Employer of Record (EOR) Kenya

An Employer of Record in Kenya serves as the official employer for workers in the country. Known as a Global Professional Employer Organization (Global PEO), this role encompasses comprehensive employment oversight. It ensures strict adherence to local labor laws, manages essential tasks such as payroll, taxes, mandatory benefits, and the creation of employment contracts.

Key responsibilities of the Employer of Record (EOR) include:

  • Ensuring compliance with local employment laws.
  • Managing the local payroll process.
  • Handling the filing of employment-related taxes and necessary documentation.
  • Providing employees with accurate payslips.
  • Distributing employee salary payments promptly.

Optimize your global expansion with our Global PEO services – a streamlined solution that eliminates the need for establishing a legal entity. Our Employer of Record (EOR) in Kenya guarantees compliance, legal presence, and Intellectual Property (IP) protection, enabling your business to concentrate on its core activities. Facilitate seamless global mobility, including work visas, while building a diverse and efficient global workforce. Partner with Mercans, your trusted Employer of Record in Kenya, for a compliant and efficient employment experience for your global workforce.

Things you need to know before hiring in Kenya

Employment Contracts in Kenya

In Kenya, employment contracts and relationships are governed by robust legal frameworks such as the Employment Act No. 11 of 2007, alongside constitutional provisions and related statutes. These regulations outline the fundamental rights of employees, ensuring fair treatment and adherence to established employment conditions. Employment contracts, whether oral or written, are essential for defining the terms of engagement between employers and employees, ensuring clarity and mutual understanding of obligations and rights.

Defining an Employment Service Agreement

In Kenya, an employment service agreement refers to a verbal or written contract where an employee commits to offering their skills and services under the employer’s supervision for compensation. This includes apprenticeship and indentured learnership agreements, emphasizing the mutual obligations.

Components of an Employment Service Agreement

The fundamental components of an employment service agreement were outlined in the Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 Q.B. 497 case. These include the provision of personal labor and skills, the employer’s authority over the employee’s tasks, and alignment with the employment relationship.

Key Attributes of Written Employment Service Agreements

According to the Employment Act No. 11 of 2007, written employment service agreements must specify details such as employee and employer information, job description, start date, contract duration, work location and hours, remuneration, statutory benefits, leave entitlements, applicable deductions, sick pay, disciplinary procedures, and notice periods. Contracts must be understandable to illiterate or non-English-speaking employees to ensure they fully comprehend the terms before signing.

Varieties of Employment Service Agreements

The Employment Act categorizes several types of employment service agreements:

  • Open-Ended Contract: Employment without a specified end date.
  • Fixed-Term Contract: Employment for a predetermined period.
  • Task-Based Contract (Piece Work): Agreement to complete a specific task or project.
  • Casual Employment Contract: Employment on an irregular or as-needed basis.

Working Hours

  • Working Hours: Employees in Kenya are subject to a maximum of forty-eight (48) hours of work per week, as stipulated by labor laws.
  • Overtime: Any hours worked beyond the forty-eight (48) hours per week limit are considered overtime.
  • Compensation for Overtime: Overtime hours, exceeding eight hours a day or forty-eight hours a week, are compensated at a rate of one and a half (1.5) times the normal hourly rate, unless otherwise specified in a written agreement. Overtime worked on gazetted public holidays is compensated at twice (2) the normal hourly rate.

Probation Period

During a probationary period, which may not exceed six (6) months and can be extended by another six (6) months with mutual consent, either party can terminate the contract. Termination requires giving at least seven days’ notice or paying the equivalent of seven days’ wages in lieu of notice by the employer to the employee.

13th Month Salary

In Kenya, the 13th month pay is optional and not mandated by law. Employers have the discretion to decide whether to provide this additional salary. Therefore, employees should not anticipate receiving this bonus at the end of each year.

Employers who choose to offer the annual bonus in Kenya often do so as a recognition of their employees’ contributions throughout the year. Some companies may tie this bonus to meeting performance targets or achieving specified sales or profit objectives.

Termination, Severance Pay and Notice Period

In Kenya, the official age of normal retirement is typically considered to be 55 years. This policy is not legally mandated but is commonly followed across various sectors.

