Is severance pay mandatory for resignation?

No. Statutory severance pay is only mandatory in cases of redundancy. Voluntary resignation typically does not entitle an employee to severance pay.

Are leave days paid on termination in Kenya?

Yes. According to the Employment Act, all accrued unused annual leave days must be paid out in cash at the time of termination.

Expert Verified by Patrick Buyela, Payroll Consultant · Updated March 2026

Severance Pay Calculator Kenya (2026)

Calculate your statutory severance and redundancy package accurately. This tool is built to comply with Section 40 of the Kenya Employment Act, applying the official formula of 15 days' basic pay per completed year of service.

Service Details

Monthly Basic Salary (KES)

KES

Completed Years of Service

Accrued Unused Leave Days

Note: Under KRA guidelines, severance pay is taxable. Ensure you check your final PAYE liability for the full package.

Package Breakdown

Base Monthly Salary

KES 0

Statutory Severance Pay15 Days per completed year (0 years)

+ KES 0

Accrued Leave EncashmentFor 0 unused days

+ KES 0

Total Gross Package

KES 0

*Packages are subject to standard KRA income tax bands.

Severance Pay Law in Kenya: Section 40 explained

In Kenya, severance pay is a mandatory financial compensation paid to an employee whose contract of service has been terminated on the grounds of redundancy. This is governed by Section 40 of the Employment Act (Cap 226), which outlines the rights of the employee and the obligations of the employer, as detailed in the Kenya Law Reports.

The Official Severance Formula

Our Severance Pay Calculator Kenya uses the legally mandated minimum formula. Unless a collective bargaining agreement (CBA) or your contract specifies a higher amount, the law requires:

Statutory Exit Compliance Table

Component	Statutory Requirement	Calculation Basis
Severance Pay	15 Days' Pay per Year	(Monthly Basic / 30) * 15 * Years
Notice Pay	As per Contract	Usually 1 month's salary in lieu.
Leave Days	All Accrued Unused Days	(Monthly Basic / 30) * Leave Balance

Important: Redundancy vs. Other Terminations

Statutory severance pay is only triggered by redundancy. If an employee resigns voluntarily, is terminated for performance, or is dismissed for gross misconduct, they are typically not entitled to severance pay under the Employment Act. However, they are still entitled to payment for accrued leave and any salary earned up to the last day of work. Check your final take-home amount using our Net Salary Calculator.

Severance & Redundancy FAQ

1. Is severance pay taxable in Kenya?

Yes. Severance pay is considered taxable income. It is added to other termination benefits and subjected to the progressive KRA PAYE bands. However, the first KES 30,000 of a redundancy payment used to be exempt, but current Finance Acts have tightened these rules.

2. Does the "15 days per year" rule apply to partial years?

The Employment Act specifically mentions "completed year of service." Generally, pro-rata calculations for partial years are not statutory requirements unless specified in your employment contract or CBA.

3. What happens to my NSSF and SHIF deductions during exit?

Statutory deductions for NSSF and SHIF are only deducted from the portion of the package that constitutes "salary." Pure severance pay (the 15-day compensation) is generally treated as compensation for loss of office and handled differently in payroll.

4. Must an employer give notice before redundancy?

Yes. Section 40 requires an employer to notify the employee and the local Labour Officer in writing at least 30 days before the intended date of termination on account of redundancy.

5. Can I claim severance if my contract expires?

No. The expiration of a fixed-term contract is a natural termination and does not constitute redundancy. Severance is only payable if the position is eliminated before the contract ends or if a permanent role is declared redundant.

6. How is the daily rate calculated for leave encashment?

Standard practice in Kenya is to divide the monthly basic salary by 30 days (or 26 working days depending on the contract) to arrive at the daily rate for encashing leave.

7. What is "Notice in Lieu" payment?

If an employer wants an employee to leave immediately during a redundancy, they must pay "Notice in Lieu." This is a payment equivalent to the salary the employee would have earned during the notice period specified in their contract.

Need Help with Complex Exits?

Handling redundancies is a high-risk HR process in Kenya. Two Max Group provides expert payroll and HR outsourcing to ensure your termination processes are legally watertight and KRA compliant.

Explore Managed HR Services

Explore More Kenya Payroll Tools

All Calculators Hub PAYE Calculator Net Salary Tool Employer Cost Tool Overtime Calculator

Quick Answer

How is severance pay calculated in Kenya?

In Kenya, severance pay for redundancy is 15 days' pay for each completed year of service, under section 40 of the Employment Act. The formula is: (gross monthly salary ÷ 30) × 15 × years served. It is paid in addition to notice pay and any accrued annual leave.

Severance pay example (KES 60,000 gross salary)
Years of service	Severance (15 days per year)
1 year	KES 30,000
3 years	KES 90,000
5 years	KES 150,000
10 years	KES 300,000

Good to Know

Severance Pay in Kenya: Common Questions

Is severance pay taxable in Kenya?+

Yes. Severance and other terminal dues are employment income subject to PAYE in the year received. KRA allows the tax to be spread where payments relate to several years of service, and certain registered pension payouts have separate treatment, worth professional advice for large settlements. Our tax consultancy team advises on terminal dues taxation.

Who is entitled to severance pay in Kenya?+

Only employees terminated on account of redundancy, where the role ceases to exist, are entitled to statutory severance. Resignation, dismissal for misconduct, and expiry of a fixed-term contract do not attract severance, although notice pay, accrued leave, and a certificate of service remain payable on any separation.

What is the difference between severance pay and notice pay?+

Notice pay compensates for termination without the contractual or statutory notice period (minimum 28 days for monthly-paid employees). Severance pay compensates for redundancy at 15 days per year served. In a redundancy both are payable, they are separate entitlements, and both are computed by this calculator.

What happens if an employer gets a redundancy wrong in Kenya?+

Skipping the section 40 procedure, labour officer notice, one month's employee notice, fair selection, severance, makes the redundancy an unfair termination, with the ELRC able to award up to 12 months' gross salary. Employers running restructures use our labour relations advisory to manage the process end to end.

More Kenya Payroll Calculators

Net Salary Calculator PAYE Calculator Overtime Calculator Annual Tax Calculator NSSF Calculator SHIF Calculator Housing Levy Calculator

Employer referencesKenya minimum wage 2026 Kenya payroll calendar 2026

Rather not run payroll yourself?

We compute, file, and remit PAYE, NSSF, SHIF, and Housing Levy for 385+ organisations, zero penalties since 2011.

Payroll Services EOR Services

Complementary Advisory