Payroll Services in Kenya

Mercans is your trusted partner for premier payroll outsourcing and payroll services in Kenya, offering both Managed and SaaS solutions. Our steadfast commitment to delivering exceptional payroll solutions in Kenya is unmatched. With extensive experience in the payroll industry, Mercans guarantees precise and compliant payroll services, establishing us as the preferred choice for businesses of every scale. Rely on Mercans for punctual and accurate payroll processing, complete with the convenience of handling multi-currency payments within the Kenyan market. Serving as your dedicated local payroll provider in Kenya, we feature a team of in-country payroll specialists well-versed in local regulations, ensuring comprehensive support for a seamless payroll experience tailored to your specific business requirements.

Everything you need to know before running payroll in Kenya

Working Hours and Overtime

According to the General Wages Order and the Employment Act 2007, normal working hours are stipulated at 52 hours per week, with night workers allowed up to 60 hours. Overtime compensation mandates employers pay at least 150% of the wage for work beyond normal hours, calculated at a basic hourly rate of one two-hundred-and-twenty-fifth of the monthly wage for non-hourly employees. Overtime and regular hours combined must not exceed 116 hours over two consecutive weeks, or 144 hours for night workers.

For night workers, 12 hours of overtime is permissible weekly. While forcing overtime is generally prohibited, employers can schedule reasonable overtime, although collective bargaining agreements may limit this. Notably, there’s no provision for compensatory time-off for overtime. Regarding night work, there’s no premium payment, but night workers are limited to 60 hours per week, with up to 24 hours of overtime every two weeks, totaling 144 hours inclusive of regular hours.

There’s no statutory requirement for compensatory rest days for working on weekly rest days or public holidays. Employees working on public holidays or weekly rest days are entitled to double the normal hourly wage rate as compensation.

Mercans is a leading payroll provider in Kenya, offering comprehensive payroll services and EOR tailored to local regulations. 

Minimum Wages

In Kenya, the government determines the minimum wage based on factors such as location, age, and skill level. On Labour Day 2022, President Kenyatta announced a 12% increase in Kenya’s minimum wage, raising it from KES 13,572 to KES 15,201.

13th Month Salary

There is no mandatory provision for a 13th-month pay in the country; it is at the discretion of employers to provide any bonuses to their employees.

Payroll Cycle

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

Payroll Requirements

• Travel allowances paid to employees on official duty are exempt from tax if substantiated by the standard mileage rate approved by the Automobile Association of Kenya.
• Club entrance and subscription fees are taxable on the employee if allowed on the employer’s income.
• The Employee Share Ownership Program (ESOP) benefits for PAYE purposes will be taxed when the option is exercised by the employee.
• For startups awarding shares in place of cash emoluments, the benefit is deferred to 30 days after the earlier of five years after the end of the year of award, disposal of shares, or when the employee ceases to be an employee. The benefit will be assessed at fair value or as determined by the commissioner based on the previous year’s financial statements.

Company Formation in Kenya

Whether you are a foreign investor or a local entrepreneur, we ensure a seamless registration process tailored to your needs. Below are the key sections for company registration in Kenya, detailing the procedures for both local and foreign entities.

Register a Local Company for Foreigners

The process for foreign investors to register a local company in Kenya is similar to that for local citizens, with some additional requirements. Foreign investors can register their companies online via the eCitizen portal using their passports. Once registered, the company must obtain necessary permits from relevant authorities:

• Kenya Revenue Authority (KRA) for company and director taxpayer registration
• National Hospital Insurance Fund (NHIF)
• National Social Security Fund (NSSF)
• Single Business Permit from the county government where the company will operate

Register a Branch of a Foreign Company

Foreign companies looking to establish a presence in Kenya can do so by registering a branch. The Registrar of Companies issues a certificate of compliance once all requirements are met. The registration is done online via the eCitizen portal, and the necessary steps include:

• Obtaining a Company PIN
• Registering with NSSF and NHIF
• Acquiring a Business Permit from the relevant county government

Detailed Steps for Local Company Registration

• Register Online: Through the eCitizen portal.
• Obtain Company Documents: Certificate of incorporation, List of directors and shareholders (CR12), Company PIN.
• Register with NHIF and NSSF: Ensuring compliance with social security and health insurance requirements.
• Business Permit: Obtain a permit from the county government where the business will operate. The process and fees vary by county.

