Severance Pay Calculator Kenya (2026) | Section 40 Redundancy Tool
Patrick Buyela - Kenya Payroll Expert
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
KES
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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.

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