Employer of Record in Kenya:
The Complete Legal & Compliance Reference

1. What Is an Employer of Record?

An Employer of Record (EOR) is a third-party organisation that assumes the legal responsibility of employing workers on behalf of a foreign or domestic client company. The EOR enters into a formal employment contract with the worker, handles all payroll, statutory deductions, and compliance obligations under Kenyan law, while the client company retains day-to-day management and direction of the worker's activities.

This structure allows multinational corporations, NGOs, and foreign-owned businesses to deploy talent in Kenya without first establishing a local legal entity — a process that can take three to six months and requires minimum share capital of KES 1,000 for a private limited company under the Companies Act, 2015 (No. 17 of 2015).

Legal Foundation

Kenya's employment framework is primarily governed by the Employment Act 2007 (Cap 226). Supplementary legislation includes:

• Labour Relations Act 2007 (No. 14 of 2007) — trade unions, collective bargaining
• Work Injury Benefits Act 2007 (WIBA) — occupational injury compensation
• National Social Security Fund Act 2013 — retirement contributions
• Social Health Insurance Act 2023 (SHIA) — replaces NHIF as of October 2024
• Income Tax Act (Cap 470) — PAYE obligations
• Kenya Citizenship and Immigration Act 2011 — work authorisation for foreign nationals
• Data Protection Act 2019 (No. 24 of 2019) — employee personal data

2. Employment Contracts Under Kenyan Law

Section 9, Employment Act 2007 requires every employer to provide a written statement of particulars within two months of commencement. An EOR must ensure all contracts comply with this requirement.

Probation Periods

Under Section 42(1), Employment Act 2007, probationary periods must not exceed six months, extendable by mutual consent for a further six months. During probation, either party may terminate with a minimum of seven days' notice (S. 42(2)).

3. Statutory Deductions & Employer Obligations

An EOR acting as employer is responsible for calculating, withholding, and remitting all statutory deductions. Failure to remit attracts penalties under the respective Acts.

Pay As You Earn (PAYE)

PAYE is administered by the Kenya Revenue Authority (KRA) under the Income Tax Act (Cap 470). Employers must register with KRA, deduct PAYE monthly, and remit by the 9th of the following month via iTax. Current PAYE bands (effective January 2024):

Employees are entitled to a personal relief of KES 2,400 per month (KES 28,800 per annum) and insurance relief of 15% of qualifying premiums, capped at KES 5,000/month (S. 30A, Income Tax Act).

NSSF Contributions

The NSSF Act 2013 introduced a tiered contribution structure:

• Tier I: 6% of Lower Earnings Limit (LEL — KES 7,000), split equally: KES 420 employer + KES 420 employee
• Tier II: 6% of balance between Upper Earnings Limit (UEL — KES 36,000) and LEL, split equally
• Remittance due by the 15th of the following month

Social Health Insurance Fund (SHIF)

The Social Health Insurance Act 2023 dissolved NHIF and replaced it with SHIF, effective October 2024. Contributions: 2.75% of gross monthly salary, shared equally between employer and employee (1.375% each), with a minimum of KES 300 per month.

WIBA Insurance

All employers must insure employees against work-related injuries under the Work Injury Benefits Act 2007. The EOR is the insured party and must maintain a valid WIBA policy covering the total annual earnings of all employed staff.

4. Leave Entitlements

5. Working Hours & Overtime

Standard working hours must not exceed 52 hours per week under Section 27, Employment Act 2007. Overtime rates:

• Normal days overtime: 1.5× hourly rate (S. 46(1)(c))
• Rest days or public holidays: 2.0× hourly rate
• Every employee is entitled to at least one full rest day per week (ordinarily Sunday) (S. 27(2))

6. Termination of Employment

Kenyan employment law distinguishes between termination for lawful cause and unfair termination. An EOR assumes the risk of unlawful termination claims and must follow due process.

Notice Periods (Section 35, Employment Act 2007)

Redundancy & Severance

Redundancy is governed by Section 40, Employment Act 2007. Requirements:

1. At least one month's written notice to both the employee and relevant trade union
2. "Last in, first out" principle applies unless agreed otherwise
3. Minimum severance of 15 days' pay per year of service
4. Written notification to the Labour Officer

7. Work Authorisation for Foreign Nationals

Foreign nationals require valid work authorisation under the Kenya Citizenship and Immigration Act 2011 (No. 12 of 2011). The EOR is responsible for ensuring all assignees hold valid permits before commencing employment.

A security bond (typically KES 100,000) guaranteeing repatriation costs is required for all work permit applications. The EOR typically arranges this bond through a licensed bond insurer.

8. EOR vs. Entity Setup: Decision Framework

9. Data Protection Obligations

The Data Protection Act 2019 (No. 24 of 2019), administered by the Office of the Data Protection Commissioner (ODPC), imposes GDPR-equivalent obligations on entities processing employee data in Kenya.

• Registration: Data controllers must register with the ODPC under the Data Protection (Registration) Regulations 2021
• Lawful basis: Employee data must be processed on grounds of contractual necessity, legal obligation, or legitimate interest (S. 30, DPA 2019)
• Sensitive data: Health and biometric data require explicit consent or specific legal authority (S. 2, DPA 2019)
• Cross-border transfers: Transfers outside Kenya require adequate protection safeguards (S. 49, DPA 2019)

10. Key Regulatory Bodies

11. Frequently Asked Questions

Can a foreign company hire in Kenya without an EOR or local entity?

No. Kenyan labour law requires all employees to be employed by a recognised legal entity registered in Kenya. A foreign company without a local entity cannot lawfully employ Kenyan residents or expatriates working in Kenya. Doing so exposes the foreign company to tax penalties, potential permanent establishment determinations by KRA, and unenforceability of the employment contract.

Does using an EOR create a permanent establishment risk?

Potentially. If the employee habitually exercises authority to conclude contracts on behalf of the foreign principal, KRA may determine that a permanent establishment (PE) exists under the Income Tax Act and applicable Double Taxation Agreements. Proper structuring — particularly limiting the employee's authority to bind the foreign principal — can mitigate this risk.

What is the minimum wage in Kenya?

Minimum wages are set annually by the Minister for Labour via a Minimum Wage Order under Section 4, Labour Institutions Act 2007. Rates vary by sector, occupation, and geographic zone. As of the 2024 Minimum Wage Order, general minimum wages range from approximately KES 15,120 to KES 30,000+ per month depending on occupation and location.

Can an EOR employ both Kenyan citizens and foreign nationals?

Yes. An EOR can employ both Kenyan citizens and foreign nationals, provided foreign employees hold valid work authorisation. For foreign employees, the EOR typically manages the work permit application as the sponsoring employer.

Are gratuity payments mandatory?

Gratuity is not universally mandated by the Employment Act 2007, but is commonly required under collective bargaining agreements (CBAs) and industry-specific wage orders. Where a CBA applies, the EOR must ensure compliance with its specific gratuity provisions.