If you’re leaving your job in Kenya, you might wonder if you’re entitled to service pay, sometimes called service gratuity. Many people assume it’s automatic, but that’s not the case. Service pay only applies in very specific situations, and most Kenyans who contribute to NSSF aren’t eligible.
This guide breaks down who qualifies, how to calculate it, how it’s taxed, and how service pay compares to severance pay in Kenya.
What Is Service Pay in Kenya?
Service pay in Kenya is a payment made to employees when their contract ends, provided they don’t belong to NSSF, a pension, or a gratuity scheme. It’s covered under Section 35(5) of the Employment Act 2007, which sets the rate at 15 days of pay for every completed year of service.
✅ In simple terms: if you’ve worked for years but haven’t been part of NSSF or any pension plan, you may qualify for this payment.
Who Qualifies for Service Pay in Kenya?
You qualify for service pay in Kenya if all these apply:
- Your job ended through termination by notice (not misconduct or redundancy).
- You’re not a member of:
- National Social Security Fund (NSSF)
- Any pension or provident fund
- Any employer-based gratuity scheme
- You’ve completed at least one full year of service.
Courts in Kenya have ruled that NSSF membership counts as adequate social security—so if you’ve been contributing, you’re not eligible for service pay.
How to Calculate Service Pay in Kenya
The Employment Act sets the minimum rate as 15 days of basic pay for each full year of service.
Formula
Service Pay = (Basic Salary ÷ 30) × 15 × Number of Completed Years
Or, in simpler form: Service Pay = Basic Salary × 0.5 × Years Worked
Examples
Example 1:
If you earn KES 60,000 per month and have worked 4 years:
- Daily rate = 60,000 ÷ 30 = 2,000
- 15 days = 2,000 × 15 = 30,000
- 30,000 × 4 = KES 120,000
Example 2:
If you earn KES 45,000 and worked 2 years 8 months:
- Only completed years count (2).
- (45,000 ÷ 30) × 15 × 2 = KES 45,000
Is Service Pay in Kenya Mandatory?
No, it’s not mandatory for everyone. Employers only pay service pay when:
- The employee isn’t an NSSF or pension member, and
- The contract or collective bargaining agreement (CBA) specifically provides for it.
Otherwise, it’s at the employer’s discretion.
Service Pay After Resignation
Can you get service pay in Kenya after resigning?
Usually no — unless your resignation counts as constructive dismissal (when your employer made working conditions unbearable).
| Situation | Eligible for Service Pay in Kenya? |
|---|---|
| Voluntary resignation | ❌ No |
| Constructive dismissal | ⚠️ Possibly (must prove) |
| Termination by notice | ✅ Yes, if not NSSF member |
Service Pay vs Severance Pay in Kenya
These two terms are often confused. Here’s how they differ:
| Aspect | Service Pay in Kenya | Severance Pay in Kenya |
|---|---|---|
| When Paid | Contract ends or notice termination | Job redundancy |
| Who Qualifies | Non-NSSF members | Redundant employees |
| Formula | 15 days per year | 15 days per year |
| Mandatory? | No | Yes |
| NSSF Members | Not entitled | Still entitled |
| Legal Basis | Section 35, Employment Act | Section 40, Employment Act |
Quick tip: If you were laid off due to redundancy, you’re entitled to severance pay in Kenya—even if you contribute to NSSF.
Tax Treatment
According to KRA, service pay in Kenya is treated like normal income. To reduce tax burden, KRA spreads the amount over up to 5 previous years and recalculates tax for each. This helps lower your effective tax rate.
Example:
If you receive KES 600,000 as service pay after 30 years, it’s divided by 5 (KES 120,000 per year) and added to income for each of those years. You pay the difference in tax, not full tax at once.
Legal Background
Under Section 35(6) of the Employment Act, you don’t qualify for service pay in Kenya if you’re a member of:
- A registered pension or provident fund
- A gratuity or service scheme
- Any employer scheme offering better terms
- NSSF
Court Example:
In Kennedy Nyanguncha Omanga v Bob Morgan Services Ltd (2013), the court rejected a service pay claim because the employee was already in NSSF.
Gratuity vs Service Pay in Kenya
These are related but not identical:
- Service pay is a statutory benefit for non-NSSF members.
- Gratuity is a discretionary thank-you payment—some employers give it at retirement or every few years.
Its formula and frequency depend on company policy.
How to Claim Service Pay in Kenya
- Check eligibility – confirm you’re not an NSSF or pension member.
- Write to your employer – cite Section 35(5) of the Employment Act.
- Negotiate – discuss with HR and provide proof.
- Take legal action – if necessary, file a claim with the Employment and Labour Relations Court.
If you’ve been paying NSSF, the court will reject your claim.
Example: Terminal Benefits Breakdown
Let’s say an employee earning KES 80,000 is made redundant after 5 years:
| Benefit | Amount (KES) |
|---|---|
| Outstanding salary | 80,000 |
| Leave pay (1 month) | 80,000 |
| Notice pay (1 month) | 80,000 |
| Severance pay (15 days × 5 years) | 200,000 |
| Total (NSSF member) | 440,000 |
| + Service Pay (if not NSSF member) | +200,000 = 640,000 |
Key Takeaways
- NSSF members aren’t entitled to service pay in Kenya.
- Non-NSSF employees may qualify under Section 35.
- The rate is 15 days’ pay for each completed year.
- It’s taxable but spread over several years.
- Always check your employment contract and CBA.
Useful Calculators
- Net Pay Calculator – Check your salary after NSSF, NHIF, and PAYE deductions.
- PAYE Calculator – Calculate tax deductions.
- Loan Repayment Calculator – Plan and project for loan repayments.
Official Sources
FAQs About Service Pay in Kenya
1. Is service pay in Kenya taxable?
Yes. It’s treated as part of your employment income. KRA spreads it over several years to lower the tax impact.
2. Can I get service pay if I’m an NSSF member?
No. NSSF membership automatically disqualifies you.
3. What’s the difference between service pay and severance pay in Kenya?
Service pay applies to non-NSSF members; severance pay applies to redundancies.
4. How many years must I have worked to qualify?
At least one completed year.
5. Do fixed-term contract employees qualify?
No, if the contract naturally expires—they only qualify if terminated by notice and meet other conditions.
Last Updated: November 2025
Disclaimer: This guide is for general information only and doesn’t replace professional legal advice. Always verify details with the Ministry of Labour or a certified employment lawyer.
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