What does 18pc increment in minimum wage mean?
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
07 May 2017
Did President Uhuru Kenyatta announce an 18 per cent increment on all
salaries? The answer is no! What he was talking about were the “minimum
wages”. So, if you are already earning above these, you should not
expect a pay-rise.
The “Regulation of Wages Order” is a very comprehensive document
detailing the minimum wages that workers of different categories should
be paid. It gives the rates per hour, per day and per month for people
working in large cities (Nairobi, Mombasa and Kisumu), large towns
(former municipalities), smaller towns and the agricultural sector.
The latest one I could find is dated 26th June 2015. The lowest minimum
wage in this document is Sh5,436.90 per month for an unskilled employee
working in the agricultural sector. The highest minimum wage is
Sh24,719.50 for a Grade-1 trained artisan working in a large city.
If we add 18 per cent to these wages, the new range will be from
Sh6,415.55 to Sh29,169.00, respectively. With effect from 1st
May this year, nobody in Kenya should be paid less than Sh6,415.55 per
month for any kind of work.
Now, I came across a debate on the Internet about whether this increment
is real or fake. The argument was that the wages would now attract tax
and thus the net income would be less than the old tax-free earnings.
Well, let me be very clear: that can never happen to employment income!
Whenever you get a pay-rise, you net earnings after tax will always be
higher – even if your new salary puts you in a higher tax bracket.
Currently, people earning Sh13,042.55 or less per month do not pay tax.
The reason is that the total tax payable will be less than Sh1,280 which
is the personal relief given to all taxpayers.
Now, the minimum wage for a general unskilled labourer working in a big
city (Nairobi, Mombasa or Kisumu) was Sh10,954.70 before the increment.
Adding the 18 per cent brings the new pay to Sh12,926.55. Clearly, this
worker is still below the tax payment threshold, so the entire increment
will go to him; even though not all of it is in cash!
But salary calculations must also include other statutory deductions,
namely pension (NSSF) and health insurance (NHIF). However,
it is important to recognise
that these moneys benefit the employee directly! They belong to him.
NSSF deducts 6 per cent, thus before the salary increment, the worker
was contributing Sh657.30; the new figure is now Sh775.60. The old NHIF
contribution was Sh400; the new one is Sh500.
Thus the old cash payment for this worker was Sh10,954.7 – Sh657.30 –
Sh400 = Sh9,897.40. After the 18 per cent increment, the new cash pay is
Sh12,926.55 – Sh775.6 – Sh500 = Sh11,650.95.
This is a good Sh1,753.55 more! This works out to about 17.7 per cent
additional cash. Now, for an unskilled labourer, this addition monthly
income can make a big difference in life: it can help upgrade from a
single-roomed dwelling to a double-roomed one.
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