• Register Online: Via the eCitizen portal using a passport.
• Obtain Registration Documents: Including Certificate of incorporation and company PIN.
• Register with NHIF and NSSF: Ensuring compliance with local regulations.
• Business Permit: Obtain from the county government, with procedures and costs varying by location.

Specific County Procedures

For each county, the registration process involves the same initial steps but requires obtaining a business permit from the specific county’s self-service portal. This ensures compliance with local regulations and operational readiness.

At Mercans, we are dedicated to providing efficient and effective support throughout the company registration process in Kenya, ensuring your business is set up for success.

Payroll Compliance in Kenya

Government Requirements

Navigating the regulatory landscape in Kenya involves understanding several government requirements essential for compliance. Below are the critical registration and ongoing compliance requirements for businesses operating in Kenya, including pension obligations.

Registration Requirements

Personal Identification Number (PIN):

• Businesses employing people in Kenya must register with the Kenya Revenue Authority (KRA) for a Personal Identification Number (PIN).
• After obtaining the PIN, businesses must activate their Pay-As-You-Earn (PAYE) obligation on the KRA iTax system to manage tax liabilities.
• Employers are required to account for and remit employment taxes for all employees, whether they are Kenyan nationals or expatriates. All employees must also obtain a PIN.

National Hospital Insurance Fund (NHIF):

• NHIF is a government corporation providing health insurance to Kenyans aged 18 and above.
• Employers must register with NHIF and contribute monthly for all employees as per the NHIF Act.

Social Health Insurance Fund (SHIF):

• SHIF, established by the Social Health Insurance Act, 2023 (SHIA), requires households with salaried employment to pay a monthly contribution of 2.75% of gross salary.
• Employers must deduct and submit contributions to the SHIF by the ninth day of each month.
• Employers must notify SHIF within 30 days when terminating an employee and remit the final contribution.

National Industrial Training Authority (NITA):

• NITA, established under the Industrial Training (Amendment) Act of 2011, mandates employers to register and ensure quality industrial training standards.

Higher Education Loans Board (HELB):

• HELB provides loans and scholarships to students pursuing higher education.
• Employers must register with HELB, inform the Board about employed loanees within three months, deduct loan repayments from wages, and notify HELB when a loanee leaves employment.

Ongoing Compliance Requirements

• Remittance of PAYE:
  • Employers must remit monthly PAYE taxes to KRA and file returns online by the ninth of the following month.
  • Penalties for late payment include 5% of the tax payable and 1% interest per month. Late filing incurs a penalty of the higher of 25% of the tax due or KES 10,000.
• National Social Security Fund (NSSF):

  • NSSF collects and manages retirement funds for employees in both formal and informal sectors.

  • Employers must register with NSSF and contribute 12% of pensionable wages (6% from the employer and 6% from the employee) subject to upper limits.

  • Contributions must be filed by the ninth of the following month. Foreigners in Kenya for less than three years and members of social security in their home country are exempt.

  • Late contributions incur a 5% penalty per month.

• National Employment Authority (NEA):

  • Employers with 25 or more employees must register with NEA and submit annual returns by December 31.

  • Employers must notify NEA of any vacancies, terminations, or filled posts.

  • Non-compliance can result in fines up to KES 100,000 and/or six months of imprisonment.

Employment Obligations

• Annual Leave:
  • Employees are entitled to 21 working days of paid annual leave after 12 consecutive months of service.
• Maternity and Paternity Leave:
  • Female employees are entitled to three months of paid maternity leave.
  • Male employees are entitled to two weeks of paid paternity leave.
• Sick Leave:
  • Employees are entitled to seven days of paid sick leave and seven days of half-pay sick leave after two consecutive months of service.
• Study Leave:
  • There are no specific provisions for study leave; it is usually negotiated between the employer and employee and may be deducted from annual leave.

