Introduction
Employment termination in Kenya can be a complex process, especially when redundancy is involved. Both employers and employees need to understand the legal requirements for severance pay to avoid disputes and ensure compliance with the Employment Act, 2007.
This guide explains what severance pay is, how it’s calculated, and the legal obligations that apply under Kenyan employment law.
What is Severance Pay in Kenya?
In Kenya, severance pay is a statutory payment made by an employer to an employee upon termination of employment, particularly in cases of redundancy. It is calculated based on the employee’s length of service and serves as compensation for loss of employment.
The Employment Act mandates a minimum severance pay of 15 days’ basic wages for each completed year of service.
How to Calculate Severance Pay in Kenya
- Determine the daily wage – Divide the employee’s monthly basic salary by 30.
- Calculate the severance pay per year – Multiply the daily wage by 15 days.
- Calculate the total severance pay – Multiply the severance pay per year by the total number of completed years of service.
Example:
If an employee earns KSh 60,000 per month and has worked for 5 years:
- Daily wage = 60,000 ÷ 30 = KSh 2,000
- Severance per year = 2,000 × 15 = KSh 30,000
- Total severance = 30,000 × 5 = KSh 150,000
Key Legal Considerations on Severance Pay
- Contractual terms prevail if higher – Where the employment contract provides for severance above the statutory minimum, the employer must pay the higher rate.
- Separate from other entitlements – Severance pay is in addition to leave pay, notice pay, and other terminal benefits.
- Taxation – The Kenya Revenue Authority (KRA) issues guidelines on taxation of severance pay and other lump sum benefits.
- Redundancy entitlements – Employees declared redundant are entitled to severance pay, leave pay, and either one month’s notice or one month’s wages in lieu.
- Certificate of service – Employers are legally required to issue a certificate of service upon termination.
- Payment mode – Commonly paid as a lump sum but may be paid in installments if the contract allows.
Why Legal Guidance is Important
Misunderstanding severance pay requirements can expose employers to costly litigation and reputational damage, while employees risk losing their rightful dues. Legal advice ensures compliance with Kenyan labour laws and safeguards the interests of all parties.
At Tasha Mwigarire & Associates, Advocates, we offer expert legal support on:
- Employment contracts and policies
- Redundancy procedures and compliance
- Severance pay disputes and negotiations
- General labour and employment law matters