Layoff and Redundancy Laws:

Termination Notice Period: The notice period for termination depends on the length of the employee’s service:

  • Not less than 2 weeks for employment of more than 6 months but less than 1 year.
  • Not less than 1 month for employment of more than 1 year but less than 5 years.
  • Not less than 2 months for employment of 5 years but less than 10 years.
  • Not less than 3 months for employment of more than 10 years.

Dismissal: An employer may dismiss an employee summarily if the employee has fundamentally breached their obligations under the contract. The employer must prove the misconduct beyond a reasonable doubt and provide the employee with a fair opportunity to defend themselves and appeal the dismissal.

Redundancy: The Employment Act of 2006 does not specifically define redundancy but treats it similarly to termination. Employers must have fair grounds for terminating employment.

Severance Pay: Employees who have worked for at least 6 months are entitled to severance pay in case of termination or unfair dismissal. The amount of severance pay should be negotiated between the employer and the employee. In the absence of an agreement, a labor officer may determine the severance pay amount.

Employees vs Independent Contractors

Navigating the distinction between employees and independent contractors is crucial for businesses and workers alike. This differentiation impacts legal obligations, tax considerations, and the nature of work relationships. Employees typically operate under the employer’s direct supervision and receive benefits such as health insurance and paid leave. In contrast, independent contractors enjoy greater autonomy, often setting their own schedules and handling their tax responsibilities. Understanding these differences ensures compliance with regulations and helps in making informed decisions about workforce management.

Comparison Table: Employees vs. Independent Contractors

FeatureEmployeesIndependent Contractors
Control over WorkSubject to employer's direction and controlHave control over how work is performed
Work HoursTypically set by employerSet by contractor
Tools and EquipmentProvided by employerOften provide their own tools and equipment
TrainingMay receive training from employerTypically responsible for own training
PaymentPaid regular wages or salaryPaid based on contract terms, often by project or task
TaxationEmployer withholds taxesResponsible for own taxes and social security contributions
BenefitsEligible for employee benefits like health insurance, pensionsGenerally do not receive benefits from the employer
Job SecurityEntitled to protections against unfair dismissalNo job security protections
Legal RightsCovered by employment laws, including rights to minimum wageLimited legal protections under labor laws
Contract DurationEmployed under indefinite or fixed-term contractsEngaged for specific projects or periods
TerminationEmployer must provide notice or severance payGenerally no notice required for termination
RiskMinimal financial riskAssume financial risk for expenses and liabilities
LiabilityEmployer often liable for employee actionsContractor generally liable for their actions
Union RepresentationCan join unions and negotiate collectivelyNot typically unionized

Social Security in Kenya

Social security in Kenya is a critical component of the nation’s social welfare system, designed to provide financial protection and support to individuals and families in times of need. Administered primarily through the National Social Security Fund (NSSF), it encompasses a range of benefits, including retirement pensions, disability benefits, and survivor benefits. This system aims to enhance the quality of life for Kenyans by ensuring a safety net for workers and their dependents, thereby promoting economic stability and social equity. Understanding the structure, benefits, and requirements of Kenya’s social security system is essential for both employers and employees to effectively navigate and utilize these vital resources.

Contributions for Employees

National Social Security Fund (NSSF) Contributions:

  • Effective from 1 February 2024, new NSSF rates require employers to deduct a maximum of KES 2,160 from employees’ salaries and match the same amount.
  • Contributions must be remitted on or before the ninth day of the following month.

National Hospital Insurance Fund (NHIF) Contributions:

  • Employees are required to contribute to NHIF, with no corresponding employer contribution.
  • Contribution rates are graduated, with the maximum currently set at KES 1,700 per month for employees earning over KES 100,000.

Affordable Housing Levy (AHL):

  • Effective from 1 July 2023, employers deduct and remit AHL:
  • 1.5% of the employee’s gross monthly salary.
  • Employers match this with another 1.5%.

AHL payments must be remitted within nine working days after the end of the month. Late payments incur a 2% penalty per month.

These contributions and taxes are essential for ensuring employee welfare and compliance with Kenyan regulations. For more detailed guidance on social security and tax compliance in Kenya, consult with Mercans to navigate these requirements effectively.

