The True Cost of an Employee: A Guide for Kenyan Employers
When I hired my first employee, I was filled with excitement and optimism. It was a clear sign my business was growing. But I quickly realized that simply looking at the gross salary we agreed on was a mistake. The real expense goes far beyond that figure. As someone who has spent years immersed in corporate governance, policy implementation, and operations, I can tell you confidently: the All-In Salary Cost is what truly matters for your budget and long-term sustainability.
If you’re serious about building a healthy business, you need to know exactly what it costs to employ someone. This is how you ensure your pricing makes sense, your cash flow stays strong, and you’re not blindsided by statutory obligations. Let me break it down for you in simple, practical terms.
Gross Salary vs. Total Employment Cost
Most new employers confuse what the employee gets paid (gross salary) with what it actually costs the business (total employment cost). The two are very different, mainly because of mandatory contributions that pile on top of the gross salary.
Table 1: Key Employment Cost Terminology
| Term | What It Means (From My Perspective as an Employer) | Why It Matters |
|---|---|---|
| Gross Salary | The figure I agree on with the employee before any statutory deductions. It’s written right into the contract. | This is the foundation of all calculations. But it’s not what it costs me overall. |
| Employee Deductions | The PAYE, NSSF, SHIF, and AHL amounts deducted from the employee’s gross to get their take-home pay. | I have to calculate, deduct, and remit these correctly every month to avoid compliance headaches. |
| Employer Contributions | These are payments I make over and above the gross salary — like matching NSSF and AHL — purely out of my pocket. | If I ignore these, I grossly underestimate my actual labour costs. |
| Total Cost of Employment | In short, `Gross Salary + All Employer Contributions`. | This is the real figure I use to see if my business can afford this hire and still remain profitable. |
Unpacking the ‘On-Top’ Costs: A Real Example
Let me give you a typical calculation to show how these numbers add up. Suppose I agree to pay someone a gross salary of KES 75,000. Here’s how it actually plays out for my business each month.
Table 2: Sample All-In Salary Cost Calculation
| Component | Details | Cost to Me (KES) |
|---|---|---|
| A. Employee Gross Salary | What we agreed upon in the contract. | 75,000 |
| B. Plus: Employer Contributions | ||
| Employer’s NSSF | Matching the employee’s NSSF. For KES 75k, roughly KES 3,960. | 3,960 |
| Employer’s AHL | 1.5% of gross salary, matching what the employee pays. | 1,125 |
| Employer’s SHIF | 2.75% of gross salary. | 2,062.50 |
| Industrial Training Levy | A flat amount I pay monthly for each employee. | 50 |
| C. Total On-Top Costs | Adding up all my direct contributions. | 7,197.50 |
| D. Total Cost of Employment (A + C) | 82,197.50 | |
So although my employee’s contract says KES 75,000, the true monthly hit to my business is over KES 82,000. That nearly 10% difference is exactly why you must always plan around the all-in cost, not just the salary.
Checklist for New Employers: How I Stay Compliant
Employing staff in Kenya means taking on legal obligations that, if ignored, can lead to penalties and stress. Here’s a straightforward checklist I use to keep my house in order.
Table 3: New Employer’s Compliance Checklist
| Step | What I Do | Why It Matters |
|---|---|---|
| 1. Register as an Employer | I make sure my business has a KRA PIN, then I add PAYE, NSSF, and SHIF obligations. | This is required by law and lets me submit statutory deductions properly. |
| 2. Set Up Payroll | I use software or a smart spreadsheet to calculate all deductions and contributions. | It reduces human error and ensures consistent compliance. |
| 3. Know Deadlines | I pay PAYE, AHL, and SHIF by the 9th, and NSSF by the 15th of each following month. | Missing these means hefty fines from KRA or NSSF. |
| 4. Provide Payslips | Each employee gets a payslip showing their gross, deductions, and net pay. | It’s a legal must under the Employment Act and builds trust. |
| 5. Budget with All-In Costs | I plan my prices and yearly budgets using the total employment cost — not just salaries. | This protects my margins and keeps my business sustainable. |
By taking the time to understand the real cost of an employee, I’ve moved from simply managing staff to strategically growing a robust, compliant, and financially sound business. I hope sharing my experience helps you do the same.