Am I entitled to a Housing allowance?
2 years ago
According to the Employment Act, Section 31, an employer has 3 choices: –
He can either;
- Provide housing; or
- Pay housing allowance; or
- Pay a consolidated salary.
Providing housing to employees
This seldom happens today.
If housing is provided, the employee is only entitled to stay in the house for as long as the employment contract is in force (Richard Were & 11 others v Permanent Secretary Ministry of Health & 3 others  eKLR).
If housing is offered and an employee declines to reside in the house, the employee cannot claim a housing allowance (Stephen Miheso v Kaimosi Tea Estate Limited  eKLR).
For tax purposes, the value of the house is considered a gain/profit of employment and is taxable as part of the employee’s income.
Paying a housing allowance
The allowance should be such amount as is enough to enable the employee get reasonable accommodation. For a long time, this has been calculated on the basis of 15% of the employee’s basic salary.
In the very recent past, however, there is new thinking that 15% of the basic income of the average Kenyan is not enough to enable one to secure reasonable housing. This is, therefore, the inherent risk in paying a housing allowance based on 15% of the basic pay.
It is for the above reason that in collective bargaining agreements that are being negotiated today, unions are pushing for a fixed amount as opposed to 15% of the basic.
The housing allowance is taxable as part of the employee’s income.
Paying a consolidated salary
Many times employers come to me when their former employees send them demand letters. Every so often one of the claims is in respect of unpaid housing allowance to which the former employers confidently answer that the said former employee’s salary was consolidated. When I ask whether that was clearly indicated in the employment contract, the answer is negative.
According to the Employment Act, where the employee is paid a consolidated salary, the employee’s contract must clearly provide that the basic salary has an element intended to be used by the employee as rent or which is intended to enable the employee to provide himself with housing. Such a provision can also be contained in a collective bargaining agreement.
The above position was confirmed by the Industrial Court in Clifford Sosi Nyabuto v Board of Governors – Singhsaba Nursery Primary  eKLR.
In Ayanna Yonemura v Liwa Kenya Trust  eKLR, the court held that: –
For an employer to exclude provision of housing or payment of rent to the employee, it is imperative that the contract of service specifically provides that the salary paid is a “consolidated” salary.
The term gross is not the same as “consolidated” from the definition above. The same dictionary defines the term ‘consolidate’ as follows:
“combined into a single unit.”
Should housing allowance be included when calculating terminal benefits?
From the decisions of our courts, there are 2 schools of thought: –
- The first one is that housing allowance should be added to the basic pay when computing the terminal dues;
Cases that have upheld this position include the following: –
- James chege & 6 others vrs Aqua Plumbing Company Ltd  eKLR;
- Caroline Wanjiru Luzze v Nestle Equatorial African Region Limited  eKLR;
- Isabella Harusi Shehe v Branch Secretary, Kenya National Union Of Teachers (Kilifi Branch) & another;
- Elisha Kirigha Gezzam Aka Elisha Kiriga Gezzam Mwambi v Brooke Bond Kenya Ltd  eKLR and David Anzani Ombeba v Southern Engineering Company  eKLR;
- The second one is that it should not. The reason behind this is that allowances are expenses incurred by the employer to facilitate the employee’s work e.g. housing allowance, telephone allowance etc. and, therefore, unless it is proved that the intention was for the allowance to be considered as part of the remuneration package, they should be excluded from the computation. In short, allowances are facilitative not remunerative.
Cases that have upheld this position include the following:-
- Kenya Ports Authority v Silas Obengele  eKLR. This is a decision of the Court of Appeal which takes precedence and is binding on all other courts;
- Fredrick Ngari Muchira, Howard Kipkoech Korir & 98 others v Pyrethrum Board of Kenya  eKLR;
- Kenya Union of Commercial, Food and Allied Workers & 5 others v Alliance One Tobacco (Kenya) Ltd  eKLR;
- Nicholas Wachira Koigia v Ncr Kenya Limited  eKLR
All cases can be accessed at http://kenyalaw.org/caselaw/.
It looks like the Court of Appeal decision carries the day and, therefore, housing allowance should be excluded unless one can show that it was part of the remunerative package (and it’s not clear how to establish this).
I find the above conclusion unfair to those who receive a housing allowance as opposed to a consolidated pay because such arguments do not arise with the latter.
What’s your take? Would you rather receive a house, housing allowance or a consolidated package…
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