How is Severance Pay Calculated in Kenya?
Severance pay, also known as terminal benefits or exit packages, is a form of compensation provided to employees upon termination of their employment. In Kenya, the calculation of severance pay is governed by the Employment Act, 2007, which stipulates the minimum requirements for employers to adhere to when calculating severance pay for their employees. This article aims to provide a comprehensive guide on how severance pay is calculated in Kenya.
Understanding the Legal Framework
The Employment Act, 2007 outlines the legal framework for calculating severance pay in Kenya. According to the Act, an employer is required to pay an employee severance pay if the termination is due to reasons other than the employee’s misconduct. The severance pay is calculated based on the employee’s length of service and the employee’s last monthly salary.
Calculating Length of Service
The first step in calculating severance pay is to determine the employee’s length of service. This is done by counting the number of months or years the employee has worked for the employer. If the employee has worked for less than one year, the length of service is considered to be one year. If the employee has worked for more than one year, the length of service is calculated based on the actual number of months or years.
Calculating the Last Monthly Salary
The next step is to determine the employee’s last monthly salary. This is the amount the employee was earning at the time of termination. It is important to note that the last monthly salary should include any allowances, commissions, or bonuses that the employee was entitled to receive during that period.
Calculating the Severance Pay
Once the length of service and the last monthly salary have been determined, the severance pay can be calculated using the following formula:
Severance Pay = Length of Service x Last Monthly Salary
For example, if an employee has worked for 5 years and their last monthly salary was KES 30,000, the severance pay would be:
Severance Pay = 5 years x KES 30,000 = KES 150,000
Maximum Limit on Severance Pay
The Employment Act, 2007 also sets a maximum limit on severance pay. The maximum severance pay an employer is required to pay is 12 months’ salary. This means that if the calculated severance pay exceeds 12 months’ salary, the employer is only required to pay the employee 12 months’ salary as severance pay.
Conclusion
In conclusion, the calculation of severance pay in Kenya is a straightforward process that involves determining the length of service and the last monthly salary of the employee. Employers are required to adhere to the provisions of the Employment Act, 2007 when calculating severance pay to ensure that their employees receive fair and equitable compensation upon termination of their employment.
