Severance Pay in Kenya: What It Is & How to Calculate It
Mar 7, 2023
Are you facing the prospect of being laid off? Learn what the law says about severance pay in Kenya so you know what your rights are as well as what is due to you.
Severance pay can be a confusing and overwhelming topic for both employees and employers in Kenya. Understanding the laws and regulations surrounding severance pay in Kenya, as well as how it is calculated, can be difficult.
In this article, we will break down the complexities around severance pay in Kenya and provide a clear explanation of what severance pay is in Kenya.
We will cover:
what severance pay is,
how severance pay is calculated,
who is eligible to receive severance pay
This will not only help employees understand their rights and entitlements but will also help employers understand and meet their severance pay obligations.
Let’s get started:
What is Severance Pay?
Severance pay, also known as termination pay, is a form of compensation that employees may be entitled to receive upon the termination of their employment. Not to be confused with redundancy pay, it is intended to help the employee transition to a new job or situation and can be a significant financial cushion during that time.
In Kenya, the laws governing severance pay are provided by the Employment Act, which outlines the conditions under which an employee is entitled to severance pay and how it is calculated.
The importance of severance pay in protecting the interests of workers in Kenya cannot be overstated. For one, it provides a safety net for employees who may have lost their jobs due to factors beyond their control, such as redundancy or the closure of a business.
Severance pay can help ease the financial burden of unemployment and provide a cushion for workers as they search for new employment opportunities.
Additionally, severance pay helps to ensure that employers do not take advantage of employees by terminating their employment without just cause.
By providing for severance pay, the law ensures that employers are held accountable for their actions and are required to compensate employees for the loss of their job. This helps to promote fair labour practices and protect the rights of workers.
The laws governing severance pay in Kenya also provide for specific calculations on the amount of severance pay an employee is entitled to.
The amount of severance pay is based on the length of service of the employee and their last drawn salary. This helps to ensure that employees who have been with the company for a longer period and have higher salaries are not disadvantaged.
Furthermore, severance pay is an important aspect of the rights and benefits of employees in Kenya. The Employment Act provides for various rights and benefits such as:
working hours,
leave,
Termination
Severance pay is an essential component of these rights and benefits. It ensures that employees are not left without any compensation or support when they lose their jobs.
Who is Eligible for Severance Pay in Kenya?
Severance pay, also known as termination pay, is a form of compensation that an employer is required to provide to an employee upon termination of their employment. In Kenya, the Employment Act of 2007 outlines the eligibility criteria for severance pay.
According to the Act, any employee who has been continuously employed for a period of at least 12 months is eligible to receive severance pay upon termination of their employment. This includes employees who have been terminated due to redundancy, reorganization, or the liquidation of the employer's business.
Employees who have been terminated due to misconduct, such as theft, fraud, or gross insubordination, are not eligible to receive severance pay.
Additionally, employees who have resigned from their position are not eligible to receive severance pay, unless the resignation is due to a constructive dismissal, which occurs when the employer has made the work environment intolerable for the employee.
The amount of severance pay that an eligible employee is entitled to receive is calculated based on the employee's length of service with the employer.
The Employment Act of 2007 states that an employee is entitled to receive one month's pay for every year of service, up to a maximum of 12 months' pay. This means that an employee who has been continuously employed for 12 or more years is entitled to receive 12 months' pay as severance pay.
It's important to note that severance pay is in addition to any other entitlements the employee may have, such as outstanding wages, vacation pay, or benefits.
The employer is also required to provide the employee with a certificate of service, which certifies the employee's length of service and the amount of severance pay they are entitled to.
The employer is also required to give notice to the employee before the termination of their employment. The notice period is dependent on the length of service of the employee and ranges from one week to four weeks.
In Kenya, severance pay is a legal requirement and it's the employer's responsibility to ensure that they comply with the Employment Act of 2007.
Failure to provide severance pay to an eligible employee can result in fines and penalties, so it is important for employers to understand the requirements and take the necessary steps to comply.
How is Severance Pay Calculated in Kenya?
In Kenya, the calculation of severance pay is outlined in the Employment Act of 2007.
An employee is entitled to receive one month's pay for every year of service, up to a maximum of 12 months' pay. This means that an employee who has been continuously employed for 12 or more years is entitled to receive 12 months' pay as severance pay.
The employee's basic salary, which includes their base pay, house allowance, and transport allowance, is used to calculate their severance pay. The calculation of severance pay is based on the employee's last drawn salary.
It's important to note that severance pay is in addition to any other entitlements the employee may have, such as outstanding wages, vacation pay, or benefits.
The employer is also required to provide the employee with a certificate of service, which certifies the employee's length of service and the amount of severance pay to which the employee is entitled.
For example, if an employee has been employed for 8 years, the employee would be entitled to 8 months' pay as severance pay. If an employee's last drawn salary is KES 100,000 per month, the employee would be entitled to KES 800,000 in severance pay.
It's important to note that the calculation of severance pay must be in accordance with the provisions of the Employment Act of 2007 and any collective bargaining agreement that may be in place.
Employers should consult with legal counsel or the Ministry of Labour to ensure that they are in compliance with the law when calculating severance pay.
When is Severance Pay Paid in Kenya?
According to the Employment Act of 2007, an employee who has been in continuous employment for at least one year is entitled to severance pay. The amount of severance pay is calculated based on the employee's length of service and last remuneration.
Employees who have been in continuous employment for less than one year are not entitled to severance pay.
The Employment Act stipulates that an employee who has been in continuous employment for one year but less than five years is entitled to one month's remuneration for every year of service.
An employee who has been in continuous employment for five years or more is entitled to two months' remuneration for every year of service. The remuneration used to calculate severance pay should include basic salary, housing allowance, and transport allowance.
Additionally, the Labour Relations Act of 2007, provides for the payment of severance pay to employees who have been retrenched. The amount of severance pay for retrenched employees is calculated based on the employee's length of service and last remuneration.
The Act requires an employer to give notice of retrenchment to the employee and the relevant trade union and to hold consultations with the trade union before retrenchment.
Severance pay vs redundancy pay
It is crucial to note that severance pay is not the same as redundancy pay, which is paid to employees who are made redundant as a result of the employer's decision to close down or scale down the business.
Redundancy pay is calculated based on the employee's length of service and last remuneration and is capped at a maximum of 12 months of remuneration.
How to Submit a Claim for Severance Pay
Submitting a claim for severance pay in Kenya can be a straightforward process, as long as you have all the necessary information and documentation.
Here is a step-by-step guide to help you submit a successful severance pay claim:
Step 1: Get your documents ready
To submit a claim for severance pay, you will need to provide proof of your employment, including:
A copy of your employment contract
Payslip or other proof of remuneration
A letter of termination of employment, if applicable
Valid ID or passport
Step #2: Review your eligibility
Check if you qualify for severance pay by checking your length of service and if you meet the criteria as stipulated by the Employment Act of 2007.
Step 3: Calculate the amount of severance pay you’re entitled to
The amount of severance pay you are entitled to is based on your length of service and last remuneration. Employees who have been in continuous employment for one year but less than five years are entitled to one month's remuneration for every year of service.
An employee who has been in continuous employment for five years or more is entitled to two months' remuneration for every year of service.
Step #4: Submit your claim
You can submit your claim for severance pay to your employer or to the Ministry of Labour and Social Protection. You can also submit your claim through the Ministry of Labour's online portal.
Step #5: Follow up on your claim
After submitting your claim, it is important to follow up on the status of your claim. You can do this by calling the Ministry of Labour or your employer to check on the status of your claim.
Collecting Your Severance Pay with IntaSend
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