(Nairobi) – Workers’ payslips in Kenya are feeling the pinch of new statutory deductions, which have pushed their total deductions to as high as 45 percent, reducing disposable income and hurting both living standards and economic demand.
Employers have raised concerns about the financial strain on workers, citing the introduction of Social Health Insurance Fund (SHIF) deductions last month, coupled with the earlier-enforced housing levy. These measures have significantly reduced take-home pay, especially for those with additional obligations like loan repayments, leaving many with less than a third of their gross salary, a violation of employment laws.
Cumulative statutory deductions now account for 40–45 percent of gross pay, eroding purchasing power in an economy that depends heavily on consumer spending. For comparison, wage earners in developed countries such as the US, UK, and Japan face slightly lower deductions, ranging between 39 and 43 percent, largely due to their robust welfare systems.
Employers report a sharp decline in consumer spending, with sales in sectors like retail and fast-moving consumer goods (FMCG) dropping by an estimated 15–20 percent this year. The Federation of Kenya Employers (FKE) has attributed this decline to the combined impact of statutory deductions, income tax, and inflationary pressures.
Under the new SHIF scheme, workers contribute 2.75 percent of their gross pay to support universal health coverage, replacing the older NHIF contributions. This adjustment means that workers earning between KSh 100,000 and KSh 1 million are contributing an additional KSh 1,050 to KSh 25,800 monthly. When combined with the 1.5 percent housing levy and higher National Social Security Fund (NSSF) contributions, take-home pay has dropped dramatically.
The effects of reduced purchasing power have been far-reaching. Businesses have scaled down operations, with some shedding jobs. Preliminary FKE data reveals that over 2,000 workers have been laid off since June through redundancies and restructuring. Informal sector layoffs, often unreported, are believed to add significantly to these numbers.
Recent findings by the Kenya Revenue Authority (KRA) show a 2.89 percent drop in average gross monthly pay, falling to KSh 75,781 from KSh 78,034 during the same period last year. This decline reflects the economic challenges of corporate cost-cutting and lower worker compensation. The reduction in real wages, after adjusting for inflation, has been a consistent trend over the past four years, with inflation-adjusted earnings shrinking by 4.1 percent in 2023 alone.
The financial burden on employees has not only impacted individual households but also the broader economy. Reduced disposable income has dampened demand for goods and services, compelling companies to freeze hiring, lay off permanent employees, or replace them with casual labor to cut costs.
Economist Ken Gichinga highlights the ripple effects, noting that workers are struggling to balance high tax obligations, loan repayments, and supporting extended families. “Aggregate demand for goods and services is at a historic low, and businesses are feeling this through declining revenues,” he said.
The challenges facing workers and businesses come at a time when Kenya’s economy is grappling with high inflation driven by costly fuel and food. Policymakers are under pressure to find solutions to mitigate the impact of these deductions and support economic recovery.
Table: Statutory Deductions Comparison
| Country | Deductions (% of gross pay) |
|---|---|
| Kenya | 45% |
| United States | 39.55% |
| United Kingdom | 42.72% |
| Japan | 41.32% |
| Germany | 39.39% |
| South Africa | 38.22% |
FKE has called for dialogue between employers, the government, and other stakeholders to address the financial strain on workers and prevent further job losses. They warn that the continued erosion of disposable income could deepen Kenya’s economic slowdown.