The two-thirds limit on wage deductions
How the Kenyan Employment Act caps total deductions from wages at two thirds, how loan and advance recoveries fit, and what may never be deducted.
By Achekam · · 5 min read · For Running a business businesses in Kenya
An employee asks for a salary advance to cover school fees. Another is still repaying a staff loan from last year. A third has a court-ordered deduction and a SACCO repayment on top of the usual statutory ones. Each request on its own seems reasonable; added together, they can leave an employee taking home very little at the end of the month.
Kenyan law puts a ceiling on that. The Employment Act limits how much an employer may deduct from wages at one time, and it treats an employer who deducts money and then keeps it as committing an offence. This article explains the limit, how advances and loans fit within it, the contributions an employer may never pass to staff, and how to plan repayments that stay inside the law.
The limit in section 19
Section 19 of the Employment Act, as published on Kenya Law, limits total deductions from an employee's wages at any one time to two thirds of the wages. Put the other way round, the employee must be left with at least one third of their wages after everything has come off.
The word "total" is the key. The limit is not applied to each deduction separately; it is a test of everything taken from the same payment. A loan instalment that looks modest on its own can push the total over the line once the other deductions are added. The Employment Act on Kenya Law gives the full text of sections 19 and 20, and is the reference to keep beside your payroll policy.
What counts as a deduction
Because the Act speaks of total deductions, the safest approach when you test the limit is to add up everything that comes off a payment:
- statutory deductions;
- pension or savings deductions the employee has agreed to;
- repayments of advances and staff loans;
- any other agreed or ordered deductions.
The Act also requires transparency about each one. Under section 20, an employer must give an employee a written pay statement at or before each payment of wages, showing gross pay, each deduction and its purpose, and how the net amount is paid. That requirement does not apply to casual employees, piece-rate or task-rate employees, or engagements of six months or less, but for everyone else, a deduction that is not on the pay statement is a problem in itself. What the statement must show is covered in what a Kenyan pay statement must show.
Salary advances and loan recoveries
Advances and staff loans are where the limit bites most often, because they are discretionary. The employer agrees the amount and the repayment, so the employer controls whether the total stays within two thirds.
A worked example in words: an employee's regular deductions already take a substantial part of their pay. They ask for an advance to be recovered in a single month. Added to the regular deductions, the recovery would take more than two thirds of that month's wages. The lawful course is to spread the recovery over enough months that each payment stays within the limit, not to recover it in one go and leave the employee short.
If the loan carries a low interest rate, there may also be a tax angle; see fringe benefit tax on low-interest staff loans.
Employer contributions you may not deduct
Some amounts belong on the employer's side and must never reach the employee's deductions. The NSSF Act, as published on Kenya Law, forbids an employer from deducting the employer's own contribution from the employee's earnings. Section 22 requires the employer to pay it from its own resources.
So when you list deductions on a payslip, the employer's NSSF contribution should not be among them. It is a cost to the business, shown separately if at all.
Deducting and then not paying over
The Act is equally firm about what happens after a deduction is made. Section 19 makes it an offence for an employer to fail to remit deductions it has made, punishable by a fine of up to one hundred thousand shillings or two years' imprisonment. The court may also order the employer to refund the employee and pay the intended beneficiary from its own funds.
That matters for loans to third parties such as SACCOs, as well as statutory deductions. Once money has come off the payslip, it must go where the payslip says it went. The temptation to hold deductions as short-term cash is discussed in using staff deductions as working capital.
Recovering loans through Achekam pay runs
In Achekam, salary advances and staff loans are recorded and recovered from each pay run until they are repaid. That keeps the outstanding balance visible and stops a loan being forgotten after a few months.
Pay runs have their own checks. A run is approved by someone other than the person who prepared it, nobody can approve a run that pays themselves, and an approved run is never recalculated. In practice that means a business needs at least two people in payroll roles. For the deduction limit, the approver is the natural second check: before approving, they should look at any employee whose deductions are high relative to pay, especially in the first run after a new loan or advance.
Because an approved run is never recalculated, a recovery that breaches the limit cannot be quietly fixed afterwards. It has to be caught before approval.
Setting repayment schedules that fit
- Before agreeing any advance or loan, look at the employee's current total deductions against their wages.
- Work out how much room is left under the two-thirds limit.
- Set the instalment to fit inside that room, even if it means more months of repayment.
- Put the agreement in writing, with the instalment and the number of payments.
- Record it in payroll so it is recovered from each run until repaid.
- Have the approver check the first affected payslip before approving the run.
Review the list of active staff loans before the next pay run, and for each one, check that this month's total deductions leave the employee at least one third of their wages.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
