PEO Kenya

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Global PEO in Kenya

Kenya stands as a promising destination for Professional Employer Organization (PEO) services, boasting a dynamic business environment amidst its diverse and vibrant culture. With a strategic location in East Africa, Kenya serves as a gateway to a rapidly growing regional market. The country’s pro-business policies, coupled with a burgeoning entrepreneurial spirit, have attracted both local and foreign enterprises seeking PEO solutions. As Kenya continues to develop its infrastructure and enhance its workforce, PEO services play a pivotal role in assisting businesses to navigate complex employment regulations, manage human resources efficiently, and tap into the nation’s pool of skilled professionals. Embracing innovation and globalization, Kenya emerges as an attractive PEO hub in the African landscape, providing streamlined solutions for companies looking to expand and thrive in this thriving economic landscape.

What Is a PEO?

A PEO, or Professional Employer Organization, is a company that provides a range of HR and payroll services to small and medium-sized businesses. These services can include employee benefits, payroll, compliance with labor laws, and recruiting and training.

PEOs work by entering into a co-employment agreement with the businesses they serve. In this arrangement, the PEO becomes the employer of record for the business’s employees, taking on responsibilities such as payroll, tax withholding, and employee benefits. The business, however, retains control over its day-to-day operations and the supervision of its employees.

PEOs can help businesses streamline their HR and payroll processes, reduce costs, and free up time and resources to focus on their core business activities. They can also provide access to a range of benefits and resources that small businesses may not be able to afford or manage on their own.

PEOs are also understood as employer of record / EOR at times.

Kenya – Country Overview

Kenya is a trading and economic hub in the Eastern and Central Africa along with growing transportation facilities, and thriving financial/communication services. The country has an innovative market-based economy with a liberal foreign trade policy. Kenya mainly relies on foreign assistance for developing its economy as more than 60% of its industries are owned by enterprises overseas. The combined value of imports and exports equals 40% of GDP, which again reflects the significance of foreign trade. Due to its fast-paced industrialization, Kenya is an ideal destination for foreign investors for setting up their operations.

Capital City

Nairobi

Currency

Kenyan Shilling

Principal Language

English, Swahili

Government

Presidential Republic

Major Cities

Mombasa, Kisumu, Nakuru

Employment Contracts in Kenya

Employment contracts in Kenya can be for a fixed duration or an indefinite period. The Employment Act allows a fixed duration contract to be extended up to 1 month if the work requires the employee to travel.

Contracts that extend for an uninterrupted period of 3 months or more or contracts for an assignment where labor is involved for 3 or more months need to be in writing. Employees must get a written contract within 7 days of commencing work.

Usually, the probationary period does not last more than 6 months, but it can be extended further for 6 months if employees give consent. Probationary employment is allowed to be terminated with a notice of 7 days or payment in lieu of the 7 days’ notice.

Working Hours in Kenya

The standard work schedule for employees in Kenya comprises 8 hours per day during Monday to Friday and 5 hours on Saturday which equals 45 hours a week, although the law permits work up to 52 hours in a week, and 60 hours for night work. Collective agreements may revise the working hours but usually, allow for 40 to 52 weekly working hours.

Overtime

Overtime is defined as time worked more than the regular number of hours per week. The overtime is paid at the rate of one and a half times the regular hourly rate on weekdays, and 2 times the regular hourly remuneration on Sundays and public holidays.

Varying regulations have an impact on overtime rates that apply to different sectors of the economy. Overtime plus regular hours cannot exceed 116 hours in total in any period of 2 successive weeks; 144 hours for night work.

Employee Leave in Kenya

Holidays

The mandatory public holidays in Kenya are:

• Jan. 1: New Year’s Day
• Good Friday
• Easter Monday
• May 1: Labor Day
• June 1: Madaraka Day
• Oct. 20: Mashujaa Day
• Dec. 12: Jamhuri (Independence) Day
• Dec. 25: Christmas Day
• Dec. 26: Boxing Day
• Eid-ul-Fitr

Public holidays that happen to fall on a Sunday are observed on the following Monday.