Pension Requirements

• National Social Security Fund (NSSF):
  • Employers and employees must contribute to NSSF as per the NSSF Act No. 45 of 2013.
  • The pension contribution rate is 12% of pensionable wages, split equally between the employer and the employee, with contributions subject to upper earning limits.
  • Contributions are due by the ninth day of the following month, with penalties for late payments.
• Pension Withdrawal Tax Rates:
  • The highest tax rate on pension withdrawals from registered retirement funds, effective January 1, 2021, is 30% for amounts exceeding KES 1,600,000 per annum.
• NITA Levy:
  • Employers must pay a NITA levy of KES 50 per employee by the fifth of the following month. Late payments incur a 5% penalty per month.

By adhering to these government requirements, businesses in Kenya can ensure compliance and avoid penalties, contributing to a smoother operational process. At Mercans, we assist businesses in navigating these regulations to achieve seamless integration and compliance in the Kenyan market.

Payroll Taxes in Kenya

Social Security Contributions in Kenya

National Social Security Fund (NSSF) Contributions

Effective from 1 February 2024, the new NSSF rates require employers to deduct a maximum of KES 2,160 from employees’ salaries, with a matching contribution from the employer. These contributions must be remitted by the ninth day of the following month. The NSSF serves as a mandatory social security scheme, providing benefits such as retirement, withdrawal, survivor, invalidity benefits, funeral grants, and healthcare.

National Hospital Insurance Fund (NHIF) Contributions

Employees in Kenya must contribute to the NHIF, with contributions being graduated up to a maximum of KES 1,700 for employees earning more than KES 100,000 per month. There is no employer matching contribution required. Employers must register with NHIF and use an issued employer code to submit their employees’ monthly contributions. For the self-employed, membership is voluntary, but contributions must be made monthly.

Affordable Housing Levy (AHL)

As of 1 July 2023, the Affordable Housing Levy requires employers to deduct 1.5% of an employee’s gross monthly salary and match it with an equal contribution. These contributions must be remitted within nine working days after the end of the month in which they are due. Late payments incur a penalty of 2% of the amount due for each month the payment remains unpaid.

Compliance and Registration

• NSSF: Employers must register with the NSSF per the NSSF Act, receiving a membership certificate and code upon meeting the requirements. Employers are responsible for remitting contributions using this code. Employees and self-employed individuals are also required to register with the NSSF and make monthly contributions.
• NHIF: Employers must register with the NHIF and submit monthly employee contributions using the provided employer code. NHIF registration is compulsory for employed individuals and voluntary for the self-employed.

Changes to Earnings Limits

In accordance with the NSSF Act No. 45 of 2013, the lower and upper earnings limits will increase annually:

• 2024: Lower Earnings Limit: KES 7,000.00, Upper Earnings Limit: 1 times national average earnings
• 2025: Lower Earnings Limit: KES 8,000.00, Upper Earnings Limit: 2 times national average earnings
• 2026: Lower Earnings Limit: KES 9,000.00, Upper Earnings Limit: 3 times national average earnings
• 2027 onwards: Lower Earnings Limit: Average statutory minimum monthly basic wage, Upper Earnings Limit: 4 times national average earnings

The new ceiling amounts from 1 February 2024 are KES 7,000.00 (lower earnings limit) and KES 36,000.00 (upper earnings limit), with contributions remaining at 6% of pensionable earnings.

Personal Income Tax in Kenya

Individual Income Tax applies to all income earned by individuals, whether resident or non-resident, that is accrued or derived from Kenya.

Tax Bands and Rates (Effective 1st July 2023)

Residents are entitled to a personal relief of KES 28,800 per annum (KES 2,400 per month).

Non-Resident Income Taxation

Non-residents are taxed on income earned from employment or services rendered to a Kenyan resident employer or a permanent establishment in Kenya, at the prevailing individual income tax rates. However, non-residents do not qualify for personal relief.

Filing Individual Income Tax Returns

All individuals with a Kenya Revenue Authority (KRA) Personal Identification Number (PIN) must file annual returns, regardless of income status. Returns can be filed online via the iTax portal between 1st January and 30th June of the following year.

