Redundancy Pay in Kenya: Meaning, Process & Calculation

Involuntarily terminated employees have a legal right to redundancy pay in Kenya. Learn how to successfully navigate the redundancy process in Kenya.

The employment relationship does not always run its full course, ending with the employee’s retirement. Market and economic forces can force companies to restructure, downsize, and even wind down their operations.

Unfortunately, when companies downsize or restructure, some jobs become redundant and people lose their jobs. However, terminated employees do not go empty-handed. Employment laws in Kenya provide such employees with a cushion of redundancy pay.

This article explains the law regarding redundancy pay in Kenya. After reading, you will know what the law considers justifiable grounds for redundancy, the exact procedure to follow, and how to calculate redundancy pay.

What is the meaning of redundancy pay?

Redundancy pay is money paid or owed to an employee whose employment has been terminated because the company no longer needs their services. The employer does not choose to pay redundancy pay; the law obligates them to pay it.

Redundancy is a form of involuntary termination of employment, meaning the process is initiated by the employer and is not necessitated by any fault of the employee.

The employer must cushion employees affected by the premature

termination of employment. Therefore, redundancy pay covers the welfare needs of employees who have been involuntarily terminated while they look for a new job.

Is redundancy a retrenchment?

A redundancy is the same as a retrenchment. In both cases, an employee loses their job through no fault of their own. It is a severing of the employment relationship.

In the two instances, the company contends that it either cannot redeploy the employee to another role or can no longer afford to keep them on the payroll and must, therefore, terminate them.

Most redundancies and retrenchments result from a restructuring, rightsizing, or downsizing exercise to cut costs and keep the business afloat.

Businesses that retrench staff or make specific job roles redundant argue that they can only sustain operations if they restructure and eliminate unnecessary roles. In other words, the company must cut some jobs to save others.

Does severance mean redundancy?

Redundancy is a form of severance or simply the ending of a relationship. In this case, it is a relationship between an employer and their employee.

The difference between severance and redundancy is that the former is involuntary while the latter can also be voluntary.

An instance where a person may be offered severance pay is when an employee is retiring. Because the employee has reached retirement age or voluntarily decided to quit their job and permanently leave the workforce, they cannot claim redundancy pay.

In Kenya, severance pay is often applied ambiguously. It is frequently used to mean redundancy pay, which the law provides for under Section 40 of the Employment Act of 2007.

Most countries do not have legal provisions for severance pay. Companies typically use it to enforce an agreement with a terminated employee that they will not sue for unfair termination.

What are the grounds for redundancy in Kenya?

In Kenya, all redundancies must comply with Section 40 of the Employment Act of 2007. According to the law, an employer must give valid reasons for declaring a specific job role redundant.

A job may become redundant because of the following:

• A restructuring or downsizing of operations by the company,

• Company relocation, branch closure, or outsourcing of the said role’s functions,

• Acquisition or merger of the company with another to form a new entity whose structure renders specific roles unnecessary,

• Changes in a company’s business model that remove the need for the job role.

Some companies may automate their processes or replace some roles with machines or technology that improves efficiency and reduces costs. This would make the replaced roles obsolete and, therefore, redundant.

Whatever reasons a company gives for declaring some jobs redundant, they must satisfy the law that the job cut is unavoidable.

If, for example, an employer cites unfavourable economic conditions as the reason for abolishing specific jobs, it must prove how the economic hardships have adversely affected the business.

Redundancy procedure in Kenya.

To commence the redundancy procedure, the employer must notify the employee whose employment is to be terminated in writing at least one month before the termination.

The employer must also notify the employee’s trade union if they belong to one. They must also inform the labour officer that covers the area where the employee is based.

In these communications, the employer must demonstrate that the redundancy was necessary and give genuine reasons for abolishing the affected employees ’ roles.

If the reasons offered are not convincing, the courts may declare the redundancy unfair and nullify it.

Where the reasons for a redundancy satisfy the law but the employer has decided to keep some employees, the employer must explain why they chose to terminate specific employees.

The criteria for selecting employees for redundancy must consider all the candidates’ seniority, skill, and reliability and be applied uniformly.

How much should an employee get paid if they are made redundant?

Redundancy pay is calculated by multiplying the employee’s completed years of continuous employment by at least 15 days’ pay. You must also add the pay for the leave days you have not paid in cash to that amount.

The law also dictates a notice period of at least one month before an employee is made redundant. If termination of employment is immediate, the employer must pay the employee one month’s minimum wages in lieu of notice, meaning on top of the redundancy pay.

Suppose an employee has worked for your company for ten years, earning a monthly salary of 50,000 KES. If you terminate their employment citing redundancy, they will be due at least 250,000 KES (25,000 KES as pay for 15 days multiplied by ten years).

If termination is immediate, that employee will be due another 50,000 KES. This compensation is for the one-month pay they were supposed to receive while serving their notice.

If they had 30 unpaid leave days, you must pay them for that time

at the daily rate (50,000 KES/30 days). That would constitute another month’s wages, bringing their minimum severance package to at least 350,000 KES, including the unserved one-month notice and the unpaid leave days.

How to efficiently disburse salaries in Kenya.

Kenya’s labour and employment laws safeguard employees’ rights to fair and equitable treatment and encourage employers to consult employees and consider alternatives to redundancies genuinely.

However, precedent shows that courts generally do not interfere with redundancy exercises, even when challenges are brought. An example of this is the long-running Lebo and 331 Others v Kenya Power & Lighting Co Ltd case, where the court eventually ruled in favour of the corporation.

That said, redundancy exercises are costly. There are cheaper ways of reducing payroll costs without cutting too many jobs, one of which is automating the entire payroll process to eliminate payroll errors and redundant processes.

Using payroll software eliminates excess hours on your payroll staff logs while correcting mistakes, reducing related staffing costs. This lowers your overall payroll costs and boosts your bottom line.

You will maximise your cost savings by streamlining salary disbursements with our business disbursements automation solution. Intasend reduces the task of disbursing salaries to just a few steps, ensuring your employees receive their wages on time.

Sign up with Intasend to streamline salary disbursements and other business payments.