Hire and pay employees in Kenya

Complying with labor and employment laws in Kenya

Kenyan labor and employment laws can be a complex compliance maze. Kenya’s employment landscape is governed by statutes like the Employment Act, 2007, Labour Relations Act, 2007, and the Occupational Safety and Health Act, 2007. Employers must also consider the National Social Security Fund (NSSF) and National Hospital Insurance Fund (NHIF) Acts for social insurance coverage, plus the Data Protection Act for employee data privacy.

No matter where in the world you hire, learning the ins and outs of labor and employment laws in new jurisdictions isn’t easy, and Kenya’s laws are as complex as any other country’s. If you’re looking to hire in Kenya, simplify your compliance work by partnering with Rippling EOR, which can offer expert HR support on local employment regulations so you’re always up to date on the latest laws in the country and beyond.

Employment contracts in Kenya

An employment contract is a legally binding agreement between an employer and an employee that outlines the terms and conditions of the employment relationship. Under Kenyan law, not all contracts must be in writing. Generally, oral or written contracts are allowed, but a written contract is common and best practice. For engagements lasting longer than three months, a written agreement is mandatory, and you must present it to the employee within two months of their start date and include certain minimum terms, such as:

• The employee’s name, age, permanent address, and sex
• The employer’s name
• The job description
• The employee’s start date
• The type of contract (indefinite or fixed-term) and duration, if applicable
• The place of work
• The employee’s work hours
• The employee’s pay, calculation method, pay frequency, and details about any benefits they will receive
• The length of notice the employee must give before terminating employment
• Any collective agreements that apply

Labor unions in Kenya

Trade unions are popular in Kenya, especially in low-skilled industries and among civil servants, such as teachers, doctors, and nurses. They are far less common among white-collar employees, specifically managers in private businesses.

Unions have significant sway and can influence wage negotiations and work conditions across industries. Major umbrella bodies like the Central Organization of Trade Unions (COTU) represent affiliated unions. If recognized, a union negotiates collective bargaining agreements (CBAs) on behalf of employees, often improving pay or leave beyond statutory minimums.

Employers must respect employees’ union membership rights and cannot discriminate against them for union involvement.

Mitigating permanent establishment risk in Kenya

Permanent establishment (PE) in international tax law refers to a fixed location where a company carries out its business operations in a foreign country. This concept plays a crucial role in determining whether a company must pay corporate taxes in another jurisdiction. When a company has a permanent establishment abroad, it may be liable for taxes on the income earned through its activities in that country.

The definition of permanent establishment can vary depending on tax treaties and local laws, but it typically includes a place of management, a branch, an office, a factory, a workshop, or any other fixed place where companies carry out business activities. Some activities, like preparatory or auxiliary functions, may not constitute a permanent establishment under certain tax treaties.

Foreign companies hiring in Kenya risk creating a PE if: 

• They operate in Kenya through a fixed place of business
• They operate a building site, construction, or assembly project in Kenya for more than six months
• Employees or agents in Kenya conclude contracts on behalf of the foreign enterprise

Additionally, in 2023, the Finance Act expanded the definition of a permanent establishment in Kenya to include service-based businesses. The Kenya Revenue Authority (KRA) can impose corporate taxes on income attributed to Kenyan operations.

Probationary period in Kenya

A probationary period is used to assess and monitor the performance of a new employee when they’re first hired. Employers should state the length of the employee’s probation period in the employment contract. In Kenya, the law states that a probation period can last up to six months. Employers can then extend it by an additional six months if they obtain the employee’s consent first.

During the probation period, either the employer or the employee can terminate the employment contract by providing a minimum of seven days’ notice or paying seven days’ wages in lieu of notice.

Local laws in Kenya

While the Employment Act is the primary law in Kenya that sets regulations for employment relationships, employers in the country must follow numerous other laws to stay compliant and maintain safe and fair work environments for their employees. Observing the entire legal landscape fosters trust among employees and ensures that your business doesn’t hit compliance snags during its expansion into Kenya.

Here are some key areas of Kenyan law relevant to foreign employers:

• The Labour Relations Act, which consolidates existing laws related to trade unions, trade disputes, and labor relations to regulate the relationship between employers and employees
• The Occupational Safety and Health Act, which protects workers' safety, health, and welfare in the workplace and protects employees and third parties from risks associated with work activities
• The Work Injury Benefits Act, which requires employers to provide compensation to employees for work-related injuries or occupational diseases
• The Data Protection Act, which regulates how personal data is collected, processed, and stored, similar to the GDPR in the European Union

By respecting and complying with all of these laws, you align with the local culture and increase the odds of a successful expansion into Kenya’s business environment.

