According to the Employment Act, Section 31, an employer has 3 choices: –

He can either;

  1. Provide housing; or
  2. Pay housing allowance; or
  3. 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 [2013] 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 [2014] 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 [2016] eKLR.

In Ayanna Yonemura v Liwa Kenya Trust [2014] 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: –

  1. 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 [2013] eKLR;
  • Caroline Wanjiru Luzze v Nestle Equatorial African Region Limited [2016] 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 [2013] eKLR and David Anzani Ombeba v Southern Engineering Company [2013] eKLR;
  1. 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 [2008] 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 [2013] eKLR;
  • Kenya Union of Commercial, Food and Allied Workers & 5 others v Alliance One Tobacco (Kenya) Ltd [2015] eKLR;
  • Nicholas Wachira Koigia v Ncr Kenya Limited [2013] eKLR

All cases can be accessed at

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, my advice is that you should include it).

What’s your take? Would you rather receive a house, housing allowance or a consolidated package…

***THE END***

About Anne Babu

Anne is an Advocate of the High Court of Kenya and the Founding Partner of Anne Babu & Co. She has practised employment law for over 12 years and her employment law practice has been recognized by the prestigious Chambers & Partners. Anne cares about employers and their labour issues.


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  1. Daniel Ongoya says:

    Thank you for the insight in the housing allowance Anne.

    Is Consolidated Salary the same as gross salary?
    What if there is totally no mention of consolidated salary in your offer letter. The letter talks about gross salary, but the employer has continued to reflect 15% of this gross salary as house allowance in the payslip.

    1. Anne Babu says:

      Consolidated salary is not the same as gross salary. See the quotation from the Ayanna Yonemura v Liwa Kenya Trust case above. If the payslip shows a 15% housing allowance then that pay is not consolidated.

      1. Aisha says:

        If the letter of offer says consolidated salary inclusive of house allowance, how do i calculate leave accrued? Do i separate the house allowance (15%) from the consolidated salary then calculate leave based on gross salary?

        1. Anne Babu says:

          Leave accrued will be based on the consolidated amount.

      2. Benson Arimi says:

        Dear Anne,

        The information is very useful, thank you for that.

        I have looked at section 31 of the Employment Act but it does not seem to make any reference to 15% in as far as housing allowance is concerned. Could this be stated in a Gazette Notice?

        If an employer has not provided an equivalent of 15% since date of employment should this be demanded in arrears?


        1. Anne Babu says:

          The 15% is not indicated in the Employment Act. It is historical, in the sense that it was negotiated and accepted in collective bargaining agreements and in some wage orders issued years back and was therefore adopted. The position is, however, changing and 15% is not used as a mandatory standard nowadays that is why the Act says the employer should give a sufficient sum to enable employees secure housing.
          Yes, the arrears can be claimed if the salary is not consolidated.

  2. peter says:

    HI Anne in simple terms,what is consolidated salarly?

    1. Anne Babu says:

      One amount – see the definition in the Ayanna Yonemura v Liwa Kenya Trust case quoted above.

  3. Kenneth Kamau says:

    If an employee is appointed to a higher position in an acting position for an extended period, is the employer required to confirm the employee especially if employer has commended the acting employee’s performance? But shows no sign of confirmation. Secondly before confirmation to a post, must the acting employee be subjected to an interview process along other candidates?

    1. Anne Babu says:

      The employer cannot be compelled to confirm the employee. It is the employer to determine whether or not an interview is necessary – the HR policy documents should guide the process.

  4. Mary M.M says:

    Hi Anne,I have a bank loan that I needed to top up. The bank used my latest three months pay slips and agreed on the top up. Calculations for a third rulrle was done on the gross salary which included special allowance and shift allowance. I took the bank agreement forms for top up for signing by HR who declined saying that she calculated the top up loan using only my basic salary and so I could not qualify to top up my current loan.She’s the same one who recalculated the current loan using the two allowances but this time she recalculates without allowances. I have had these allowances for more than four years. I feel she just was malicious and wanted to frustrate me. Kindly advise. Mary. M.M

    1. Anne Babu says:

      The computation should be on the basis of the basic.

      1. Yussuf says:

        Hello Ann

        Please help, if my immediate boss resigns and am given the position on acting basis, what does the law say on acting allowance. Thanks

        1. Anne Babu says:

          You should receive an acting allowance of not less than the difference between your former boss’ salary and your current salary.

  5. Chuma Benard says:

    Hi Ann,

    Can you kindly advise if a trust secretary to a retirement scheme is entitled to seating allowances under the constitution

    1. Anne Babu says:

      That is not something that would be provided in the Constitution. You need to check the scheme rules or the Retirement Benefits Act.

  6. Njoroge says:

    Hi, Anne,
    Thanks for the post above.