Employers’ Social Security Contributions and Tax Obligations in Kenya

National Social Security Fund (NSSF) Contributions

  • From February 2024, employers must contribute 6% of employees’ pensionable earnings to the NSSF, matching the employees’ contributions.
  • The contribution cap is KES 4,320 per month for employees earning above KES 36,000.
  • Contributions must be remitted monthly by the 9th day of the following month.

National Hospital Insurance Fund (NHIF) Contributions

  • Employers are required to deduct NHIF contributions from employees’ salaries based on graduated rates.
  • NHIF contributions have a maximum of KES 1,700 per employee per month, applicable for salaries above KES 100,000.
  • There is no corresponding employer contribution.

Affordable Housing Levy (AHL)

  • Introduced in July 2023, AHL requires employers to deduct and remit 1.5% of employees’ gross monthly salary, matching this with an employer contribution of 1.5%.
  • AHL payments are due within nine working days after each month-end, with penalties for late remittance.

Payroll in Kenya

Payroll Essentials in Kenya

Minimum Wages

Minimum Wages in Kenya have maintained stability at 15,201.65 KES per month in 2024, consistent with the rate observed in 2023. Over the period from 1994 to 2024, Kenya’s minimum wage has averaged 7,589.77 KES per month. The highest recorded minimum wage was 15,201.65 KES per month in 2022, while the lowest was 1,700.00 KES per month in 1994.

Payroll Cycle

In Kenya, payroll is processed on a monthly basis, with employers typically disbursing salaries at the end of each month or according to terms specified in the employment agreement.

Overtime Pay

Overtime compensation is calculated at one and a half times the regular hourly rate on weekdays, and at double the basic hourly rate on Sundays and public holidays. Various Regulations of Wages Orders are currently enforced, each applicable to different sectors of the economy.

Mercans’ payroll capabilities

Payroll Cycle in Kenya: As your Employer of Record in Kenya, Mercans manages the entire payroll cycle, ensuring accurate and timely salary payments to both your employees and contractors. From data collection to payment disbursement, we oversee every aspect of the process, alleviating you of its complexities.

Local Currency Payments in Kenya: A key feature of our payroll expertise as your Employer of Record in Kenya is our management of multi-currency payrolls. We guarantee that all payments are processed in the local currency, in compliance with Kenyan labor laws and regulations. This simplifies payroll distribution for your employees, eliminating the need for currency conversions.

Payroll Setup, Processing, and Administration with EOR in Kenya: Our skilled team as your Employer of Record in Kenya takes charge of comprehensive payroll setup, processing, and administration. Whether you need assistance in establishing payroll systems, conducting regular payroll cycles, or managing various payroll components, we have the expertise and capability to ensure a seamless, error-free process.

Ensuring Compliance as your Employer of Record in Kenya: Compliance forms the foundation of our payroll services as your Employer of Record in Kenya. We meticulously handle all statutory filings and payments, ensuring strict adherence to local tax laws and regulations. Our deep understanding of local compliance requirements ensures your organization maintains a favorable standing with relevant authorities.

With Mercans as your Employer of Record in Kenya, you can focus on your core business activities, entrusting the complexities of payroll management to our capable hands. Our extensive knowledge and experience guarantee a payroll experience that is both effortless and compliant with Kenyan regulations, making us your trusted Employer of Record in Kenya.

Personal Income Tax in Kenya

Personal income tax in Kenya is a fundamental aspect of the country’s tax system, directly affecting individuals’ earnings and financial planning. Governed by the Kenya Revenue Authority (KRA), this tax is levied on all income earned by individuals from various sources, including employment, business activities, and investments. The tax structure is progressive, with rates increasing with higher income brackets, ensuring that taxation is equitable. Understanding the nuances of personal income tax, including tax rates, deductions, and compliance requirements, is essential for individuals to effectively manage their finances and fulfill their legal obligations.

  • Resident Taxation: Residents of Kenya are subject to personal income tax on their worldwide earned income, including income derived from employment or services rendered both within and outside Kenya. Additionally, any other income accrued or derived from Kenya is also taxable.
  • Non-Resident Taxation: Non-residents are only taxed on income earned from within Kenya or derived from Kenya.

