,000 per year
• Pension contribution to a registered or unregistered scheme made by an employer. The allowable limit is Ksh 20,000 per month or Ksh 240,000 per year.

National Hospital Insurance Fund (NHIF)

Cap 255 of the Kenyan law provides for the creation of a National Hospital Insurance Fund; to provide for contributions to and the payment of benefits out of the fund

Any person deriving his/her income in Kenya from salaried employment is liable to a standard contribution or a person who derives income from self.

Employers deduct from the employee’s income and remit to NHIF. This contribution is usually graduated with a minimum of 500 and a maximum of Ksh 1700 per employee earning Ksh 100000 every month.

National Social Security Fund (NSSF)

The NSSF Act of 2013 provides for the creation of a fund to provide for contributions to and the payment of benefits out of the fund

The objective of the fund is to provide social security for its members and their dependents against contingencies provided in the act

The contributions are classified into;

• Old rate -Here, the employer and employee each contribute Ksh 200 to the fund making a total contribution of Ksh 400
• Tier I – It is set at 12 % of the lower limit of Ksh 6,000, which translates to Ksh 720 with an equal contribution of Ksh 360 by both employer and employee.
• Tier II – A cumulative 12% of 18,000 (upper limit) which is Ksh 2,160 is set.12 % of the lower limit which is Ksh 720 will be taken as Tier I and the balance of Ksh 540 will be Tier II.
• These contributions are usually deducted by the employer from the employee’s income as per the act and must be remitted before or on the 15^th of the following month.

National Industrial Training Authority (NITA)

Employers are required to pay the levy to NITA annually usually at a monthly rate of KShs 50 per employee including a casual employee as per Section 5 (Cap.237) of the Industrial Training Act.  The payment is done through a unified payroll system provided by The Kenya Revenue Authority (KRA), which acts as the collecting agent.

The benefits of the fund are;

• The cost of the training staff is undertaken by NITA based on the terms and conditions of the levy.
• Full or partial reimbursement of costs incurred on employees.
• Legal requirement compliance.

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