Employers paint bleak jobs outlook, warn of social unrest risk
Kenya’s real gross domestic product posted three consecutive quarterly declines last year painting a grim picture of a faltering economy.
Employers have projected a tough labour market for 2025 on the back of increased statutory deductions on pay slips and non-payment of suppliers of goods and services to national government and counties with arrears estimated to have ‘crossed Sh1 trillion’.
Federation of Kenya Employers (FKE) says the enforcement of deductions to support President William Ruto’s universal health coverage and affordable housing programmes has pushed average take-home pay for workers to historic lows of 45 to 50 percent of monthly earnings.
The resultant erosion of workers’ purchasing power and deepening cash flow crisis for businesses because of rising pending bills has lowered demand for goods and services, making it difficult for companies to continue sustaining the same number of jobs.
“Our concern is that employers are finding it difficult to comply with the two-third rule [under the Employment Act]. They are supposed to deduct not more than two-thirds [of employee’s salary] each month, but they are in way forced to breach this because of the level of deductions,” FKE executive director Jacqueline Mugo told reporters in Nairobi on Friday.
“The greater concern is the living standards of our employees that are deteriorating because of that [enhanced deduction]. A lot of our employees for the first time didn’t even go home for Christmas.”
The employers have called on the Ruto administration to enhance efficiency in public service delivery, honour contracts, including Collective Bargaining Agreements (CBAs), ensure timely payment of bills as well as strengthen accountability and transparency in budget-making processes to reduce wastage of public funds.
Additional levies on workers’ earnings in the upcoming Finance Bill 2025, the FKE warned, could lead to an enhanced risk of social unrest.
“Clearly if we continue raiding the pay slips it means we will not have any money to take home. So they [employees] will keep on borrowing and they will be distressed and that eventually translates into a social unrest,” Ms Mugo said. “Then people will start to wonder about the value of being in employment. It makes employment meaningless and we will then have what we call the working poor and that’s what we don’t want as a country.”
The Ministry of Health last October effected Social Health Insurance Fund (SHIF) deductions at a rate of 2.75 percent of gross earnings, slightly more than a year after enforcing housing levy cuts on pay at the rate of 1.5 percent from July 2023.
Until December 27 last year, the two deductions were subjected to double taxation as the Kenya Revenue Authority used the gross to also calculate the pay as you earn (PAYE) before the workers got relief through the Tax Laws Amendment Act 2024.
Contributions towards the National Social Security Fund will from February also be enhanced where the minimum deductions will rise to Sh480 from Sh420 currently, while the top contribution per employee will rise to Sh3,840 from Sh2,160 presently.
The reduced earnings have lowered demand for goods and services, the FKE says, a situation compounded by pending bills of more than Sh1 trillion. The arrears comprise Sh528 billion in bills for the national government, about Sh360 billion for State corporations, Sh181 billion for counties, and Sh91 billion in unremitted pensions by the devolved units.
At least some 57 large firms have disclosed to the FKE that they have fired 5,567 employees in the last three years through 2024 on redundancy grounds.
“This is just a small indication that we get because there are a lot of other companies who do not come to us but go directly to the Ministry of Labour and Social Protection. We suspect that the numbers are higher,” Ms Mugo said. “The redundancies cut across the sectors, but the greatest impact has been on manufacturing, services and agriculture.”
The employers’ body has cited low demand for goods and services, liquidity constraints, rising operating costs, challenging tax regimes, frequent legislative changes, a shrinking market, and loss of competitiveness for straining employers and hindering job creation.
Analysis of the Stanbic Kenya Purchasing Managers Index (PMI) has also suggested that companies have been replacing permanent employees with casuals to rein in operating expenses.
The PMI report measures monthly private sector activity such as output, new orders, and employment based on feedback from about 400 managers.