Tax Rates (Effective from 1 July 2023):

Annual Taxable Income (KES)Tax Rate (%)
Up to 288,00010
Next 100,00025
Next 5,612,00030
Next 3,600,00032.5
Over 9,600,00035

The maximum tax rate of 35% applies to income exceeding KES 9,600,000.

  • Personal Relief: Resident individuals are eligible for a monthly personal relief of KES 2,400.
  • Residential Rental Income Tax: Residents earning income from residential property in Kenya are liable to pay residential rental income tax. Effective from 1 January 2024, the tax rate is 7.5% on gross rental income, following the amendment in the Finance Act, 2023. Previously, the rate was 10% for landlords earning up to KES 15 million annually from residential property.
  • Tax Filing and Payment: Taxpayers are required to file monthly returns via the i-Tax system and settle any rental income tax due by the 20th day of the following month after receiving rent. A calendar month defines the tax period. Landlords can opt to continue under the previous tax regime by formally electing to the Commissioner, necessitating adherence to standard tax filing and payment procedures.
  • Tax Agents: Under the Finance Act, 2023, the Commissioner has the authority to appoint rental income tax agents. These agents collect and remit rental income tax on behalf of taxpayers.

Kenya Employee Hiring Cost

For example, if the salary of a person in Kenya is 100,000 Kenyan Shillings (KES), this amount represents the total compensation before any deductions and forms the core of their annual earnings.

Explanation:

  • Gross Annual Salary: This is the total amount disbursed to the employee annually before any deductions. It constitutes the core of the employee’s compensation for their services rendered throughout the year.
  • Annual Employer Costs: These costs include various statutory obligations and benefits mandated by Kenyan labor laws. They cover contributions to social security schemes, medical insurance, work-related insurance, and other employee welfare benefits essential for compliance and employee well-being.
  • Total Annual Cost: This figure represents the overall financial commitment that an employer in Kenya undertakes to hire and maintain the employment of the individual for a full year. It includes both the gross salary paid to the employee and the additional costs related to statutory contributions and employee benefits.
Kenya
Gross annual salaryUSD 10,000.00
Annual employer costsUSD 447,00
1) Affordable Housing LevyUSD 150.00
2) NITA (National Industrial Training Authority) ContributionUSD 5.00
3) WIBA (Work Injury Benefits Act) ContributionUSD 91.00
4) National Social Security FundUSD 201.00
Total annual costUSD 10,447.00

Employer Costs in Kenya Employing individuals in Kenya entails various employer costs, encompassing mandatory social security contributions, income tax withholding, and other statutory benefits. Let’s delve into the breakdown of employer costs for an employee earning a Gross Annual Salary of KES 100,000:

  • Social Security Contributions: Employers in Kenya are obligated to contribute to social security schemes. The total annual employer cost for social security contributions would amount to KES 9,010.
  • Total Annual Cost: Factoring in additional expenses such as medical insurance contributions and any other applicable benefits or allowances, the comprehensive annual cost of employing an individual with a Gross Annual Salary of KES 100,000 could be estimated at KES 109,010.

Employee Benefits in Kenya

Employee benefits in Kenya encompass the supplementary compensation and protections beyond basic salaries that employers provide to their workforce. These benefits, which include healthcare insurance, paid leave, maternity and paternity leave, retirement plans, and childcare benefits, are essential for fostering employee well-being and satisfaction. They not only enhance job security and morale but also play a crucial role in talent retention strategies for employers.

  • Legal Framework: Kenya’s Employment Act guarantees fundamental rights for all employees, ensuring fair labor practices, protection from coercion and exploitation, timely payment of wages, and guidelines for employment relationships and termination procedures. The minimum wage varies by industry, employment type, and location, starting at KES 13,572.90 per month as of 2022.
  • Regulatory Framework: Additional regulatory frameworks such as the Labor Institutions Act, Occupational Safety and Health Act, and National Social Security Fund Act further safeguard employees’ rights and welfare. These laws establish standards for remuneration, workplace safety, and social security contributions, ensuring comprehensive protection for workers across various sectors.
  • Mandatory Benefits: Kenyan law mandates certain employee benefits, which employers must include in their benefits programs before offering any voluntary benefits. These mandatory benefits include annual leave, pension contributions, national holidays, sick leave, maternity and paternity leave, and mandatory deductions for healthcare and social security.
  • Proposed Legislative Changes: Proposed amendments under the Employment (Amendment) Bill 2021 aim to enhance work-life balance by introducing the ‘right to disconnect,’ reflecting ongoing efforts to improve employee well-being and productivity in Kenya’s workforce. These legislative updates underscore the government’s commitment to adapting labor laws to meet evolving societal and economic needs.

