Everything a foreign employer needs to know about employing people in Kenya in 2026: what payroll really costs on both sides, why termination is the risk that catches newcomers out, where the contractor line sits, and when a permit is needed.
Kenyan employment law is common law derived and statute based. The central instrument is the Employment Act 2007, which sets minimum terms on contracts, leave, pay and termination. Around it sit the Labour Relations Act 2007 on unions and collective bargaining, the Labour Institutions Act 2007, the Occupational Safety and Health Act 2007, and the Work Injury Benefits Act 2007. Above all of them, the Constitution of 2010 guarantees fair labour practices.
Disputes go to the Employment and Labour Relations Court, a superior court of the same status as the High Court, which hears several thousand employment matters a year. That is worth registering: employment litigation in Kenya is common, accessible to employees, and decided by specialist judges who apply the procedural requirements strictly.
On the administrative side you will deal with the Kenya Revenue Authority for PAYE and several levies, the National Social Security Fund, the Social Health Authority for SHIF, and the National Industrial Training Authority.
This is where Kenya differs most from the tax-free markets. There is real personal income tax, withheld at source, alongside several contributions that have changed substantially in the last two years. The figures below reflect the position as at February 2026 and several are revised annually.
PAYE is graduated. Monthly chargeable income up to KES 24,000 is taxed at 10 percent, the next band to KES 32,333 at 25 percent, then 30 percent up to KES 500,000, 32.5 percent to KES 800,000, and 35 percent above that. Every resident employee gets a personal relief of KES 2,400 a month. NSSF, SHIF, the housing levy and qualifying pension contributions are deducted before the tax is computed. PAYE is remitted to KRA by the ninth of the following month.
| Contribution | Employee | Employer | Basis |
|---|---|---|---|
| PAYE | 10% to 35% | Withholding only | Graduated on chargeable pay |
| NSSF | 6% | 6% | Upper earnings limit KES 108,000 from February 2026 |
| SHIF | 2.75% | None | Of gross pay, minimum KES 300, no upper cap |
| Housing levy | 1.5% | 1.5% | Of gross pay, no cap |
| NITA | None | KES 50 per employee | Flat monthly amount |
| Work injury cover | None | Around 1% of payroll | Insurance premium, rated by role |
Three of these are recent. SHIF replaced the old NHIF from October 2024 and, crucially, removed the cap that used to limit contributions, so higher earners now pay considerably more. The housing levy was introduced in its current form in 2024 at 1.5 percent from each side. NSSF is on a phased escalation that raised the upper earnings limit again in February 2026. Any Kenyan payroll running on figures more than a year old is almost certainly under remitting.
Take an employee on a gross salary of KES 100,000 a month, on the February 2026 basis.
What the employee receives. NSSF takes KES 6,000, SHIF KES 2,750 and the housing levy KES 1,500, leaving chargeable pay of KES 89,750. PAYE on that comes to roughly KES 21,700 before relief, and KES 2,400 of personal relief brings it to about KES 19,300. Total deductions are therefore around KES 29,600, and the employee takes home roughly KES 70,400, or about seventy percent of gross.
What the employer pays. On top of the KES 100,000 gross, NSSF costs another KES 6,000, the housing levy KES 1,500, NITA KES 50 and work injury cover around KES 1,000. That is roughly KES 8,550, or about eight to nine percent above gross, before any medical cover, pension or provider fee.
Written particulars are required for any engagement of more than three months. A contract should cover role, pay, hours, probation, notice, leave, confidentiality and intellectual property assignment.
Probation runs up to six months and can be extended once, by agreement, to a maximum of twelve. During probation either side can end the contract on seven days' notice. Ordinary working hours are commonly forty five a week over five days, with at least one rest day in every seven. Overtime is paid at one and a half times the normal rate on working days and double on rest days and public holidays.
