Losing a job is stressful, and working out what you are owed adds to it. When employment ends by redundancy, the law gives specific entitlements, and the final payment can be large enough that tax on it matters. Here is how the pieces fit together.

What redundancy is

Redundancy happens when the employer no longer needs the job, for example because of restructuring, closing a branch or introducing new technology, and not because of the employee's conduct or performance. The Employment Act sets out a process: the employer must notify the employee, and the labour officer and union where there is one, at least a month before the redundancy takes effect.

What you are normally owed

  1. Notice, or pay in lieu of notice. At least one month under the Act, or the longer period in your contract.
  2. Severance pay. At least 15 days' pay for each completed year of service. For an employee on KES 85,000 a month with seven completed years, the daily rate is about KES 2,833 (85,000 divided by 30), so severance is 15 x 7 x 2,833, or about KES 297,500.
  3. Pay for accrued, unused annual leave.
  4. Unpaid salary and any other amounts due, such as outstanding allowances.

Your contract or a collective agreement may give more than these minimums. The severance and terminal dues workbook works out each part for every leaver, and the severance pay calculator does it for one person.

Other reasons for leaving

Severance is not due in every case. Resignation, dismissal for gross misconduct and the end of a fixed-term contract are treated differently, although notice and leave pay may still be owed. Always check the reason recorded in the letter and whether the process was followed.

How the payment is taxed

Terminal payments are generally treated as employment income and taxed through PAYE, so a large one-off payment can push part of it into a high band. Notice pay, leave pay and unpaid salary are taxable in the usual way, and the rules for severance and for payments from pension schemes are specific. Estimate the tax on your own payment with the terminal dues tax calculator before you agree to a figure, and ask a registered tax professional if the amount is large.

Protect yourself

  • Ask for the calculation in writing and check each line.
  • Do not sign a full and final settlement until you have checked it.
  • Collect your P9, a certificate of service and your payslips.
  • Keep copies of every letter and email.

Your pension and NSSF

Your NSSF contributions stay on your record, and a private pension scheme may allow you to leave the money invested or withdraw it; see pension contributions and tax relief and the pension lump sum tax calculator.

For employers

Provide for the cost before you announce redundancies. The leave liability and accrual calculator shows the leave owed to each employee, and the headcount and staff turnover tracker records exits and reasons. Our payroll guide for small businesses covers the final payroll run.

Employment law and tax rules change. Confirm your entitlements with the labour office and the tax treatment with KRA or a registered adviser.

Common questions

What notice must an employer give for redundancy? The employer must give the employee and the labour officer at least a month's written notice, and pay severance of 15 days' pay for each completed year of service, plus notice, leave and any other dues.

Is severance pay taxable? Yes, in general, it is part of the month's pay and taxed through PAYE, although some terminal payments are treated differently. Use a terminal dues calculator to see the tax on each part.

Can I be made redundant without being paid severance? No. Redundancy under the Employment Act requires the process and the pay. If it is not followed, the employee can challenge the termination.