Considering an expansion of your business on a global scale? Exploring the possibility of hiring employees or contractors in Kenya can unveil a rich pool of talent and potential growth avenues. While the prospect of global hiring brings numerous benefits, understanding the nuances of the payroll process in Kenya is crucial before embarking on this journey.
To simplify and expedite the process, partnering with a specialized payroll service provider like Marzuna proves to be a strategic move. Delve deeper into the intricacies of Kenya’s payroll procedures and learn how Marzuna can facilitate a faster, more seamless hiring experience, all at a fraction of the cost compared to navigating the process independently.
While the payroll process in Kenya shares resemblances with familiar workflows, significant variations in Kenyan payroll laws, tax percentages, and working hours warrant attention, as explored later in this guide. Onboarding Kenyan workers onto your payroll involves critical steps. Gathering essential information from new hires, whether employees or contractors, is the initial requirement, with employers obligated to withhold income, national hospital fund, national social security fund, and national housing development fund taxes for each worker. Calculating gross pay, representing the amount owed before deductions, is determined by hours worked and the rate of pay. Subsequently, net pay, factoring in taxes and benefits, indicates the amount to be disbursed to workers. Adhering to Kenya’s payroll laws requires timely monthly payments and meticulous record-keeping. Employers are further tasked with submitting deducted taxes to the appropriate authorities, involving reporting to four regulatory agencies. Despite the apparent simplicity of these steps, the intricacies of compliance with numerous laws underscore the importance of a thorough understanding. For instance, monthly submission of income taxes to the Kenya Income Authority and contributions to the National Social Security Fund by the 15th of the following month are essential obligations. Navigating these complexities can be resource-intensive, making a partnership with Marzuna an invaluable solution. By entrusting us with the payroll process, businesses can ensure not only efficiency but also 100% compliance with Kenya’s legal requirements.
Before processing payroll in Kenya, companies need to be aware of a few things. The following are subject to rules and regulations:
Each of them will be covered in more depth below.
| Payroll Basics | The Kenyan Shilling (KES) is the unit of currency in Kenya. 1 KES is equal to.0087 USD, or, to make it simpler to understand, 1 USD is equal to about 115 KES. Kenyan workers receive their paychecks on the final day of each month as part of a monthly payroll cycle. Daily payment is anticipated of casual laborers. |
| Working hours | Kenya has many regulations regarding working hours. Although a typical workweek consists of 52 hours, most employers only allow 45 hours. The maximum number of hours that day workers can put in in a two-week period is 116.
Workers who work nights are only permitted to work 60 hours a week. Additionally, 144 hours is the maximum for two weeks. In certain industries in Kenya, collective bargaining agreements exist that may have an effect on working hours. |
| Overtime rules | Except in cases where the employment contract specifies otherwise, overtime is compensated at 150% of hourly rates. An employer is obligated to pay 200% of the usual pay rates if they ask a person to perform overtime on a public holiday or weekend. |
| Minimum Wage requirements | Kenya’s minimum wage is subject to change depending on the sector and region. Typically, the range falls between 30,627.45 KES and 13,572.90 KES.
It’s critical to comprehend the minimum wage laws that apply to your particular industry. Businesses that pay employees less than the minimum wage face harsh repercussions. |
| Employment leave entitlements | Employees in Kenya are granted a minimum of 21 paid days off after completing one year of employment. The country also observes 13 paid public holidays, including New Year’s Day, Good Friday, Easter Monday, Labour Day, Eid al-Fitr, Madaraka Day, Eid al-Adha, Huduma Day, Mashujaa Day, Jamhuri Day, Christmas Day, and Utamaduni Day.
After two months with an employer, workers are entitled to 7 days of 100% paid sick leave, with an additional 7 days at 50% of the normal pay rate. In terms of maternity leave, pregnant employees are eligible for three months of 100% pay, requiring a one-week notice before commencement. In adoption cases, workers can take three months of 100% paid leave, with a two-week notice. Paternity leave for birth or adoption stands at two weeks of paid leave. Parents in the process of adopting a child can receive a full month of paid leave with the necessary documentation and notice. |
| Severance Pay | In Kenya, severance compensation is only necessary in the event of layoffs. Employers must provide those workers with 15 days of severance compensation for each year of service. |
Payroll in Kenya is regulated by four authorities, and employers are mandated to make contributions and deductions on behalf of their workers. These authorities are:
Employer contributions encompass a 5% NSSF contribution, capped at 200 KES monthly, a 1.5% contribution to the National Housing Development Fund, and a fixed amount of 50 KES per employee.
On the other hand, employee contributions include a 5% contribution to the NSSF, a 1.5% contribution to the National Housing Development Fund, and NHIF contributions ranging from 150 to 1,700 KES for employees earning more than 100,000 KES monthly. Additionally, employees are subject to income tax at varying rates based on income brackets:
As an employer, it is essential to comprehend and adhere to the aforementioned regulations. Failure to do so may result in penalties and fines imposed by Kenyan authorities. The Kenya Revenue Authority’s website outlines various penalties for actions such as late filings, failure to file, and failure to implement deductions. While the penalty amounts may vary, they generally fall within the range of 5% to 10% of the amount due.
Avoiding unfavorable impressions with Kenyan regulatory authorities is crucial. To ensure strict compliance and minimize the risk of penalties, consider collaborating with a professional payroll service provider. Connect with a representative from Marzuna today to gain a better understanding of your business’s obligations when compensating Kenyan workers, and proactively protect your standing with regulatory bodies.
Navigating the complexities and expenses associated with managing global payroll independently poses significant risks for businesses. Establishing an entity in Kenya involves extensive operational responsibilities, including the need to engage a local legal professional to ensure compliance with relevant laws and staying abreast of regulatory changes.
The management of confidential employee records becomes a challenging task when expanding globally. Collaborating with a payroll service provider proves beneficial in terms of time and cost savings. Such providers adeptly handle confidential documents, ensure 100% compliance with local regulations, and validate salaries to align with regional requirements.
Outsourcing payroll services offers numerous advantages to companies, serving as a valuable partner in scaling operations while alleviating concerns related to legal complexities in foreign jurisdictions. This is particularly advantageous for SMEs and startups seeking rapid expansion. Additionally, partnering with an outsourced provider provides access to benefits and systems that might be otherwise unavailable to smaller businesses.