Two areas deserve care. Casual employment converts to ordinary monthly terms once the work aggregates beyond the statutory trigger, and employers who run people as casuals for months usually find they have created employees with full rights. Fixed term contracts end by expiry and, on the Court of Appeal's authority, carry no automatic expectation of renewal, but recent labour court decisions have found a legitimate expectation where the contract itself sets out renewal criteria, and repeated short contracts have been converted to permanent status. If you use fixed terms, communicate non renewal in writing and stop assigning work at expiry.
| Leave | Entitlement | Notes |
|---|---|---|
| Annual leave | 21 working days | After twelve months, accruing at 1.75 days a month |
| Sick leave | 7 days full, 7 days half pay | Statutory floor after two months' service; many employers offer more |
| Maternity | 90 calendar days, full pay | Right to return to the same or an equivalent role |
| Paternity | 14 calendar days, full pay | Statutory, unlike most Gulf markets |
| Pre-adoptive | 1 month | Introduced by the 2021 amendment |
| Public holidays | Around 12 to 13 days | Work on a public holiday attracts double pay |
This is the single most important section for a foreign employer, because the requirement that catches people out is procedural rather than substantive.
Kenyan law requires two things for a lawful termination. First, a valid and fair reason. Second, a fair procedure. Section 41 of the Employment Act requires the employer, before terminating for misconduct, poor performance or incapacity, to explain the reason to the employee in a language they understand, give them a genuine opportunity to respond, allow them to be accompanied by a colleague or union representative, and actually consider what they say.
Notice is twenty eight days for monthly paid employees, or pay in lieu, and seven days during probation. Summary dismissal for gross misconduct is available but still requires the hearing.
Where a termination is found unfair, the Employment and Labour Relations Court can order compensation of up to twelve months of gross salary, alongside terminal dues and potentially reinstatement. The twelve months is a ceiling rather than a norm: awards are discretionary and appellate courts have often reduced them substantially where a genuine reason existed and only the procedure was defective. Even so, a mishandled dismissal of a mid level employee can comfortably cost several months of salary plus costs. Employees can complain to a labour officer within three months, and claims can be brought at the court for up to three years.
Redundancy has its own procedure and it is not interchangeable with ordinary termination. The employer must give at least one month's written notice to the employee and, importantly, also notify the labour officer, along with the union where one is recognised. Selection must follow fair criteria such as seniority, skill, ability and reliability, and there must be genuine consultation.
On top of notice or pay in lieu and payment of accrued leave in cash, redundancy attracts severance pay of at least fifteen days' pay for each completed year of service. Note that this severance entitlement arises on redundancy specifically, not on ordinary dismissal or resignation.
Many foreign companies begin by paying someone in Kenya as an independent contractor, and a good number of them are misclassified. Kenyan courts apply the familiar tests: how much control the engager exercises, how far the person is integrated into the business, who provides the tools, who bears the financial risk, and whether the person is economically dependent on one client. The label on the agreement carries very little weight against the substance of the arrangement.
Where a contractor is found to have been an employee, the exposure is on two fronts. The revenue authority can pursue backdated PAYE, NSSF, SHIF and housing levy with penalties and interest. Separately, the person acquires employee rights, including the right to bring an unfair termination claim. Genuine contractor relationships remain perfectly lawful, and payers should note that withholding tax applies to professional and management fees.
Kenya has no sponsorship system in the Gulf sense, and this is the point most often misunderstood by employers coming from that region. Kenyan citizens need no permit, no visa and no sponsor, and they make up the overwhelming majority of people hired through an Employer of Record here. For them, work authorisation is simply not a step in the process.
Foreign nationals do need a permit. The relevant class for employment is Class D, which is tied to a specific employer and a specific job, and which requires the employer to show that the skills are not readily available locally and generally to name a Kenyan understudy for skills transfer. Applications are filed through the immigration portal with a non refundable processing fee, followed by a substantially larger annual issuance fee once approved. Processing commonly takes several weeks and can run to a few months. East African Community nationals receive simplified treatment. Foreign nationals must also register and obtain the relevant certificate after arrival.
We turn this guide into a working employment relationship, contract, payroll and all.