Worker classification and misclassification in Kenya: Contractors vs. employees

When bringing new talent on board in Kenya, you must determine whether hiring an independent contractor or a full-time employee best fits your business needs. Each option carries distinct implications, making it crucial to understand the differences. Misclassifying workers in Kenya can lead to penalties, back taxes, and potential legal consequences.

In Kenya, employees work under a “contract of service,” while contractors operate under a “contract for service.” Determining the correct status affects how you pay them, whether they’re entitled to statutory benefits, and more. Learn more about the key distinctions between the two under Kenyan law below.

Worker classification in Kenya: Key differences between contractors and employees

Kenyan law doesn’t specify rules for distinguishing between an independent contractor and an employee, but historically, the courts and tax authorities have looked at the entire relationship rather than just the contract, and considered the factors below:

Consequences of misclassification in Kenya

Misclassifying workers in Kenya can result in serious consequences. If a contractor brings a classification dispute before the courts or tax authorities and they reclassify them as an employee, the employer can face potential penalties and labour claims. Some of the risks include owing back wages and benefits, such as notice pay, sick leave, severance pay, and more.

Additionally, Kenyan labour inspectors and the KRA have the power to audit work arrangements that they suspect may involve misclassification.

Wages and payroll in Kenya

When expanding into a new, foreign jurisdiction, managing wages and payroll is one of the most complex parts of the process. And Kenya is no exception; once you employ people in Kenya, paying them fairly and lawfully is critical. Employers must abide by Kenya’s minimum wage decrees, pay salaries on time, and handle all required withholdings for PAYE, NSSF, NHIF, and more.

Here’s what employers need to know about wages and payroll in Kenya.

Minimum wage in Kenya

Kenya’s minimum wages vary by region and role, as set by wage orders, but for most workers, it’s KES 15,201.65 per month.

Payroll frequency in Kenya

Most Kenyan employers pay monthly. Employees typically receive salaries at the end of the month, and employers are responsible for deducting taxes, NSSF, and NHIF from their employees’ paychecks to remit on their behalf. 

In some industries, it’s common for employers to pay on a weekly or fortnightly schedule, but monthly payroll is the most common.

13th month pay in Kenya 

13th month pay is an additional payment employers give to employees, usually equivalent to one month’s salary, as a holiday or year-end bonus. In Kenya, 13th month pay is not legally mandated. Some employers voluntarily offer an end-of-year bonus, but it’s discretionary. If you choose to adopt a policy where you offer 13th month payments or any other type of bonus, define the rules for eligibility and payout in a written policy to maintain transparency and avoid disputes.

Run payroll compliantly in Kenya

Complying with payroll and wage laws in Kenya means paying at least the monthly minimum wage to all full-time employees, withholding the correct taxes, and making the right employer contributions (which we’ll cover in the next section).

Hiring and managing payroll for employees abroad can be complicated. But partnering with an EOR provides the support needed to manage deductions, comply with local wage regulations, and ensure timely, accurate payments. Rippling EOR makes hiring and paying employees across the globe quicker and easier than ever.

Employer and employee taxes in Kenya

One of the most complex parts of global employment is navigating taxes across international borders. But tax compliance is crucial to avoid mishaps that could damage your business and cost you in penalties and fines.

In Kenya, similar to other countries around the world, employers are generally responsible for calculating and withholding contributions from employees’ paychecks. Employers must also account for their own contributions. But understanding Kenyan tax codes can be challenging. Here are the most important things to know about payroll taxes in Kenya.

Employer taxes in Kenya

Here are the mandatory employer payroll taxes in Kenya:

Employee taxes in Kenya

Employers must deduct the following contributions from employees’ paychecks as a percentage of their income: 

Kenyan employees also pay progressive income tax, meaning they pay higher tax rates the more they earn:

Penalties for not paying taxes in Kenya

Failing to file taxes on time (or filing the wrong amount) can result in serious penalties. The KRA levies stiff fines for late or missing PAYE—a 5% penalty plus 1% monthly interest—and similar fines for not remitting NSSF or NHIF. Over time, these surcharges can exceed the original debt.

