Kenya Severance Pay & Service Gratuity Calculator
Compute statutory redundancy severance pay under Employment Act Section 35(5) and contract service gratuity with leave encashment and KRA PAYE tax reliefs.
⚖️ Termination & Contract Parameters
Basic wage excluding irregular allowances and travel claims.
Net estimated departure package after statutory notice, leave, and redundancy tax relief.
Itemized Settlement Matrix Employment Act 2007
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❓ Frequently Asked Statutory Questions
What is the statutory severance pay entitlement in Kenya upon redundancy?
Under Section 35(5) of the Kenya Employment Act 2007, an employee declared redundant is entitled to severance pay of not less than 15 days basic wages for each completed year of service. This rate constitutes the mandatory legal minimum, though collective bargaining agreements (CBAs) or employment contracts may stipulate higher compensation (e.g., 20 to 30 days per completed year).
What is the difference between statutory severance pay and service gratuity?
Severance pay is a mandatory statutory compensation triggered strictly by involuntary termination through redundancy under Section 35(5) of the Employment Act. In contrast, service gratuity is a contractual benefit typically paid at the end of a fixed-term contract or upon resignation/retirement (commonly 15 to 31 days basic pay per year served), provided the employee is not concurrently enrolled in an employer-funded pension scheme.
How is the daily wage calculated for severance purposes in Kenya?
In Kenya, daily wage for monthly salaried workers is customarily determined by dividing the monthly basic wage (excluding non-guaranteed allowances) by 26 days (for a 6-day work week) or by 22 days (for a 5-day work week). Section 35(5) references 15 days basic wages per year, which translates to (Monthly Basic ÷ 26) × 15 × Years of Service, or approximately 57.7% of monthly basic pay per year served.
Are severance pay and service gratuity taxable under KRA PAYE rules?
Under Section 38 of the Income Tax Act (Cap 470), compensation for loss of office or redundancy receives favorable tax treatment: the first KES 600,000 is tax-exempt, or the total payment can be spread retrospectively over the preceding years of service (up to a maximum of 3 years) to prevent an unfair spike into higher marginal PAYE tax brackets. Contractual gratuity paid upon ordinary contract expiration does not qualify for redundancy exemption and is taxed as ordinary employment income.
Can an employer withhold severance pay if an employee has outstanding loan balances?
Under Section 19 of the Employment Act 2007, an employer may make lawful statutory deductions and deduct authorized advances or signed debt agreements from final dues. However, total lawful deductions from wages cannot reduce the net payment below one-third of the employee's wages, except where specific written loan agreements consent to final settlement offsets.
Engr. Muhammad Shahzad
Verified Tax & Statutory Systems SpecialistCertified Systems Engineer and International Fiscal Policy Researcher. Specializing in computational labor standards, statutory payroll compliance, and tax withholding architectures across Commonwealth and East African Community (EAC) jurisdictions.