Statutory Deductions

What are statutory deductions ?

As an employer, you are entitled by law to take any sum from your employee’s wage as a contribution to any fund or scheme authorised by the commissioner for labor to which the employee has consented to contribute, according to Section 19(1) of the Employment Act.

This is the statutory deduction, to put it simply.

While an employee has the option to opt out of any voluntary deductions, statutory deductions are required by law.

Also, if you take money from an employee’s wage to cover statutory deductions, you must do so within the time frame and meet any other conditions set down in the legislation, agreement, court ruling, or arbitration, as the case may be.

Pay As You Earn (PAYE)

Employers are required by the Income Tax Act to withhold and remit monthly income tax for Kenyan resident workers earning more than Ksh 10,164/= per month. Employers must also provide tax incentives like the use of corporate cars. In addition, whether or not the employee is subject to PAYE, the employer is required to file annual income tax returns for all employees.

Failure to comply carries a penalty of 25% of the tax amounts concerned, or ten thousand shillings, whichever is larger. The employer can also face legal action to reclaim the tax, as well as interest at the rate of 2% every month.

National Social Security Fund (NSSF)

The National Social Security Fund Act (cap 258) established the NSSF as a mandatory contributory social security plan with the goal of collecting contributions from employers and employees and making payments to employees when they leave the company.

The employer is responsible for half of the contribution, while the employee is responsible for the other half. The standard NSSF contribution (now under revision) is Ksh 200/= taken from the employee’s wage, with the employer matching the amount. Failure to comply is a criminal offense punishable by a fine of up to Ksh 15,000/= and a penalty of 5% of the amount due.

National Hospital Insurance Fund (NHIF)

The National Hospital Insurance Fund Act (cap 255) established the NHIF, which is an insurance fund that provides medical insurance and reimburses expenditures paid by a donor, his or her spouse, and dependent children. Employers must deduct NHIF contributions from employees’ salaries via a check-off mechanism, based on their pay. Failure to comply is a criminal offense punishable by a fine of five times the amount contributed.