It’s best to stay compliant by making timely filings, and while a global payroll system or a local accountant can help, you can also mitigate your risk of compliance issues in Kenya by letting an EOR handle payroll taxes on your behalf. The EOR can ensure all your local taxes are paid correctly and on time, allowing you to focus on growing your business in Kenya and beyond.

Employee benefits in Kenya

Offering competitive employee benefits in Kenya can help your company stand out. The law grants employees certain mandatory benefits, while employers often provide optional extras to attract top talent, especially in major cities like Nairobi. Understanding benefits requirements early on can also keep you from landing in hot water with Kenyan authorities down the line.

Here’s an overview of the mandatory and optional benefits in Kenya.

Mandatory benefits in Kenya

Mandatory benefits (also called statutory benefits) are legally required. Employers must provide them to all employees covered by the law as they’re non-negotiable. In addition to leave (which is covered in the next section), mandatory benefits in Kenya include:

• NSSF contributions: The NSSF is Kenya’s social security system, which covers pensions for employees. Employers deduct their employees’ contributions from their wages and make a matching contribution to the NSSF Fund.
• Industrial Training Levy: Employers are required to contribute to the Industrial Training Levy for each employee. Those with fewer than 100 employers are exempt from this requirement for 12 months.

Optional benefits in Kenya

Investing in optional and fringe benefits improves your chances of attracting top talent, but choosing which ones to offer can feel overwhelming. Here are a few optional benefits you might consider adding to your package to help you stand out in Kenya:

• Private health insurance plans
• Group life insurance
• Meal or transport allowances
• Performance bonuses
• Flexible work arrangements

While not mandated by law, these types of perks can set your brand apart, especially if you work in an industry where you may have to compete for skilled talent.

Working hours, overtime, and leave in Kenya

Understanding standard working hours, overtime regulations, and Kenyan leave laws is crucial, as these requirements vary significantly from country to country. It’s important to manage daily or weekly working hours, pay overtime for extra hours, and grant leaves according to Kenyan law. Failing to do so can lead to employee disputes or labour inspection queries.

Below, learn about Kenya’s laws so you can follow them to protect employees from overwork and make sure they get the rest and breaks they’re entitled to.

Standard working hours in Kenya

A standard workweek in Kenya is 45 hours, but can extend up to 52 hours spread over six days of the week. It’s typical for employees, especially in white collar positions or industries, to work eight hours per day with a one-hour break. It’s also typical for employees to work from Monday to Friday, but they can choose different workdays, provided they get at least one full day of rest for every six days of work.

Overtime laws in Kenya

Overtime must be paid at 1.5 times the normal rate for extra hours on weekdays and twice the normal rate on rest days or public holidays. If an employee works beyond eight hours in a day or 44 hours in a week, their employer must track and pay overtime. However, most white collar and managerial roles are exempt from overtime pay.

Rest period and break laws in Kenya

Kenyan employment law does not specify mandatory daily meal breaks, but employees normally receive a lunch break, typically one hour for an eight-hour workday. Employees must get at least 24 consecutive hours off after six consecutive workdays.

Employees also typically receive public holidays off with pay. If an employee works on a public holiday, they’re entitled to double time or time in lieu.

Leave laws in Kenya

In addition to the rules regarding working hours and overtime, Kenyan laws require employers to give their employees several kinds of paid leave, including annual time off, maternity leave, sick leave, and more.

Here are the types of leave employees are entitled to receive in Kenya:

• Annual leave: Under the Employment Act, employees are entitled to at least 21 working days of annual leave after completing 12 months of continuous service. Companies can offer additional time off as part of their employment contracts or policies, provided they meet or exceed the statutory minimum.
• Sick leave: After two consecutive months of service, employees are entitled to 30 days of sick leave at their full salary, followed by 15 days of sick leave at half salary for every 12 consecutive months of service.
• Maternity leave: Female employees are entitled to three months of fully paid maternity leave. This applies whether they give birth or adopt a child.
• Paternity leave: Male employees are entitled to two weeks of paid paternity leave.
• Parental leave: Adoptive parents can take one month of parental leave prior to the adoption to prepare, with full pay.
• Public holidays: Kenya recognizes 13 public holidays each year:
• New Year’s Day
• Idd ul Fitr
• Good Friday
• Easter Monday
• Labour Day
• Madaraka Day
• Madaraka Day Holiday
• Idd ul Azha
• Mazingira Day
• Diwali
• Mashujaa/Jamhuri Day
• Christmas Day
• Boxing Day

Work permits in Kenya

As you expand your business footprint in Kenya, you may need to bring in foreign talent. But depending on their individual circumstances, doing so may require getting the right work permits. The main type is a Class D permit for employment, for which the employer must submit an employment contract and justification to the Department of Immigration.

