What does 18 per cent rise in minimum wage mean?

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. PHOTO | FILE

What you need to know:

  • 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.
  • Well, let me be clear: Whenever you get a pay-rise, your net earnings after tax will always be higher – even if your new salary puts you in a higher tax bracket.

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 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, smaller towns and the agricultural sector.

The latest one I could find is dated June 26, 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.

HIGHER TAX BRACKET

Well, let me be clear: that can never happen to employment income! Whenever you get a pay-rise, your 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 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 National Social and Security Fund (NSSF)  and National Health Insurance Fund (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.