Work Permit in Kenya

A work permit in Kenya, also known as a Class D Permit or Employment Permit, is issued to foreign nationals seeking employment within the country. This permit allows non-Kenyan citizens to legally reside and work in Kenya upon meeting specific requirements.

To apply for a Class D work permit in Kenya, the foreign national must first secure a job offer from a Kenyan employer. The employer initiates the application process on behalf of the employee and must provide documentation substantiating the job offer, including a formal employment contract. The employee, in turn, needs to furnish proof of qualifications, work experience, a valid passport, and other essential documents as stipulated by immigration regulations.

Qualification for a work permit in Kenya generally hinges on possessing skills and expertise that are scarce in the local labor market. Additionally, foreign-owned businesses may be allocated work permit slots for key strategic employees, subject to immigration office discretion. The application process necessitates comprehensive documentation from both the employer and employee to enhance the likelihood of a successful outcome.

Work permits in Kenya are issued with the aim of safeguarding local employment opportunities for Kenyan citizens while facilitating the entry of foreign nationals who can contribute specialized skills beneficial to the country’s development.

A Class D Employment Work Permit is typically granted for a maximum initial period of two years and may be renewed subsequently, up to a maximum total duration of four years. The process involves completing an application form (Form 25) and submitting it along with all requisite documents for processing, clearance, and approval.

The cost associated with obtaining a Class D work permit in Kenya includes an application fee of Kshs 20,000. Upon approval of the permit, an annual fee of Kshs 500,000 is payable, along with an insurance security bond valued at Kshs 100,000. These fees are essential for processing and maintaining the work permit status throughout its validity period.

EOR Solutions in Kenya

Mercans offers comprehensive Employer of Record (EOR) services tailored for businesses in Kenya that have identified their preferred candidates. Our services cover the entire employee lifecycle, ensuring strict adherence to Kenya’s labor laws and regulations.

  • EOR and Recruitment Services: For organizations seeking support with talent acquisition, our integrated EOR and recruitment solutions provide a holistic approach. Leveraging our extensive network and industry expertise, we assist in sourcing, onboarding, and retaining top talent, facilitating your market expansion in Kenya.
  • Visa Sponsorship and Global Mobility Support: Simplify expatriate employment complexities with Mercans’ visa sponsorship and global mobility services tailored for Kenya. We manage relocation processes for your international workforce, ensuring compliance with Kenya’s immigration and employment regulations.
  • Assistance on Record (AOR) for Contractor Payments: Mercans simplifies contractor payment complexities through our Assistance on Record (AOR) services in Kenya. We ensure precise and compliant handling of contractor payments, alleviating administrative burdens for your business.
  • Transitioning Freelancers to Employees: Facilitate the seamless conversion of independent contractors into permanent employees in Kenya with Mercans’ specialized approach. We ensure smooth transitions while meeting all legal obligations.
  • HCM Integration: Integrate Mercans’ EOR services seamlessly with your Human Capital Management (HCM) system in Kenya for streamlined data exchange, enhanced compliance, and operational cost-efficiency. Rely on our expertise for unified, compliant, and efficient workforce management and payroll operations

Best Employer of Record Kenya

Conclusion

Mercans provides essential Employer of Record (EOR) services in Kenya, designed to support businesses in navigating the complexities of local employment regulations and workforce management. Our comprehensive solutions span the entire employee lifecycle, ensuring compliance with Kenya’s labor laws and seamless operational efficiency. Whether you are expanding into Kenya or seeking to optimize your existing operations, Mercans’ EOR services offer reliable support in talent acquisition, compliance management, visa sponsorship, and contractor payment processing. Trust Mercans to streamline your operations, mitigate risks, and enhance your organizational agility in Kenya’s dynamic business environment.

This document was prepared for informational purposes only. As local laws & regulations keeps on changing. Please consult your tax & legal advisors as well.
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