Annual Leave

After an employee completes 12 months of employment, employers need to provide paid annual leave of 21 days. Unless the agreement stipulates otherwise, this leave needs to be taken together. Contracts and collective agreements may entitle an employee to additional leave. On separation from the employer, an employee can “cash” the accrued leave.

If the employee agrees, the employer may break the annual leave into segments to be taken periodically in a year, but the employee must be allowed to take at least 2 consecutive weeks, which need to be taken during the employee’s 12-month earning period. The remaining leave balance must be used before 6 months of the earning period.

Maternity Leave

The Employment Act provides for 3 months of maternity leave to female employees with full pay. Insured employees pay an amount from 30 shillings to 320 shillings per month to the National Hospital Insurance Fund (NHIF), for reimbursing the employer for maternity expenses. Annual leave keeps accruing during maternity leave.

Paternity Leave

Fathers of newborn children can take 2 weeks of paid paternity leave post-birth. The NHIF reimburses employers for paternity leave expenses.

Sick Leave

Employers need to provide employees 14 days of sick leave after two consecutive months of service. The minimum sick leave entitlement for full payment is 7 days which is followed by half-paid seven days of sick leave during 12 months of employment.

The maximum duration of benefits is 180 days a year, although this period can be extended in case of exceptional hardship.

Employees’ monthly contribution into the NHIF fund varies from 30 shillings to 230 shillings, and NHIF reimburses employers for their sick leave expenses. The fund reimburses insured employees and their dependents for expenses up to 432,000 shillings. Medical benefits for dependents are same as those of the insured.

Taxation

Tax requirements can be divided into employer and individual taxes.

Employer Taxes

The Kenya corporate tax rate stands at 30%. This rate applies to the net income a company obtains while doing business in Kenya, usually during one business year.

As an employer, you’re also required to make social contributions totaling 6.5%. About 5% of the total social contributions go to the National Social Security Fund, while 1.5% goes to the National Housing Development Fund.

Individual Taxes

The Kenya income tax rate varies depending on what one earns. Here is a brief breakdown:

• 288,000 Kenyan Shilling (KES) and below:  10%
• 288,000 to 388,000 KES: 25%
• Over 388,000 KES: 30%

Additionally, employees are obligated to pay social security tax, which includes NHIF and NSSF. The social security tax rate is around 5%.

Employee Benefits in Kenya

All the employers with one or more employees need to register for the pension fund under the National Social Security Fund Act. Contributing to the fund is compulsory for all employed persons in the age group between 18 and 60 years.

Contributions to the pension fund are broken into 2 tiers. Tier I is based on the minimum wage while Tier II on the nation’s average earnings. Funding for both the tiers is based on the urban and rural status of the workplace and some other factors. The lower earnings limit is adjusted from time to time by the cabinet secretary.

Old-age Pension

Insured workers become eligible for retirement benefits at the age of 60 provided they have contributed to the pension fund for 3 years. Employees can choose to retire early at the age of 50. Employees pay 6% of their monthly remuneration to the pension fund while employers need to pay 6% of their payroll.

Disability Pension

Insured employees need to pay 5% of their monthly income into the National Social Security Fund, and employers need to pay 5% of monthly payroll. Workers undergo an assessment to determine their total incapacity to be eligible for disability pension. On retirement, insured workers are entitled to a lump sum amount of the entire employee and employer contributions and interest.

Workers’ Compensation

All employees are under the coverage of the system that makes employers liable for their insurance except those who earn less than 4,000 shillings a month, casual workers, self-employed persons, and family members working within the family. The entire cost of the system is borne by employers, and there is no restriction based on any qualifying period for eligibility.

For a temporary disability, the insured receives 50% of total income (not exceeding 540 shillings a day). There is a 3-day waiting period to receive the benefit, and if the disability remains more than 3 days, the award is paid retroactively. Compensation for a partial but permanent disability is a lump sum of 60 months of the insured’s total income but not more than 240,000 shillings.

Survivors’ Pension

Payment of survivor benefits is a lump sum equal to 60 months of the deceased’s income to dependent survivors. If there are no fully dependent survivors, the partial dependents receive a reduced benefit. The minimum amount of survivor benefit is 35,000 shillings; the highest is 240,000 shillings. The employer also reimburses dependents for the funeral expenses by paying a lump sum amount.