If you’re wondering how the newest salary deduction will affect your payslip, let’s dive into how the housing levy in Kenya will change the game.
We laughed too hard when Leonard Omusula said, “Okay. Fine, I have a 100 bob in my pocket,” but that is what our payslips may read this August. With the Housing Levy in Kenya set to take effect at the end of this month, just how much of a hit will your payslip get?
The Housing Levy in Kenya: What is it?
The Housing Levy is a mandatory financial contribution meant to help employees get affordable housing and improve the housing situation in Kenya. The employer and employee each contribute 1.5% of the employee’s gross salary to the National Housing Development Fund monthly. The deduction is to help fund a national building project of up to 250,000 low-cost homes annually.
Initially, the Finance Bill 2023 proposed a monthly fixed contribution of Ksh 5,000 from the employer and employee. However, after further debate and amendments, the National Assembly approved it as a deduction that depends on the employee’s salary.
For Example
If you earn a gross salary of Ksh 60,000, you will be taxed Ksh 900, and the employer will match a contribution of Ksh 900. Therefore, the total housing levy for such a person is Ksh 1,800 monthly.
Even though the housing levy in Kenya is described as a contribution, referencing a national Chama, it is not. The Housing Levy is a mandatory tax deducted monthly from an employee’s gross salary. Therefore, if you work with a tight budget, it might be time for a side hustle.
Can I opt out of the Housing Levy in Kenya?
Yes, you can opt out of the Housing Levy in Kenya according to a statement made by the Housing PS Charles Hinga. You can do this in four ways:
1. You can transfer your contribution to your registered retirement scheme, but it has to be regulated by the Retirement Benefits Authority.
2. You will automatically opt out of the Housing Levy in Kenya when you die and your contributions are transferrable to those who depend on you.
3. Opt out by transferring your contributions to someone else, but the person must be registered and eligible for affordable housing.
4. You can opt out for your own personal reasons and get a cash payout, which will be taxed.
Sounds easy. Well, there’s a catch.
1. You can only opt out of the affordable housing levy after seven years.
2. You will receive the amount contributed as an employee when you opt out after seven years but before retirement age. Therefore, the amount contributed by your employer will be forfeited. I know, YIKES.
3. If you want to opt-out and receive the housing levy contribution from your employer and yourself, you must wait and contribute for another seven years. Thus, to get the total amount, you will have to wait 14 years.
4. Employees who will reach retirement age before completing the first seven years will be allowed access to both contributions when they leave.
This is How the Housing Levy in Kenya Will Affect Your Payslip
August 2023’s payslip will be in shambles. Kenyans should come to terms with the levy affecting their gross salary with the government backdating payments to 1st July 2023. The August 2023 payslip will take a big hit with a double deduction to cover July and August 2023.
Here are three scenarios of 3 employees earning different salary ranges and an estimation of their monthly payslips after the Housing Levy is implemented. Without further ado, cue the drum roll, please.
Employee 1
Employee 1 earns a gross salary of Ksh 40,000 and will pay a monthly deduction of Ksh 600 to the Housing Levy in Kenya. However, this August 2023, the employee will contribute a total of Ksh 1,200 to the Housing Levy to cover July and August 2023.
| Kshs. 40,000.00 | |
| PAYE | Kshs. 3,909.35 |
| NSSF | Kshs. 1,080.00 |
| NHIF | Kshs. 1,000.00 |
| Housing Levy July 2023 | Kshs. 600 |
| Housing Levy Aug 2023 | Kshs. 600 |
| Net Pay | Kshs. 32,810.65 |
Employee 2
Employee 2 earns a gross salary of Ksh 100,000 and will pay a monthly deduction of Ksh 1,500 to the Housing Levy in Kenya. However, this August 2023, the employee will contribute a total of Ksh 3,000 to the Housing Levy to cover July and August 2023.
| Kshs. 100,000.00 | |
| PAYE | Kshs. 21,804.35 |
| NSSF | Kshs. 1,080.00 |
| NHIF | Kshs. 1,700.00 |
| Housing Levy July 2023 | Kshs. 1,500 |
| Housing Levy Aug 2023 | Kshs. 1,500 |
| Net Pay | Kshs. 72,415.65 |
Employee 3
Employee 3 earns a gross salary of Ksh 300,000 and will pay a monthly total deduction of Ksh 4,500 to the Housing Levy in Kenya. However, this August 2023, the employee will contribute a total of Ksh 9,000 to the Housing Levy to cover July and August 2023.
| Kshs. 100,000.00 | |
| PAYE | Kshs. 81,804.35 |
| NSSF | Kshs. 1,080.00 |
| NHIF | Kshs. 1,700.00 |
| Housing Levy July 2023 | Kshs. 4,500 |
| Housing Levy Aug 2023 | Kshs. 4,500 |
| Net Pay | Kshs. 206,415.65 |
Will Anything Good Come From the Housing Levy in Kenya?
Yes. If everything goes according to plan, the Housing Levy in Kenya will contribute to the affordable housing project. Improved living conditions will make housing more accessible for the disadvantaged, especially the youth. However, its effectiveness depends on the program and the people running it.
Conclusion
The housing levy in Kenya is a mandatory contribution for all employed Kenyans regardless of their employment contract. If you’ve held back on asking for a salary raise, now may be the time to gather the strength to ask for that promotion or better salary negotiation during a job interview.
