Leave is an HR matter until it reaches the payroll. Most leave is paid in full and changes nothing on the payslip. The cases that do change pay are unpaid leave, the half-pay part of sick leave, and leave paid out in cash. Those are where the errors are.
The statutory minimums
| Leave | Minimum under the Employment Act | Pay |
|---|---|---|
| Annual | 21 working days after every 12 consecutive months of service (s.28(1)(a)) | Full pay |
| Sick | 7 days, then a further 7 days, in each 12 months, after 2 consecutive months of service (s.30(1)) | Full pay, then half pay |
| Maternity | 3 months (s.29(1)) | Full pay |
| Paternity | 2 weeks (s.29(8)) | Full pay |
These are floors. A contract or CBA can give more, and many do. Compassionate and study leave aren’t in the Act; they exist only if your policy or contract creates them.
Annual leave
The 21 days are working days, so weekends and public holidays inside a leave period don’t count against the balance. With the employee’s consent the days can be split, but one part should be at least two uninterrupted working weeks (s.28(3)), and the rest must be taken within 18 months of the end of the leave year it was earned in (s.28(4)).
A leaver who has worked at least two consecutive months in the current leave year is owed at least 1.75 days for each completed month (s.28(1)(b)). Most payrolls accrue that 1.75 days monthly for everyone, which makes the balance and the leave liability easy to report.
Section 74 requires you to keep a record of each employee’s annual leave entitlement, days taken and days due. In practice, a spreadsheet kept by a line manager isn’t enough when there’s a dispute over a leaver’s balance. Keep the record in one place, approved and dated.
Sick leave
The second week of sick leave is at half pay. Payroll does this by deducting half a day’s pay for each half-pay day. Section 30(3) defines full pay as wages at the basic rate, so the calculation should run on basic pay, not on allowances.
The employee must produce a certificate of incapacity from a qualified medical practitioner (s.30(1)) and tell you of the absence as soon as reasonably practicable (s.30(2)). Sick days beyond the statutory 14 are either covered by your policy or unpaid. Decide which before the first long illness, not during it.
Maternity and paternity leave
Maternity leave is three months on full pay, and taking it doesn’t reduce annual leave (s.29(7)). The employee should give at least seven days’ written notice of the start date (s.29(4) and (5)). If she goes straight from maternity leave into annual or sick leave, the protection extends to the end of that leave (s.29(3)).
On full pay, PAYE, NSSF, SHIF and the Housing Levy all run as normal. The common error here is pausing a recurring allowance during maternity leave without a basis in the contract. If it’s part of her pay, keep paying it.
Unpaid leave and absence
Section 19(1)(c) lets an employer deduct up to one day’s wages for each working day of unauthorised absence. For unpaid leave that has been agreed, the deduction is the same in effect. What the Act doesn’t do is say how to work out “a day’s wages”.
Many Kenyan payrolls divide monthly basic pay by 26, which is roughly the number of working days in a month on a six-day week. That is a convention, not a rule in the Act, and you’ll also see 30 (calendar days) and 22 (a five-day week). The divisor makes a real difference:
| Basic KES 60,000, 4 days unpaid | Daily rate | Deduction |
|---|---|---|
| ÷ 26 | 2,307.69 | 9,230.77 |
| ÷ 30 | 2,000.00 | 8,000.00 |
Work the deduction as basic × days ÷ divisor and round the result once, rather than rounding the daily rate first, or you’ll be a cent out on most payslips.
Using ÷ 26, the employee’s month looks like this:
| Item | KES |
|---|---|
| Basic after the unpaid days | 50,769.23 |
| NSSF | 3,046.15 |
| SHIF | 1,396.15 |
| Housing Levy | 761.54 |
| PAYE | 6,052.97 |
| Net pay | 39,512.42 |
Statutory deductions are worked on the reduced pay, so they fall too. Pick a divisor, write it into your leave policy or contracts, and use the same one for every employee. Switching divisors from month to month is the kind of thing that looks bad in front of a labour officer.
Leave encashment
Paying cash for untaken leave on exit is a legal requirement. Paying it during employment is a policy choice. The Act’s design is that leave is taken: s.28(4) sets the 18-month limit, and encashing leave every year works against that. Employers who allow it usually cap the number of days.
The payout is taxable. KRA treats payment in lieu of leave as employment income, so it goes through PAYE in the month paid, with SHIF and the Housing Levy on top. Take an employee on KES 90,000 basic who encashes 10 days at basic ÷ 30:
| Item | Normal month | With 10 days encashed |
|---|---|---|
| Gross | 90,000.00 | 120,000.00 |
| PAYE | 16,615.85 | 25,233.35 |
| Net pay | 64,159.15 | 84,266.65 |
Of the KES 30,000 encashed, the employee keeps KES 20,107.50. The KES 30,000 sits in the 30% band, which is why the take-home is around two-thirds of the payout. Tell the employee that before they choose, or expect a complaint.
On exit, KRA’s PAYE guide says leave pay is assessed in the year the leave relates to. If a leaver is paid days earned in an earlier tax year, see final dues in Kenya.
Leave liability
Untaken leave is a liability on the balance sheet: days owed × daily rate, using the same divisor you’d use to pay it out. Reviewing the balance every quarter also shows you the employees who haven’t taken leave in over a year, which is the point to ask them to take it.
This guide covers the Employment Act minimums, not every sector’s CBA. If a leave dispute is heading to a labour officer, take advice on your specific contracts.
Try the effect of an unpaid-leave deduction on take-home in the net pay calculator.