• Employment Income: Follow the step-by-step guide available on the iTax portal.
• Nil Returns: File if no income was earned; tutorials are available on the iTax portal and the KRA M-service App.

Payment of Individual Income Tax

After filing, generate a payment slip on iTax and pay at any appointed KRA bank or via Mpesa using the GoK Pay bill number 222222. The account number is the Payment Registration number from the payment slip.

Penalties for Late Filing and Payment

• Filing Deadline: On or before 30th June of the following year.
• Late Filing Penalty: The higher of 5% of the tax due or KES 2,000.
• Late Payment Penalty: 5% of the tax due and 1% interest per month on unpaid tax until fully paid.

Tax Relief

• Personal Relief: KES 28,800 per annum (KES 2,400 per month).
• Insurance Relief: 15% of premiums paid for life, education (minimum 10-year maturity), or health insurance, up to KES 60,000 per annum.

Exemptions

Individuals exempt from income tax must still file returns and include a valid Exemption Certificate Number.

For more information or assistance, please contact your Mercans service delivery team.

Employee Benefits in Kenya

Employee benefits encompass the direct or indirect compensation that employees receive beyond their regular salary. In Kenya, these benefits include healthcare insurance, dental insurance, paid leave, sick leave, vacation leave, childcare benefits, maternity leave, and retirement plans. Such benefits not only provide security and confidence to employees but also help employers reduce turnover.

Compensation Laws in Kenya

The Kenyan Employment Act guarantees fundamental rights for all employees, including:

• Right to Fair Labor Practices (Article 41): Ensures fair treatment in the workplace.
• Protection from Slavery, Servitude, and Forced Labor (Article 30): Safeguards against any form of coercion.
• Protection of Wages: Ensures timely and full payment of wages.
• Rights and Duties in Employment: Covers various aspects of employment relationships.
• Termination and Dismissal Rules: Provides guidelines for fair dismissal procedures.
• Prohibition of Child Labor: Prevents employment of underage individuals.

The minimum wage in Kenya varies by employment type, industry, working hours, and location, starting at KES 13,572.90 per month (2022).

The Revised Employment Act of 2012 (2007), Part V, ensures fair working hours, annual leave, maternity leave, sick leave, housing, water, food, and medical attention for employees.

Additional regulations include:

• Labor Institutions Act, 2007: Oversees remuneration and other employment-related issues through the Wages Council and National Labor Board.
• Occupational Safety and Health Act, 2007: Ensures workplace safety and welfare.
• Employment and Labour Relations Court Act, 2011: Resolves employment disputes as per Article 162(2).
• National Social Security Fund Act No. 45 of 2013: Provides social security for workers and self-employed individuals, covering retirement, withdrawal, survivors, disability, and emigration benefits.

The government is considering further amendments to enhance work-life balance and reduce burnout through the Employment (Amendment) Bill 2021, which introduces the ‘right to disconnect.’

Mandatory Benefits for Employees in Kenya

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: 21 days of paid leave per year.
• Pension or Retirement Benefits: Contributions to retirement plans.
• National Holidays: Paid leave on public holidays.
• Sick Leave: 7 days of paid sick leave per year.
• Maternity Leave: 3 months of paid leave for female employees.
• Paternity Leave: 2 weeks of paid leave for male employees.
• NHIF and NSSF Contributions: Mandatory health and social security deductions and benefits.

Detailed Leave Benefits

• Annual Leave: 21 days per year.
• Maternity Leave: 3 months of paid leave for female employees.
• Paternity Leave: 2 weeks of paid leave for male employees.
• Sick Leave: 7 days of paid leave per year.
• National Holidays: 10 paid holidays per year.

Medical Benefits

Employers must provide proper medical care for employees during illness, except for self-inflicted injuries, injuries or illnesses occurring during unauthorized leave, or those covered by insurance or free government-provided treatment.

Employee Benefits for Expatriates

Expatriates working in Kenya are exempt from NHIF and NSSF deductions. For more details or assistance, please contact your Mercans service delivery team.

