The average Kenyan worker in the formal sector earns Sh77, 758 per month, before tax and statutory deductions.
When the Kenya Kwanza administration took office in 2022, this salary was subjected to taxes and statutory deductions amounting to Sh16,831, resulting in a take-home pay of Sh60,927.50.
Today, these deductions have risen to Sh21, 289.70, thanks to the enhanced contributions to the National Social Security Fund (NSSF) and payments towards the enhanced Social Health Insurance Fund (SHIF) and the Housing Levy.
Prior to the enactment of SHIF, formal sector workers paid for the now defunct National Hospital Insurance Fund (NHIF) cover through a graduated scale, ranging from Sh150 for those earning Sh6,000 and below per month, to Sh1,700 for those paid above Sh100,000.
The Housing Levy was introduced in 2024 at a rate of 1.5 percent of gross pay, matched by the employer, without a cap on the maximum contribution.
These deductions, together with the enhanced NSSF contributions that have risen from a flat Sh200 for all workers to six percent of pay, have contributed to thinner payslips for Kenyans amid rising cost of living, and stagnant real wage growth.
The contributions now range from Sh540 to Sh6, 480 per month, following the adjustments made this month in the fourth year of the enhanced contribution plan that started in February 2023 with the belated enactment of the NSSF Act 2013.
These NSSF contributions are however, not a tax, but rather a saving that will be accessed by the employee in old age.
All three deductions are tax deductible, meaning that they are removed from the gross salary to arrive at taxable pay.
However, the decline in Pay as You Earn (PAYE) or personal income tax as a result of the reduced taxable pay is not enough to offset the hit on payslips caused by the deductions, handing workers a net loss on income compared to the previous tax regime.
For a worker earning Sh30,000 per month, the statutory deductions have gone up from Sh1,100 in 2022 to Sh3,075 today, with PAYE falling from Sh1,225 to Sh877 .50. The take home pay at this level has thus fallen Sh1, 628 per month, to Sh26, 047.50.
The higher one goes on the pay scale, the larger the erosion on payslips as a result of the new taxes and deductions.
Workers earning Sh100, 000 per month are now subjected to Sh10, 250 in statutory deductions and Sh19, 308.10 in PAYE, whereas in 2022 they paid Sh1, 900 towards NSSF and NHIF, and PAYE of Sh21, 318.
For the high earners banking Sh500, 000 and above, the net deductions have gone up by between Sh18, 000 and Sh34, 851, largely on account of higher statutory deductions.
While they all paid NSSF and NHIF at the previous caps of Sh1, 900 per month, these higher earners have been hit hardest by the uncapped housing levy and SHIF deductions.
For a gross pay of Sh500, 000 per month, a worker is now coughing up a total of Sh27, 330 in Shif, NSSF and housing levy, and Sh134, 064.10 in PAYE, resulting in a net salary of Sh338, 206. In 2022, they were paid a net of Sh 356,286.90.
Those earning Sh800, 000 per month have seen their deductions go up by Sh33, 494, lowering their net pay to Sh532, 792.90 from Sh566, 286.90.
Besides the higher levies, the tax rate for earnings falling between Sh500, 000 and Sh800, 000 was enhanced to 32.5 percent from 30 percent in 2023, while the rate for earnings above Sh800, 000 was increased to 35 percent.
Even as workers contend with enhanced deductions by the State, their real wages have continued to fall, weakening their purchasing power in emptier pockets.
The inflation adjusted wages fell by 0.3 percent in 2024, as per the latest employment data from the Kenya National Bureau of Statistics (KNBS), marking the fifth straight year of declining real wages in the formal sector.
The average inflation adjusted wage stood at Sh55, 541 in 2024, down from Sh62, 256 in 2020.
With the economy struggling to create new jobs, the opportunities for workers to improve their pay by moving to new jobs have narrowed, with employers also struggling to improve terms due to tough economic conditions and higher taxes.
