Salaried workers were on the receiving end of increased taxation this year that served to reduce their take-home earnings.
February for instance saw deductions to the National Social Security Fund (NSSF) rise five-fold after a landmark ruling upholding the 2013 NSSF Act.
The pension contributions were raised to 12 percent of pensionable wages made up of two equal portions split between the employee and the employer, but with an upper limit of Sh2,160.
The passage of the 2023 Finance Act saw two notable changes affecting salaried employees including the introduction of the housing levy, set at 1.5 percent of gross salaries and payable by both the employee and the employer.
Additionally, the Act introduced two new higher Pay-As-You-Earn (PAYE) bands covering incomes of between Sh500,000 and Sh800,000 at 32.5 percent and for income exceeding Sh800,000 at 35 percent.
The effect of the new and higher deductions has for instance seen an employee earning a gross salary of Sh50,000 losing Sh1,366 in net pay after the jump in NSSF contributions to Sh1,080 from Sh200 and the new housing levy which trims out Sh750 from the gross pay.
A worker earning Sh900,000 a month has meanwhile lost a whopping Sh28,000 with housing levy deductions eating up Sh13,500.
The introduction of the housing levy has yielded the greatest pushback from workers, who have faulted the model of implementing the affordable housing programme via taxation/levies.
“In our view, it doesn’t have an immediate benefit to the employee. While it might be beneficial to some, it may not cater to others, who may already be homeowners or have mortgages,” Deputy Secretary General to the Central Organisation of Trade Unions (COTU) Benson Okwaro told the Business Daily.
Salaried workers could be in for a bitter-sweet 2024 with positive news coming from the proposed review of PAYE bands setting the highest rate at 25 percent from the current 35 percent as set out in the medium-term revenue strategy whose implementation starts next year.
Nevertheless, the pain is represented in the proposed scrapping of reliefs including personal relief currently set at Sh2,400 a month and the insurance relief which is set at 15 percent of deductions to the National Hospital Insurance Fund (NHIF).
Moreover, the government has proposed a series of changes to NHIF including raising contributions to the fund to 2.75 percent of gross monthly income from the current model where workers contribute between Sh150 and Sh1,700 per month.
NSSF contributions are also set to move higher under the phased implementation of the new Act.
While workers have called on employers including the government to review salaries upwards to cushion against the effects of the deductions and high living costs, the requirement for employers to match some of the contributions has made such discussions awkward and difficult.
“We are not signing new Collective Bargaining Agreements (CBAs) anymore. In the public sector, this is made more difficult by the Salaries Remuneration Commission, which must approve such raises. An employer will mention that they are already matching higher NSSF deductions and contributing to the housing levy,” Mr Okwaro added.
Employers on the other hand have lamented the increased cost of doing business, which has been aggravated in part by the weakening of the shilling which has affected businesses relying on imports for raw materials.
“The cost of doing business has become unsustainable since the enactment and implementation of the Finance Act 2023,” the Federation of Kenya Employers said in a statement in November.
“The employers’ view is that the changes have had an overall negative impact on cash flows and the financial position of enterprises in various ways including direct impact on payroll, impact on demand for general wages review and risk of business closure and increased laying off employees.”
