House Allowance In Kenya

Kenya jobs,

What does the Law say about House Allowance?

“An employer shall at all times, at his own expense, provide reasonable housing accommodation for each of his employees either at or near to the employment, or shall pay the employee, such sufficient sum, as rent, in addition to the wages or salary of the Employee, as will enable the employee to obtain reasonable accommodation.” Employment Act, Section 31

From the above section of the employment act, an Employer has three options when it comes to house allowance in Kenya:

1.Provide Housing

2.Pay Housing Allowance OR

3.Pay a Consolidated Salary

Let’s take a deeper dive into the 3 choices that an employer has.

1.Providing Housing

Employers today rarely provide housing to their employers.

Where housing is provided, an employee is only entitled to stay in the house for as long as the employment contract is in force.

Case – (Richard Were & 11 others V Permanent Secretary Ministry of Health of 3 others)

Also, when housing is provided and an employee declines, the employee cannot claim a housing allowance.

Case – (Stephen Miheso V Kaimosi Tea Estate Limited 2014)

Is Housing Allowance Taxable?

For tax purposes, the value of the house is considered a gain/profit of employment and is taxable as part of an employee’s income.

Paying A House Allowance

This is the second option an employer has. As we have seen from the citation of Section 31 of the Employment Act, the amount an employer can pay in form of house allowance should be enough to enable the Employee to get reasonable accommodation.

For a long time, this amount has been calculated on the basis of 15% of the employee’s basic salary.

But in the recent past, there’s new thinking that 15% of the basic income of an average Kenyan is not enough to enable one to secure reasonable housing.

This is the risk in paying a housing allowance based on 15% of the basic salary.

As it is today, there are collective bargain agreements being negotiated by unions, aimed at pushing for a fixed amount as opposed to 15% of the basic salary.

This housing allowance is also taxable as part of the employee’s income.

Paying a consolidated fee

There have been cases in Kenya, where employees have issued their employers demand letters claiming unpaid house allowance.

But the employers have responded confidently claiming that the employer’s salary was consolidated. The employers, however, failed to indicate this in the employment contract, which works against them.

According to the Employment Act, when an employee is paid a consolidated salary, the employees’ contract must indicate clearly that the basic salary has an element intended to be used by the employee as rent or which is intended to enable the employee to provide himself with decent housing.

Such a provision can also be contained in a Collective Bargain Agreement.

CASE STUDY

In Ayanna Yonemua (claimant) VS Liwa Kenya Trust (Respondent), the claimant was seeking payment of house allowance for three months at the rate of 15% of the gross salary in the sum of Kshs.76,500.

The court held that:

For an employer to exclude provision of housing or payment of rent to the employee, it is imperative that the contract of service specifically provides that the salary paid is a “consolidated salary”.

The term gross is not the same as consolidated, from the definition above. The same dictionary defines the term ‘consolidate’ as follows:

“Combined into a single unit.”

Therefore, in the final analysis, it was clear that the employer owed the employee house allowance remuneration.

The court awarded the claimant as against the correspondent Kshs. 76,500, being house allowance calculated at 15% of the monthly salary.

Do you have any questions concerning employment matters? Email them to Perminus At pwainaina@corporatestaffing.co.ke

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