Starting this month, thousands of Kenyan workers will be affected by new deductions that could leave many breaching the legal requirement to take home at least one-third of their salary. This comes after the introduction of the Social Health Insurance Fund (SHIF), which officially replaces the National Health Insurance Fund (NHIF) today as part of the government’s Universal Health Coverage (UHC) program.
What’s Changing?
Under the new SHIF system, employees will contribute 2.75 percent of their gross salary towards the fund, a significant increase from the previous NHIF contributions, which ranged from Sh150 to Sh1,700 depending on one’s salary.
While SHIF aims to provide Kenyans with better healthcare coverage, the increased deductions—on top of other mandatory contributions such as PAYE (Pay As You Earn tax), the Housing Levy, and NSSF (National Social Security Fund)—are resulting in workers taking home much less of their salary than before.
Examples of Salary Deductions
To understand the impact of these deductions, here are examples of net pay after all statutory deductions (PAYE, Housing Levy, SHIF, and NSSF):
- Sh50,000 Gross Salary
Net Pay: Sh39,273 after deductions
Total Deductions: Sh10,727 - Sh100,000 Gross Salary
Net Pay: Sh72,335 after deductions
Total Deductions: Sh27,665 - Sh200,000 Gross Salary
Net Pay: Sh138,310 after deductions
Total Deductions: Sh61,690 - Sh350,000 Gross Salary
Net Pay: Sh237,273 after deductions
Total Deductions: Sh112,727 - Sh500,000 Gross Salary
Net Pay: Sh336,235 after deductions
Total Deductions: Sh163,765 - Sh800,000 Gross Salary
Net Pay: Sh526,714 after deductions
Total Deductions: Sh273,286 - Sh1,000,000 Gross Salary
Net Pay: Sh648,178 after deductions
Total Deductions: Sh351,822
These deductions are causing concern for many workers, as they drastically reduce the disposable income available for household expenses, savings, and other financial obligations.
The Breach of the One-Third Rule
Kenyan labor laws require that employees must take home at least one-third of their gross salary after all deductions. However, the new SHIF contributions, combined with other deductions, mean that many workers will no longer meet this requirement, particularly those in the lower to middle-income brackets.
For instance, an employee earning Sh50,000 now takes home Sh39,273, which is dangerously close to the threshold of breaching the one-third rule.
What’s Next?
The transition to SHIF is part of a broader effort by the government to provide universal health coverage for all Kenyans. While the intent behind SHIF is commendable, the impact on workers’ take-home pay is creating financial strain.
Employers and unions are expected to raise concerns about how these deductions affect workers’ financial well-being, and whether additional adjustments to salaries or tax relief measures will be introduced to soften the blow.
In the meantime, it’s essential for employees to plan their budgets accordingly, keeping in mind these new deductions when calculating monthly expenses.