Benefits of Payroll Outsourcing in Kenya

Outsourcing payroll in Kenya offers a multitude of advantages that help businesses navigate complex regulatory environments, achieve cost savings, and support growth. Here’s how outsourcing payroll can benefit your organization in Kenya:

• Ensuring Compliance with Complex Regulations: Outsourcing payroll in Kenya ensures meticulous adherence to the country’s intricate labor laws and regulations. Expert professionals adeptly navigate these complexities, minimizing the risk of errors or penalties due to non-compliance. This provides peace of mind for businesses, ensuring all legal obligations are met efficiently.
• Enhanced Scalability and Flexibility: Payroll outsourcing provides unmatched scalability and flexibility to meet the evolving needs of businesses in Kenya. Whether expanding the workforce or adapting to changes in employment regulations, outsourcing providers seamlessly adjust their services to meet these demands, allowing businesses to scale operations efficiently.
• Access to Advanced Technologies and Expertise: By leveraging cutting-edge software solutions, outsourcing providers streamline payroll processes, enhance data security, and improve overall efficiency. Professionals possess extensive knowledge of Kenyan tax regulations, deductions, and reporting requirements, ensuring accurate and timely processing of payroll.
• Cost Savings and Competitive Pricing: Outsourcing payroll leads to significant cost savings by eliminating the need to hire and train in-house staff. Providers often offer competitive pricing models tailored to the specific needs of businesses, optimizing cost-effectiveness while maintaining high-quality service.
• Supporting Business Growth: Outsourcing payroll services in Kenya enables businesses to focus on their core objectives while benefiting from accurate, compliant, and cost-effective payroll management. With specialized expertise, advanced technologies, and scalability, providers play a crucial role in supporting the growth and success of businesses.
• Emphasizing High Safety Standards: Outsourcing providers incorporate industry-leading security measures to safeguard sensitive data, ensuring stringent adherence to information security protocols. Certifications such as ISO 27001 and ISAE 3402 signify a commitment to the highest standards of information security and operational integrity.
• Ensuring Adequate and Sustainable Performance: Commitment to consistent and sustainable performance is a hallmark of payroll outsourcing providers. They ensure that services meet the dynamic demands of payroll management in Kenya, providing reliable and efficient service.
• Flexibility and Scalability Tailored to You: Outsourcing providers offer flexibility and scalability to accommodate evolving client needs and adapt to changing business environments in Kenya. This ensures that payroll services can grow and change in tandem with the business.
• Utilizing Collaborative Cloud Tools: Collaborative cloud-based platforms promote efficiency and accessibility across teams, facilitating seamless collaboration and communication. These tools enhance the overall payroll process, making it more streamlined and efficient.

Payroll Solutions in Kenya

Payroll Processing in Kenya with Mercans’ Global Solutions

Mercans offers adaptable payroll models tailored to ensure local compliance, facilitate multi-currency transactions, and seamlessly integrate with HCM and ERP systems for accurate payments in Kenya.

Explore Our Flexible Solutions:

• SaaS (Software as a Service): Designed for enterprise businesses managing payroll across multiple countries with diverse complexities, our SaaS model optimizes operations for maximum efficiency.
• Managed Services: Customized for mid-sized and large enterprises handling multi-country payroll, our managed services deliver on-demand HR expertise, ensuring security, reliability, and compliance.
• HRMS (Human Resource Management System): Ideal for expanding mid to large businesses, our HRMS offers a comprehensive suite of functionalities, including payroll and benefits, with personalized features for effective solutions.

Optimize Payroll Efficiency with Mercans’ Technological Innovations and Integrations

• Technology: Discover Mercans’ leading-edge technology driving our global payroll solutions. Learn more about our innovative capabilities  here.
• Integrations: Seamlessly integrate your Human Capital Management (HCM) systems with Mercans’ solutions, enhancing efficiency and connectivity. Discover the power of integration here
• Recognitions: Join a partner recognized for excellence. Mercans has earned accolades for its commitment to delivering exceptional payroll services. Explore our awards and recognitions here