Here’s what employers need to know about work permits in Kenya.

Who needs a work visa in Kenya?

All non-Kenyans who intend to engage in paid employment must secure a work permit, typically a Type D, which is a long-term work authorization issued in tranches of one to five years. Volunteering or short-term professional visits typically require a special pass, a type of short-term work authorization issued for a few months at a time, with a maximum duration of six months within a 12-month period.

How long does it take to get a work visa in Kenya?

Typically, a work visa in Kenya can be processed in a few weeks to a few months. However, processing times vary, ranging from eight weeks all the way up to six months. If you need your employee to start by a certain date, it’s a good idea to begin the visa application process well in advance and carefully follow visa guidelines to avoid delays.

Types of work visas in Kenya

Kenya offers two main types of work authorization for foreign employees:

• Entry Class D permit: Long-term work authorization that’s typically issued for a year or two, up to a maximum of five years at a cost of approximately 4,500 USD per year
• Special pass: Short-term work authorization that’s typically issued for one, two, or three months, up to a maximum of six months in a 12-month period at a cost of approximately 1,500 USD per month

Termination and redundancy in Kenya

When making your first hire in Kenya, termination policies might be far from your mind. But if you don’t know the basics about offboarding employees in Kenya, you could be setting yourself up for trouble when it’s time to part ways with an employee down the road. Understanding the rules around termination and redundancy protects your brand’s reputation—and protects you from legal disputes that can arise if you terminate an employee without following the letter of the law.

Here’s what to know about termination and redundancy rules in Kenya.

Does at-will employment exist in Kenya?

At-will employment is a legal doctrine common in the United States, where either the employer or the employee can terminate the employment relationship at any time, for any reason (or no reason), without prior notice, as long as the reason is not illegal. For example, at-will employment doesn’t allow an employer to terminate an employee for any reason that could amount to discrimination.

In Kenya, at-will employment is not recognized. Under the Employment Act, termination is allowed, but only if the employer follows a statutory procedure and there are recognized grounds defined by the law:

• Misconduct
• Capability (which can include performance or sickness)
• Redundancy
• Economic reasons or another substantial reason that may justify dismissal

Kenya’s Employment and Labour Relations Court has also historically ruled that employers must give terminated employees the opportunity to be heard by a disciplinary panel in all cases, including those during the probationary period, before their termination is complete.

The statutory process for redundancies is a bit different—the Employment Act sets forth specific rules for mass layoffs:

• If the employee is a member of a trade union, the employer must notify the union and the labor office in charge of the area where the employee works to inform them of the reason for and extent of the intended redundancy at least one month before the termination date.
• If the employee is not a member of a trade union, the employer must notify them personally in writing.
• When choosing employees to terminate for redundancy, employers must consider their seniority, ability, and reliability, and use last-in-first-out principles when possible.
• Employees terminated for redundancy are entitled to severance pay of at least 15 days’ pay for each completed year of service. If a collective agreement entitles an employee to additional redundancy pay, the employer cannot discriminate against that employee when choosing employees to terminate.
• Employers must pay any leave owed to employees in cash.
• Employees are entitled to a minimum of one month of notice or payment in lieu, unless their contract stipulates a longer notice period.
• Employees must receive a Certificate of Service at the end of the redundancy process.
• All redundancy procedures are required by law. If the employee isn’t fired, the termination is considered unfair and can be legally challenged.

Notice periods in Kenya

A notice period is the amount of time an employee or employer is required to give before ending an employment relationship. During this period, the employee continues to work while preparing for their departure, and the employer has time to find a replacement or manage the transition.

In Kenya, written notice is required based on the frequency of employee pay—for example, if wages are paid monthly, a month's written notice is required. If wages are paid daily, no notice is required. For redundancy, the legal process must be followed, and a minimum of one month’s notice is required, regardless of how often wages are paid.

Notice may be different if a period is agreed upon in the employment agreement or a collective agreement; in that case, it must be followed.

