What Severance Pay Rules Must Employers Follow in Kenya?

Which Employees Qualify for Severance Pay?

• The termination is due to redundancy, meaning the employer no longer requires the role to be performed.
• The employee has worked continuously under a contract of service.
• The redundancy process follows the legal procedure, including written notice to both the employee and the local labor officer.
• The employee was not terminated for cause, resignation, or retirement.
• All statutory contributions, such as NSSF, have been properly managed.

What Are the Legal Timelines for Paying Severance?

Employers must pay severance at the time the employee’s redundancy takes effect, typically on or before the last day of employment. The Employment Act requires employers to issue at least one month’s written notice to both the affected employee and the labor officer prior to termination. During this period, employers are expected to finalize all calculations for severance pay, notice pay, and accrued leave.

Best compliance standards suggest settling severance at the same time as final salary and benefits, ideally within the same payroll cycle or before the employee’s departure date. Delaying payment beyond this point can result in disputes or intervention by labor authorities.

What Penalties Apply if Severance Is Not Paid Correctly?

Failure to comply with severance pay obligations can expose employers to legal action and financial penalties under the Employment Act. Consequences may include:

• Claims before the Employment and Labour Relations Court, leading to court-ordered payments of severance, interest, and damages.
• Administrative fines or sanctions from the Ministry of Labour for breach of redundancy procedure.
• Reputational damage and labor disputes, especially where collective agreements or unions are involved.
• Interest on delayed payments, as determined by court orders or settlement terms.

Employers are strongly advised to document all redundancy communications and maintain transparent severance calculations.

Does Outsourcing Employment via an EOR Change Severance Liability?

Yes, when an Employer of Record (EOR) like Playroll manages local employment in Kenya, the EOR becomes the legal employer of record. This means the EOR is responsible for calculating, administering, and paying any severance entitlements under Kenyan law. The client company does not directly bear the severance liability, though the costs are typically included in the EOR service agreement.

This structure reduces compliance risk, as the EOR ensures full adherence to Kenyan labor law, manages employee notices, and liaises with local labor authorities as needed. The client company remains insulated from procedural or payment errors.

Be 100% Compliant in Offering Severance with Playroll

Managing severance in Kenya can be complex, especially for global employers unfamiliar with local redundancy procedures. From calculating the right payment to meeting strict notice requirements, even small errors can lead to disputes or fines.

Playroll removes the complexity of Kenyan labor compliance. Our platform ensures severance payments are calculated accurately based on the employee’s service history and final pay. We manage all local documentation and coordinate with labor officers to ensure every redundancy process follows legal requirements from start to finish.