By Perminus Wainaina,
Section 19(1) of the employment ACT provides that as an employer, you are allowed by the law to deduct from your employee’s salary, any amount as a contribution to any fund or scheme approved by the commissioner for labor to which the employee has agreed to contribute to.
Simply put, this is the statutory deduction.
While an employee can opt out of any voluntary deductions, contribution to the statutory deductions is a legal requirement.
Also, if you deduct an amount from an employee’s salary to pay for their statutory deductions, then you should do so in accordance with the time period and other requirements specified in the law, agreement court order or arbitration as the case may be.
Some of the statutory deductions are as follows:
- Income Tax (PAYE)
As an employer, you’re responsible for calculating and deducting income tax from your employees’ salary or wages each pay period and sending these deductions KRA on their behalf.
This is known as PAYE (pay as you earn) statutory deduction.
The amount sent to KRA is dependent on the rates given by the KRA and is different for each employee depending on their income.
The National Hospital Insurance Fund is the employee’s medical cover. It is also deducted from the employee’s salary depending on their salary range and it’s for the employee’s own well-being.
The National Social Security Fund is a statutory retirement benefits scheme for employees and it operates as a public trust.
It provides retirement benefits for employees in the formal and informal sectors.
The Higher Education Loans Board is another statutory deduction for students who took loans while in college. Once the loanee is employed, they are required to repay the loan within the first three months of employment under the Higher Education Loans Board Act, 1995.
Under the employers’ obligation, the Act demands that as an employer you should adhere to the law by:
- Disclosing Loanees: Here you are required to inform the Board that you have employed the loanee within three months from the date of employment.
- Deduct from the wages or remuneration of the loanee the amount of any loan as instructed by the Board.
- Remit this amount to the Higher Education Loans Board as a loan repayment deduction.
What if you fail to do so?
The ACT clearly states that any employer who fails to comply with the provisions of subsection (4) which is the is clearly on the deductions, will be committing an offence and shall on conviction be liable to a fine not exceeding one hundred thousand shillings or to imprisonment for a term not exceeding two years, or to both.
On this note, the National Social Security Fund (NSSF) published regulations has set hefty fines for employers who fail to comply with any of its many provisions, including late remission of statutory contributions and issuance of bounced cheques.
Now that you know this,
It is important to note that you are required by the law to give your employee a written statement on any statutory deductions you make from his/her gross salary and the purposes for which they are made.
A good understanding of the section 19, 20 and 21 of the employment ACT will help you further understand more on employee’s deduction of wages.
Perminus Wainaina is the C.E.O and Managing Partner at Corporate Staffing Services, a leading HR consultancy and recruitment firm based in Westlands. He has wide experience in coaching, leadership development, recruitment, and HR consultancy.
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