    During my interview, I and my employer agreed to be paid a certain amount as the net salary but on the contract its reflected as gross salary. What implications does it have and should I proceed with signing the contract? Also I have been working for two weeks now without an active contract, what are the implications if I decided to quit?


    1. Anne Babu says:

      The terms of the contract should reflect what you agreed, if it does not then you should raise a query as soon as possible. An employment contract can be oral or written. The fact that you have reported to work and you will be paid for work done so far is evidence of the existence of a contract even though the terms have not been reduced to writing. In the absence of a contract, if you want to resign, you are required to give notice or pay in lieu of notice. If your salary is supposed to be paid monthly, the minimum notice period is one month.

  7. jose says:

    if both husband and wife are working in one place and provided a house by the employer are both supposed to be deducted house allowance

    1. Anne Babu says:

      Please clarify – what is the house allowance deduction for? If you are being housed then housing allowance should not appear on your pay slip.

  8. Gee says:

    If an employer provides a house for an employee during the term of the employment, can this employee ask that he be paid housing allowance once the contract is terminated?

    1. Anne Babu says:

      No, there is no justification for such a request.

      1. PK says:

        Hi Anne,

        I’m negotiating with a prospective employer. Should i be asking for a house allowance as opposed to a consolidated salary?

        Which is a better position a basic pay + house allowance ? or a consolidated salary?

        On tax matters which is better in terms of paying less tax? basic pay + house allowance or a consolidated salary?


        1. Anne Babu says:

          Go for the consolidated salary; it’s more advantegeous especially when it comes to computation of terminal dues. You’d have to seek advice from a tax person on your tax question.

  9. Njeri says:

    Hi Anne,

    Many thanks for the article. My question is; If an employer has unionised staff with a standard CBA where the employer has negotiated a certain amount as the house allowance. Can the same employer pay the non-unionised staff a lower house allowance than what is stipulated by the CBA but adhere to the 15% basic pay rule?

    1. Anne Babu says:

      Only those who are unionisable but have chosen not to join the union enjoy the same benefits. For the rest, the employer is at liberty to offer less.

  10. John chege mwihaki says:

    Thank very you open my eyes, I don’t how I can reach to you? I need your help ?

    1. Anne Babu says:

      You may send an email using the form in the contacts page of the site.

  11. PeterOtieno says:

    God bless you Dada & you may not know it but you information is changing lives and helping many understand their rights. Learning something new every time i read this site.

    1. Anne Babu says:

      Asante sane.

  12. when an employee is suspended on half pay does it include the house allowance?

    1. Anne Babu says:

      In ordinary circumstances, it should include the allowance but confirm with the organization’s policy documents.

  13. Samson says:

    My employer has hired someone in my position and asked me to hand over to them when I am on leave. 1.Should I assume I have been terminated? 2.What should be my next move?

    1. Anne Babu says:

      Isn’t that supposed to only cover the leave period? You should confirm the intention from your employer.

  14. Anne Kahuthu says:

    Good Morning,

    My house girl has requested to be a day-bag. Kindly advise on whether she will be entitled to house allowance as I have been housing her.

    Kind Regards

    1. Anne Babu says:

      An employer can eiteher give housing or pay housing allowance or consolidate the pay. Therefore, you can either pay her 15% extra as housing allowance or consolidate her salary but ensure that the element of consolidation is put in writing to avoid arguments.

  15. willie wathua says:

    Include me in your future posts.

    1. Anne Babu says:

      Pl subscribe to the blog.

  16. Stephen Odongo says:

    Hello Ann,
    Thank you very much for the insight.

    I have a question: Should unpaid house allowance claims after termination of employment be subject to tax or statutory deductions?

    1. Anne Babu says:

      All payments to staff should be subject to statutory deductions.

  17. Baphen says:

    Is it mandatory for a corporate employee to provide a housing allowance?

    1. Anne Babu says:

      As indicated in the article, you either get a house or a housing allowance or a consolidated salary.

  18. D.Ongoya says:

    Dear Ann
    Please help.
    The appointment letter talks of gross salary only.
    However, the payslips reflect: 1. Basic salary as 85% of the above gross 2. House Allowance as 15% of the above gross.
    Is this is compliant with the law?
    An employee who was terminated has sued demanding payment of house allowance for the duration of his service in the Company. Does he have a ground?

    1. Anne Babu says:

      If the payslip is clear that they were getting a housing allowance then I don’t think they have a case.

  19. Joseph says:

    Can semi permanent house (timber houses ) provided by an employer be included in as house allowances for purpose of taxation

    1. Anne Babu says:

      The Act does not go into details on the type of housing but I see no problem as long as the house is decent and habitable.

  20. GODFREY says:

    My employer has just typed and printed a payslip like this.
    Basic salary: ksh 16000
    Allowance: 5500
    Gross salary: 21500
    NHIF 500
    NSSF 360
    Net pay: 20540

    Can this be a valid payslip since there is no p.a.y.e and any other tax?

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