Global companies seeking to build international, remote workforces are increasingly looking to East Africa. Kenya, in particular, is becoming known as the "Silicon Savannah" due to its steep rise in internet speeds, skilled IT workers, and English proficiency. It's no wonder many global companies are turning to cities like Nairobi and Mombasa for foreign contractors.
But before you hire your first freelancer, you need to know the basics of paying Kenyan contractors. Navigating labor and tax laws in foreign countries is no easy feat—and paying workers while staying compliant can be trickier than you think.
Luckily, this step-by-step guide can help. Below, we've compiled the basics on how to pay international contractors in Kenya so that you can get your global workforce off the ground.
Step #1: Classify your workers in Kenya
Like many other countries, Kenya differentiates between independent contractors and employees. Misclassification carries significant risks. In two 2013 cases, Everett Aviation and Kapa Oil Refineries were found to be misclassifying employees. They were ordered to pay their tax obligations, a 25% penalty on the principal tax assessed, and an additional 2% interest from the date the tax was originally due.
Employers in Kenya are responsible for income taxes, social security, payroll deductions, benefits, and other expenses for their employees. Misclassifying employees means you could be on the hook for all of the above—plus penalties and interest.
Unfortunately, Kenyan law doesn't set out clear rules for distinguishing between employees and independent contractors. Historically, the courts have looked at the substance of the employment relationship rather than what's written in the employment contract. Here are the factors the courts and tax authorities typically consider:
High level of worker control. Contractors should have little to no supervision as they work, so long as they deliver the required result. They should be free to set their own working hours, work from locations they choose, and only perform assigned tasks or projects.
More direction from the employer. Employees work under their employer's direct supervision and control. Employers can set their hours or require them to work from a specific location. Rather than particular tasks or projects, the nature of an employee's work duties is broader.
Equipment and tools are owned by the worker.
Equipment and tools are typically provided by the company.
Less integrated. Contractors should not participate in employee or management activities unless they are specifically invited to do so.
Highly integrated. Employees take part in the "life" of the organization where they work, participating in decision-making and business operations.
No entitlement to pension or terminal benefits. Contractors shouldn't be part of an organization's pension scheme. When their contract expires (or if they’re terminated), they receive no terminal benefits.
Entitled to pension and benefits. Employees are entitled to statutory benefits that include pensions, healthcare, time off, and more.
Paid upon completion of work. Contractors should only be paid once they complete their work and submit an invoice for it.
Paid at regular intervals. Employees should receive salary payments in regular weekly, bi-weekly, or monthly installments.
Not subject to disciplinary processes. If a contractor underperforms or engages in misconduct, they can be terminated immediately. They shouldn't be subject to their employer's disciplinary processes.
Can be disciplined for underperformance or misconduct. Employees can't be terminated as easily as contractors. They should undergo disciplinary procedures.
Not exclusive. Contractors can't be contractually bound to a single employer. They can work with multiple clients at once.
Exclusive. Employees can be legally obligated to work for only one employer at a time.
Can be terminated in accordance with contract terms. Contractors can be terminated at any time as long as the termination terms in their contract are followed.
Termination is highly regulated. For employees, termination is extremely difficult and must follow a rigorous process that ensures fairness to the employee.
Step #2: Determine the best way to pay your contractors in Kenya
As remote work has become more common, so have international payment options. You now have many choices for sending money across borders, but many of them come with pros and cons.
Here are some options for paying contractors in Kenya:
- Bank wires. You can open a Kenyan bank account to make local bank transfers into your contractors' accounts. Or you can make international wire transfers from your bank account in your home country. Remember that bank wires—especially international wire transfers—can have high fees.
- International money orders. This method has been around for a while, so many people around the world are familiar with it. However, money orders can be seen as outdated—you have to purchase the money order physically, and your contractor has to deposit it themselves when it arrives. With all the manual steps involved, this method is one of the slower ones—and it’s often subject to fees and bad exchange rates.
- Digital wallets and payment platforms. Digital wallets and payment platforms like PayPal or Wise are an increasingly popular way to send money around the world. Just be aware that not all of them are available in every country (for example, Venmo is only available in the US).
- Global payroll services. Contractors aren't typically included in payroll since they aren't subject to the same tax withholdings as employees. Their invoices usually get routed to accounts receivable at their contracted company. But with Rippling, you can pay your employees and contractors in a single pay run, no matter where they are.
Step #3: Use global payroll software to process payments for Kenyan contractors
As you can see, there are many ways to pay contractors in Kenya. But the fastest, simplest, and easiest way is through a global payroll solution like Rippling.
Rippling allows you to pay both employees and contractors, across the world, in a single pay run. Here's how it works:
Step #4: Ensure your Kenyan contractors have the right tax information
Independent contractors in Kenya are responsible for filing their tax returns, paying their income tax, and withholding taxes—if they're registered as a business entity.
To pay taxes online, the taxpayer will need to:
- Apply online for a PIN to use iTax.
- Log in to iTax by entering their PIN, password, and answer to their security question on the online portal.
- Enter their PIN again and select all applicable tax obligations. Download and fill out forms, upload them to the portal, and complete any necessary online forms.
- Once finished, submit the tax return and pay any tax due by the deadline.
Contractors may need documentation from their employers to file their taxes. One of the benefits of processing payments with Rippling is we handle the paperwork for you. Offload the calculations and filing to us, and know your contractors have everything they need to stay compliant.
Frequently asked questions about running payroll for contractors in Kenya
Do you need to withhold taxes when paying contractors in Kenya?
No. Contractors in Kenya are expected to file and pay their own taxes.
Does the Kenyan minimum wage apply to independent contractors in Kenya?
No, minimum wage laws don't apply to contractors in Kenya.
Do Kenyan contractors get benefits?
No. Since contractors aren't in an employer-employee relationship, they aren't entitled to statutory benefits like paid leave and maximum working hours. Currently, the country is piloting national universal health coverage, but until the program fully rolls out, independent contractors aren't entitled to health insurance.
Can you pay contractors in Kenya in your home currency?
While you should try to pay Kenyan contractors in their local currency (KES), you can pay them in any currency. Just be sure to get their permission in writing first.
Can you manually pay contractors in Kenya?
Yes, you can manually pay contractors in any country, and many small businesses choose this route to save on costs. But manually paying contractors can be time-consuming and labor-intensive, especially if you work with multiple contractors in Kenya or in more than one foreign country. Making manual payments across borders also comes with risks:
- Compliance. Manual payroll runs the risk of human error and omission. Using a platform like Rippling ensures compliance with all local laws and regulations, no matter where your contractors are based.
- Security. Manual payroll is often done using paper records and spreadsheets, which can put your contractors' personal data at risk of being lost, stolen, or misused.
When you use Rippling, payroll becomes automatic. There's no manual data entry, and payroll for your employees and contractors is run together—in a single pay run.
How do you turn a contractor into an employee in Kenya?
Hiring contractors has many benefits, but sometimes you need a full-time employee (or maybe your contractor would rather have a full-time position). Rippling makes it easy to transition independent contractors to employees while meeting all the legal requirements: drafting a compliant offer letter, making the proper payroll deductions, offering the required benefits, and more.
With Rippling, you can not only manage contractors but also hire and manage full-time employees. Rippling has everything you need to administer your entire global workforce, from onboarding to offboarding.
Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.