Last December, Gerald Mbalu received a text from his Sacco stating that Sh35,220.22 had been credited to his salary account. However, he could only withdraw Sh2,681.39 as his available balance. His take-home pay represented just 4.13 per cent of his Sh64,950 salary.
This breached Kenya’s Employment Act (2007), which prohibits employers from deducting more than two-thirds of an employee’s basic pay to safeguard their rightful earnings.
For context, Mr Mbalu has two loans from the Sacco that process his salary: a development loan and a Fosa loan. The development loan, which he initially secured using a title deed, is deducted from his payslip, while the Fosa loan is deducted directly from his salary account without appearing on the payslip.
He also took out a Sh60,000 mobile loan from the same Sacco, repayable over three months, with the first instalment due in December. This repayment is likewise deducted from his salary (Fosa) account without appearing on his payslip.
“I go to work every month to repay loans,” Mr Mbalu says. “What remains after deductions barely covers water, electricity and airtime. The loans funded a business that sustains our basic needs, but sales haven’t been sufficient in recent years to service the debt. If I lost my job today, I’d return home with nothing but my NSSF pension savings.”
Mr Mbalu’s situation mirrors that of many workers struggling with existing loan obligations, exacerbated by increased statutory deductions supporting President William Ruto’s universal healthcare and affordable housing programmes. Employers warn that shrinking take-home pay since 2023 has created legal compliance challenges for companies and financial institutions.
The Federation of Kenya Employers (FKE) estimates deductions now consume 40-45 per cent of average gross pay, eroding purchasing power in an economy largely driven by consumption.
“Continuing to raid payslips means employees will have nothing left, forcing them into perpetual borrowing and eventual distress that could spark social unrest,” FKE executive director Jacqueline Mugo warned in January. “This undermines the value of employment, creating a ‘working poor’ class - something Kenya cannot afford.”
Depressed demand for goods and services
The Ministry of Health implemented Social Health Insurance Fund (SHIF) deductions at 2.75 per cent of gross earnings last October, over a year after introducing a 1.5 per cent housing levy deduction in July 2023.
Until 27 December last year, both deductions faced double taxation as the Kenya Revenue Authority calculated PAYE on gross amounts before the Tax Laws Amendment Act (2024) provided relief.
From February, National Social Security Fund contributions increased, with minimum deductions rising from Sh420 to Sh480 and maximum contributions increasing from Sh2,160 to Sh3,840.
On May 1, employers proposed reforms including pegging statutory deductions to basic rather than gross pay, reducing the housing levy to 0.5 per cent, and expanding tax relief bands from Sh24,000 to Sh36,000.
The housing levy collected Sh54.16 billion in its first year (ending June 2024), with projections of Sh65.53 billion by June 2025 and Sh95.84 billion the following year. However, reduced worker earnings have depressed demand for goods and services, compounding cash flow problems in an economy where government suppliers are owed billions.
FKE attributes firms’ financial strain to low demand, liquidity constraints, rising costs, an unpredictable tax regime, frequent legislative changes, market contraction and lost competitiveness. This has stifled job creation, with some companies replacing permanent staff with casual workers.
Kenya Revenue Authority data shows private sector average gross monthly pay fell 2.89 percent year-on-year to Sh75,781 between June and September 2023 - the first such decline in 30 years, attributed to organisational restructuring to manage costs.
