Hi Alvin & list,

*disclaimer on*
Am not a legal expert am only someone who works alot with these issues ( Payroll.ke ) - so the following views may or may not be 100% legally correct
*disclaimer off*

From talking (in debth) with my auditor on how to distinguish a consultant from an employee it is my understanding that it is not black and white there is alot of room for interpretation. In the eyes of KRA for someone to be a consultant they look at several aspects, but the key thing is that the person is operating "independently" of the employer. Aspects such as:

- Does the person perform work using his/her own equipment (phone, laptop etc) ?
- Does the person work for more than just the one company ?
- Is the person in charge of his/her own time/schedule ?
- Is the work clearly time-limited i.e. a consultant working year in and year out is considered an employee

In terms of paperwork it is also important that the consultant being the one who raises an invoice to the company - i.e. if he/she receives a payslip then it's an employee..

In terms of the tax laws any income given to an employee is subject to PAYE - regardless of what you label it as (commission, allowance, bonus etc) if it's money it's subject to PAYE. This is totally logical if we assume commissions was not subject to tax then I gurantee that all/most income anyone would make would be called commissions going forward.

End of the day if everything is above the board and everyone is fullfilling their obligations then the net result is the same - Either the employer handles the income tax (PAYE) upfront, or the "consultant" registers the income on his tax-return end of year and pays the (same amount of) income tax himself - the net amount available to the "consultant" is the same.

It's only relevant when you are trying to "bend" the rules a little - From the company's perspective it is much better that it is the individual/consultant who is not paying his taxes - as obviously the liability is his and not the company's. HOWEVER - it's is not a good long term strategy as mentioned above KRA looks at multiple aspects to determine if an individual is a consultant or not. IF they determine that someone is and has been an employee then the company is going to be liable for the missing PAYE payments.

In other words it can majorly backfire in that you may payout 100% amount, with the (official) expectation that the consultant files his tax as intended - but if that is somehow "forgotten" and KRA later classifies him as an employee then you will be paying an extra 30% (+ fines).

N.b. don't forget that if the consultant makes more than 24k in a month (gross) then the company must perform withholding tax which indirectly tells KRA that this person is earning some money and they expect to see it the same amounts in the tax return end year. Failure to do withholding tax makes you/company liable for the entire income tax payment - so liability falls back on the company.

My personal recommendation is that if you engage a person to do some work for your company and are not ready to have this person on the payroll then you can do an initial period where the person is working as a consultant - but you must have a long term plan to get the person on the payroll.

The argument goes: "we initially hired x as a freelancer/consultant, but after 3 months we liked the work and decided to put him/her on the payroll".

It is not a lawyer you need to talk to - it is a tax expert - as I assume the reason you ask is somehow tax-related..... and taxes is much more about how the rules are implemented/enforced than how they are written. Talk to your auditor, such consulting should (indrectly) be part of the annual audit fee you pay him anyway.

Regards.

Good Morning Skunks,

Trust you are well.

Does anyone have any current information based on the legal status of the Kenya Employment Act?

Am looking at a scenario of like sales personnel on employment basis Versus sales personnel on a 'commission' only basis (independent contractor).

Where can I get the legal view as per Kenyan Laws? 

Any links or PDFs with such information would be much appreciated.

Thank you.

Regards,

Alvin Ochola

--

Regards,

Alvin Ochola
Sales Manager
Greenline Technology Limited
Email -"ajochola@gmail.com"
Email - "sales@greenline.co.ke"
Direct Calls/ SMS Number/
Mobile App Telegram only
+254-722-313923
(Kindly text if you get no immediate reply
for faster responses).

OFFICE LINES  - 0722-219938 / 0733-610758 

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