Severance pay in Kenya

Severance pay is compensation provided to an employee when they are laid off, terminated, or leave a company under certain conditions. In Kenya, severance pay is only legally required in cases of redundancy. In such cases, employees are entitled to a minimum of 15 days’ pay for every year worked. They may be entitled to more if their contract or collective agreement calls for it.

If employment ends for any other reason, no severance is required unless the employment agreement or collective agreement requires it.

How to terminate employees compliantly in Kenya

Ending an employment contract in Kenya requires a just cause, proper notice (depending on how frequently you pay wages), and possible severance if the termination is due to redundancy. Mishandling any step can lead employees to challenge the dismissal in court. Here are the key steps in the process:

1. Provide a fair reason, such as misconduct, poor performance, incapacity, or redundancy.
2. Give the required notice or pay in lieu.
3. Conduct a disciplinary hearing or a redundancy procedure, if required.
4. Pay final dues, including accrued leave and severance if needed. If the termination was for redundancy, provide a Certificate of Service.

If you employ a global workforce, keeping track of termination requirements can get complicated. Without any assistance, employers need to master conflicting just-cause considerations, probationary and notice periods, and severance pay laws that vary both within and among countries. An alternative is to hire through an EOR, which can monitor termination requirements for you, ensuring you compliantly onboard and offboard employees every time.

FAQs about hiring in Kenya

Can I hire in Kenya without my own entity?

Yes. Using an employer of record (EOR) is a legal way to employ staff in Kenya without registering a local company. The EOR handles compliance (including payroll, taxes, NSSF, etc.). You direct employees’ tasks, paying a fee to the EOR for their services. This is ideal for quick expansions or smaller teams.

An EOR like Rippling can help you quickly tap into Kenya’s talent pool, grow your global workforce, and reduce both compliance risks and administrative workload.

What are the legal requirements to hire an employee in Kenya?

You’ll need to register as an employer with KRA for PAYE, with NSSF for social security, and with NHIF for health coverage. You’ll also need to provide a written contract for all employees whose work arrangements will exceed three months. To comply with employment law, pay at least the local minimum wage and observe statutory leaves.

A comprehensive onboarding process helps you build a strong foundation for a working relationship with your international team members. And onboarding begins well in advance of a new hire’s first day, so plan to start on administrative tasks like paperwork and background checks early on.

What is the difference between an independent contractor and an employee in Kenya?

Employees work under their employers’ direction, get statutory benefits, and use their employers’ tools and equipment. Independent contractors have more independence and aren’t covered by the Employment Act, so they have fewer protections and aren’t entitled to statutory benefits. Misclassification can lead to back taxes and labour claims.

What are the requirements for work permits in Kenya?

Non-Kenyans working in Kenya need a valid work permit, typically Class D for employees. Employers must submit an application with the contract, and processing can take several months. Additionally, work permits in Kenya are expensive, costing thousands of dollars per year.

What is the annual leave entitlement in Kenya?

Employees are entitled to a minimum of 21 days of paid annual leave per year once they’ve worked for at least 12 continuous months. You can offer more, but not less. If the employee leaves mid-year, you pay out any accrued leave.

How much does it cost to hire an employee in Kenya?

In addition to employee salaries, employers contribute to NSSF, the National Housing Development Fund, and the Industrial Training Levy for each employee. Employer taxes come out to 7.5%.

What are the legally required employee benefits in Kenya?

Mandatory benefits include NSSF coverage and the Industrial Training Levy contribution, which employers cover for each of their employees. Beyond that, many perks, such as private medical insurance and bonuses, are optional and can help employers recruit and retain talent.

What is always required when an employer terminates an employee in Kenya?

You must have a valid reason, follow fair process (which must include a disciplinary hearing), give the required notice or pay in lieu, and pay any final dues (including severance for redundancy). You must also give a Certificate of Service in cases of redundancy.

How does a US company pay a foreign employee?

There are generally three ways a US company can pay a foreign employee in Kenya:

1. Form a local entity and open a local bank account to run payroll in accordance with Kenyan law, including all relevant withholdings.
2. Partner with an EOR that specializes in global employment and manages salary, insurance, and taxes on your behalf.
3. Use a global payroll service that can integrate payroll for multiple countries.

What visas are required for hiring international employees in Kenya?

International employees need a Class D work permit for local employment or a special pass for short-term work authorization.

Disclaimer: Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.