A levy struck down in November 2023 returned in March 2024 as a standalone statute. Employers carry the administrative burden either way — here is where the obligation now sits.
Kenya's affordable housing levy has had an unusually turbulent legislative history, and employers have borne the compliance cost of every turn in it. Understanding how the current obligation arose matters, because it explains why the present statute is drafted the way it is.
How we got here
The levy was first introduced through the Finance Act, 2023, which amended the Employment Act, 2007 to impose a charge on employment income. In November 2023 the High Court declared the relevant provisions unconstitutional. The court's reasoning was directed less at the idea of a housing levy than at the way it had been enacted: the legislation did not explain how the money would be administered once collected, did not connect the levy to the national government's housing function, and imposed the burden only on those in formal employment while leaving the informal sector untouched.
The Court of Appeal declined to stay that judgment in January 2024. For a period, there was no lawful basis on which employers could deduct and remit the levy, and payroll teams across the country had to reverse course at short notice.
Parliament responded by legislating afresh. The Affordable Housing Act, 2024 was assented to on 19 March 2024. Rather than amending the Employment Act, it stands on its own and sets out an administrative architecture that the earlier provisions lacked.
The obligation as it now stands
The Act imposes a levy of 1.5% on an employee's gross salary, matched by a contribution of the same amount from the employer. The Kenya Revenue Authority is appointed as the collecting agent. Resident individuals who pay the levy are entitled to an affordable housing relief calculated at 15% of their contributions, subject to an annual cap.
Proceeds flow into an Affordable Housing Fund, and the Act establishes an Affordable Housing Board to allocate funds toward housing and related infrastructure. The administrator of the Fund must keep proper records and submit accounts to the Auditor-General within three months of each financial year end. The Act attaches substantial penalties to misappropriation of the Fund and to the supply of inaccurate information.
What this means in practice
For employers, three points deserve attention:
- The levy is calculated on gross salary, not basic pay. Payroll configurations built on the wrong base will under-remit, and the shortfall is the employer's exposure, not the employee's.
- The employer contribution is a genuine cost of employment rather than a deduction passed through. It should be reflected in staff-cost budgeting and in any cost-per-head modelling used for hiring decisions.
- The relief available to employees is a personal relief. Employers should ensure it is applied correctly in payroll rather than left for staff to claim, since errors here surface as employee grievances.
The litigation has not ended
The Act was itself challenged. In October 2024 a three-judge bench of the High Court declined to quash its key provisions, finding that the statute had been properly enacted, that adequate public participation had been conducted, and that the levy did not offend the constitutional right to housing. The petitioners' discrimination argument was rejected.
That decision has been appealed, and the Court of Appeal has directed that the appeal be heard by an expanded bench given the weight of the questions raised. Employers should treat the current obligation as live and continue to deduct and remit, while recognising that the position may be revisited.
Our view
The practical lesson from the last two years is that payroll compliance in Kenya now carries genuine litigation risk. Statutory deductions can be created, struck down and recreated within a single financial year. Employers who treat payroll configuration as a fixed administrative task rather than a monitored compliance obligation will keep being caught out. We recommend a standing review of statutory deductions at each half-year, and a documented process for responding to court decisions that affect them.
Margaret Kadzo
Partner — IP Law & LitigationMargaret balances courtroom litigation with property and corporate advisory, focusing on civil and commercial litigation, ADR, employment law and conveyancing.
