How to Set, Pay & Disburse Salaries in Kenya [A Legal Guide]
May 8, 2024
How much should you pay your employees? What laws regulate salaries in Kenya? Discover what the law says about setting and paying wages in Kenya.
Businesses that want to scale operations and grow revenue often hire additional employees. Even solopreneurs will realise at some point that they have grown their businesses as far as they can on their own.
However, hiring new employees involves more than deciding how much to pay them. And even that is not straightforward. Legal, operational, and profitability issues should be considered when determining salaries.
Whether you are a small or large business, paying competitive and equitable salaries makes you more effective, profitable, and attractive to the best talent.
This article will provide an overview of salaries in Kenya to help you understand your legal obligations and set competitive wages.
What is a salary, and when do you pay it?
A salary is a fixed, regular amount an employer pays an employee for their labour. Usually paid monthly, salaries are sometimes expressed in annual terms.
In business circles, salaries are also commonly referred to as worker compensation or remuneration. However, remuneration describes the total amount an employee receives for performing specified tasks,
including company contributions to the employee's pension.
Salaries are paid at the end of a pay cycle, which is the timespan between two consecutive paydays or payroll runs. Also called a payroll cycle or frequency, a pay cycle is the time between two consecutive payroll runs.
In Kenya, the pay cycle is monthly, meaning workers are paid after 31 calendar days. However, that does not necessarily mean the payday is the 31st of every month. It can be any day, but usually towards month-end, as long as it is 31 days after the last payday.
Salaries vs wages. What is the difference?
Salaries and wages perform the same function - compensating employees for their labour. However, there are essential differences between them.
Salaries are paid monthly, meaning an employee earns a fixed salary that they receive in one payment at the end of the pay cycle. Wages are paid hourly, expressed as a specific amount per hour worked but paid at the end of the day or week.
Another key difference is that wages are paid to casual workers - temporary, part-time, or seasonal workers, while salaries are usually paid to permanent or full-time employees.
What does this mean in terms of your legal obligations to your employees?
How you classify or choose to pay your workers has implications for how frequently you pay them, how much you pay them, and whether you have to pay them for overtime.
As we have said, wages are paid daily or weekly, while salaries are paid monthly. So, they present different administrative challenges to your business.
Crucially, casual workers are paid for every hour worked, meaning their income fluctuates depending on the hours they have worked that day or week.
Labour laws in Kenya stipulate that salaried employees are to work a maximum of 45 hours per week. Beyond those 45 hours, your employees are entitled to overtime pay, calculated at 1.5 times the regular hourly rate if the overtime is accrued on standard working days. The overtime rate is double the regular hourly rate if it's a public holiday.
However, note that overtime pay does not apply to people who work in management roles. These people receive a fixed salary regardless of how many hours they work.
Should you pay wages or salaries?
There is no one right way to pay your workers. Depending on your business, you may discover that some roles do not require full-time staff.
As a general guide, you should pay salaries for roles that require people to work every workday. These include your receptionist if you have a physical office, bookkeeper, office manager, and other professional roles.
In contrast, wages should be paid to part-time workers. These are people who perform work that is only sometimes available or needed. Usually, these are manual labour or seasonal work roles.
Besides these reasons, you may pay wages or salaries based on their pros and cons. Salaries are more straightforward to administer as they don't require time tracking. They also give employees a sense of job security and income predictability. The downside is that you pay more in benefits and must pay full salaries even when business is slow.
Wages allow you to increase and decrease the size of your workforce depending on your needs, helping to optimise your labour costs. You may also not be obliged to pay benefits. However, they take more effort and time to calculate, making it hard for employees to plan and budget since they can't quickly determine how much they will make.
Ultimately, how you pay your workers depends on your business needs and the nature of each job. Some employees prefer to be paid wages for roles for which you would normally pay salaries.
Therefore, most small companies will usually have two separate payrolls - one for salaried employees that they run monthly and another for wages that they run weekly.
Another crucial point is that full-time, permanently employed people are entitled to certain benefits while casual workers are not. Mandatory benefits for salaried employees in Kenya include:
Annual leave,
Sick leave,
Pension and retirement contributions,
Paternity leave for male employees,
Maternity leave for female employees,
NHIF (health insurance) and NSSF (social security) contributions.
Who regulates salaries in Kenya?
