Drop the two-thirds pay deductions rule


The executive director and CEO of the Federation of Kenya Employers (FKE), Jacqueline Mugo. FILE PHOTO | NMG

The government should suspend the requirement for employers to pay their workers at least a third of their basic pay after all other deductions including taxes and mandatory contributions to the National Social Security Fund.

This rule is contained in the Employment Act, 2007. Its application has, however, become impractical in the wake of the expansion of taxes and statutory contributions in recent months that has resulted in many employees’ take-home pay falling below a third of their basic salary.

Employers are understandably in a dilemma but have opted to err on the side of caution. They have gone ahead and ignored the minimum pay threshold to make the deductions as required by new legislation.

The maximum two-thirds deduction rule is designed to ensure that workers are not caught up in too much debt to their detriment.

But as is clear to any observer, the expansion of statutory deductions and taxes in recent months has been unprecedented and automatically caused a breach of the minimum pay ratios.

Contributions to NSSF, for instance, rose from the previous monthly flat rate of Sh200 per employee to a range currently topping out at Sh1,080 starting February.

In July, the government also introduced a housing levy at a rate of 1.5 percent on the total earnings of an employee. Combined, these deductions slashed the pay of workers by thousands to tens of thousands of shillings.

The government has also plans to introduce social healthcare which is to be funded by each employee contributing 2.75 percent of his or her gross pay.

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