FKE to Ruto: Employee living standards deteriorating because of taxes

FKE CEO Jacqueline Mugo

The Federation of Kenya Employers has sent out a distress call on behalf of employees saying the newly introduced taxes are taking a heavy toll on their living standards.

CEO Jacqueline Mugo said employers are also finding themselves between a rock and a hard place by flouting labour laws, effecting deductions beyond the stipulated limit.

"Since the new payroll deductions were introduced, we have received a lot of distress calls from our members and from employees themselves because the take-home pay is too little and it's below the threshold of one-third that employees are supposed to take home," she said.

Speaking on Friday during a press briefing, Mugo said they have had a discussion with the CS in charge of the Ministry of Labour and Social Protection "because employers are finding it hard to comply" with deducting taxes beyond the required limit.

"They are supposed to deduct not more than two-thirds of an employee's total earnings each month but they are in a way forced to be in breach because of the level of deduction," she said.

"The sum total of the deductions to the payroll is that employers are either having to top up employees' salary or having to be in breach if they are to comply (with labour laws)."

Mugo said that the federation asked the government through the Labour Ministry to review the statutory deductions paid on total earnings which was previously based on the basic pay.

"Section 19(III) of the Employment Act is very clear on this but the greater concern is that the living standards of our employees are deteriorating because of that. 

The piece of legislation states: "Without prejudice to any right of recovery of any debt due, and notwithstanding the provisions of any other written law, the total amount of all deductions which may be made by an employer from the wages of his employee at any one time shall not exceed two-thirds of such wages or such additional or other amount as may be prescribed by the Minister either generally or in relation to a specified employer or employee or class of employers or employees or any trade or industry."

Kenyans have since March 2024 been paying 1.5 per cent of their gross pay towards the Affordable Housing Programme which President William Ruto said is necessary not just to provide decent homes for Kenyans but create jobs as well.

It followed the assent into law by President William Ruto of the Affordable Housing Bill, 2023, on March 19, 2024.

A protracted legal battle to challenge the new levy came a cropper after the government complied with all the constitutional requirements that the court said must be adhered to.

On October 1, the payslips of salaried Kenyans were again subjected to more deductions towards the Social Health Authority (SHA) following the transition from the National Health Insurance Fund (NHIF) to the Social Health Insurance Fund (SHIF). 

The monthly premiums are pegged on each employee's basic pay - the higher the salary, the higher the deductions.

This January, salaried Kenyans will also start paying enhanced contributions towards the national pension scheme National Social Security Fund (NSSF).

The minimum contributions are set to increase from Sh420 to Sh480 while high-income earners will pay as high as Sh4,320 from the current Sh2,160.

The upper income limit is set to go up from Sh36,000 to Sh72,000 while the lower limit would be adjusted from Sh7,000 to Sh8,000.

Mugo said whilst the FKE welcomed the enhanced pension deductions as a board member of the NSSF, the combined statutory deductions were now a load too heavy for employees.

"We thought that employees should have a decent pension when they retire but it's the sum total of these deductions that are making it very difficult for employers to comply with the law and also give employees a decent take-home pay," she said.

Mugo said the federation will continue engaging the government through the relevant ministries towards harmonising the government's desire to improve the standards and social protection aspects of Kenyans and also allow the same citizens to have a decent income.