The Labour Institutions Act of 2007 regulates wages and salaries in Kenya. The act provides for establishing a National Labour Board that advises the Minister of Labour on labour and employment matters. It also empowers the minister to appoint a Wages Council that advises them on remuneration and other employment benefits.
The Minister of Labour also administers workers' rights and duties of employment, conditions of employment, employment contracts and their termination, and the general principles of employment, but under a different law—the Employment Act of 2007.
What is the current pay scale in Kenya?
While the law provides for a minimum wage for workers in Kenya, it does not prescribe a maximum salary. Employers can design a salary structure to reward performance, attract the best talent, and control costs.
So, the pay scale in Kenya rises from the current 15120 KES total monthly salary per month for general and manual labour roles to 144,000 KES and above for top management roles.
Specific industries pay more than others. Banking, tech, telecoms, and IT, where workers earn 100,000 KES, 78,000 KES, 72,600, and 86,500 KES, respectively, are some of the highest-paying industries.
Companies typically design a salary structure that establishes the grades they will pay employees. The process analyses the following when designing a salary structure:
The requirements and responsibilities of a job role,
The importance of the job role in the company,
How competitive does the company want its salaries to be for each role,
Salaries competing companies pay for the same roles,
Ideally, you will want to pay salaries that satisfy all of the above considerations, meaning you want to pay wages you can afford but competitive enough to attract the best talent.
Generally, though, employers in the private sector usually take direction from the salaries paid in the public sector when setting the minimum salaries.
Who sets salaries for public sector workers?
The Salaries & Remuneration Commission (SRC)determines the salary scale for workers in the public sector. In the private sector, different professions negotiate salaries with employers through their representative trade unions.
The SRC considers several factors when determining the salary scale of its employees. One of the factors is the part of the country where workers are stationed. The SRC considers that the cost of living is higher in parts of the country, with Nairobi City County considered the most expensive to live in.
Therefore, companies with a national footprint may pay different salaries for the same roles depending on where an employee is stationed. They may also add a hardship allowance for workers based in remote areas or those deemed the least favourable to live in.
What is the 2-3 salary rule in Kenya?
The 2-3 salary rule is a provision of the Employment Act of 2007 that prohibits employers from deducting more than two-thirds of an employee's basic salary.
The 2-3 rule sets a maximum proportion of an employee's salary that may be deducted. The rule seeks to guarantee a living wage for all workers. A living wage is a salary that allows individuals and their families to live reasonably comfortably and afford shelter, food, clothing, and other necessities.
When workers add bank loans, salary advances, and loans for furniture and clothing to mandatory PAYE, NHIF, and NSSF deductions, they could end up with negative balances on their payslips. The 2-3 salary prevents this by mandatory employers to block deductions that breach the maximum deductions set by the law.
Speaking of salary reductions:
Is it legal to reduce employee salary in Kenya?
Reducing an employee's salary in Kenya is legal, but only after certain conditions have been met. Under Article 22 of the Labour law of Kenya, you can only reduce an employee's salary after you have explained your reasons to the employee in writing and the employee has agreed to the salary reduction within six working days.
Therefore, a salary reduction is only legal if the employee accepts it. You cannot cut an employee's salary unless they agree to it, even if the market or economic conditions in the country make it difficult for you to meet your salary obligations to workers.
The salary of an employee is arguably the most important working condition in their employment relationship. The law sets a national minimum wage, which considers the cost of living and other factors when setting salaries.
Transferring an employee to a workstation where they will be forced to spend more on transport and other costs also constitutes a salary reduction under the law. To avoid breaching Article 22 of the Labour Act,
you will have to pay a transport allowance to the affected employee.
Boost staff morale and productivity with timely and efficient salary disbursements.
Payday is the most important day of the month for most workers. They check every phone notification, anticipating that it's their bank notifying them that their salary has been paid. So, it is a major disappointment if the salary does not reflect in their bank account as promised.
Timely salary disbursement improves staff morale, and when workers are happy and cheerful, productivity and work quality increase. The best way to ensure workers get their pay on time is to automate not just the payroll process but also the disbursement process.
Intasend provides tools that enable employers to automate salary disbursements. We eliminate manual processes that often result in salaries being paid late or into the wrong bank accounts.
Disbursing salaries with Intasend is a quick and convenient process that
allows you and your workers to concentrate on your core responsibilities.
Book a demo to explore how our disbursement tools can streamline your business payments.