We now have a new contribution/deduction to look forward to – the National Housing Development Fund which is now alive following presidential assent to the Finance Bill, 2018 (now, the ‘Finance Act, 2018’).

The Finance Act, 2018 has introduced a new Section 31A to the Employment Act, 2007. The section provides as follows: –

An employer shall pay to the National Housing Development Fund in respect of each employee –

(a) the employer’s contribution at one point five per cent of the employee’s monthly basic salary; and

(b) the employee’s contribution at one point five per cent of the employee’s monthly basic salary:

Provided that the sum of the employer and employee contributions shall not exceed five thousand shillings monthly.

(2) The benefits to an employee shall accrue as follows-

(a) for employees who qualify for affordable housing, the contributions accrue to the employee and shall be used to finance the purchase of a house under the affordable housing scheme; or

(b) for employees who are not eligible for affordable housing, upon the expiry of fifteen years from the date of the start of making the contributions, or after the attainment of retirement age, whichever is sooner-

(i) a transfer of their contributions to a pension scheme registered with the Retirement Benefits Authority;

(ii) a transfer of their contributions to any person registered and eligible for affordable housing under the National Housing Development Fund; or

(iii) a transfer of their contributions to their spouse or dependent children; or

(iv) to receive their contributions in cash;

Provided that contributions paid out in cash shall be subject to tax at the prevailing rates

(3) All contributions shall get a return based on the return on the Fund;

(4) The employer shall remit both employee and employer contributions to the National Housing Development Fund before the ninth day of the following month;

(5)…a penalty of five per cent of the contributions shall be payable by the employer for each month or part thereof during which the contributions remain unpaid…

(6) This section shall become effective upon the Gazettement of Regulations prescribing the requirements for qualification to the scheme by the Cabinet Secretary responsible for housing…UPDATE: The Regulations were published on 17th December 2018, Legal Notice 238 of 2018

The Upshot

Employers are required to remit contributions to the Fund by deducting 1.5% from the employee’s salary and contributing the other 1.5%, subject to a maximum total contribution of Kshs. 5,000/=.


It has been said that the creation of the National Housing Development Fund is meant to help the government realize its goal of delivering 500,000 affordable housing units in five (5) years as a means to stop the expansion of slums in informal dwellings in major towns countrywide.

housingHow the National Housing Development Fund will work

The deductions from employees and contributions by employers are expected to raise about Kshs. 5.7B annually which will go to the Fund which is yet to be established.

The contributions will be accessed through a tenant purchase scheme for those in the low-cost housing bracket. The regulations on how the fund will work, who falls under the ‘low-cost housing’ bracket etc. are yet to be passed. The Section will only take effect once the Regulations are passed.

For those who do not manage to secure housing under the scheme, after 15 years of making contributions or upon attaining retirement age, whichever comes earlier, the total contributions, topped up with a return on the contributions, will be refunded using one of the following means: –

  • being transferred to a registered pension scheme;
  • being transferred to a person eligible for affordable housing;
  • being transferred to a spouse or dependent children of the employee; or
  • being paid out in cash.

issuesIssues arising out of the NHDF plan

  • The fact that not all contributors will eventually benefit from it;
  • Issues of misappropriation of the funds;
  • The imposition of this kind of contribution upon employees who have already acquired homes or those who are already servicing mortgages for houses acquired privately;
  • For the employers, the obvious increase in the wage bill;
  • The fact that the contribution is also only imposed on employees and employers and not the rest of the public.

The Constitution

Article 43(1)(b) of the Constitution, 2010 gives every Kenyan the right to accessible and adequate housing, and to reasonable standards of sanitation.  The realization of this right is placed on the National Government. The National Government has made this right one of its four national agenda.

What does the ILO have to say?

The Workers’ Housing Recommendation, 1961 (No. 115), recommends the drafting of a national policy to promote the construction of housing and related community facilities with a view to ensuring that adequate and decent housing accommodation and a suitable living environment are made available to all workers and their families. This can be done through: –

  • granting loans at moderate rates of interest and other direct and indirect financial incentives; and
  • taking appropriate measures in accordance with national practice to stimulate saving by individuals, co-operative societies and private institutions which can be used to finance workers’ housing.

I do not think the amendments to Section 31A have anything to do with the recommendation.


How can we make sure that we get back our money after 15 years of contributing? Until this issue is settled, I don’t think we should be comfortable with this new introduction.


The implementation of the Act was halted by a court order. As far as I’m aware, the parties have been negotiating the matter out of court. The last I read of this matter, the government had abandoned the plan, therefore, making it not mandatory.

***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. elly says:

    Dear Ann,

    I agree with your sentiments, and I also wish to state that even before the implementation of the affordable housing scheme then the Govt should put in place proper structures and controls in the management of the fund and assure Kenyans that there monies are safe. At this point I am a worried fellow since corruption has taken toll in this country and I fear that this fund will be another corruption scandal if the Govt DOES NOT PUT PROPER CONTROLS to the management of the fund.

  2. Firozali Kassam says:

    Very good article ….thanks

  3. Roberto says:

    😂😂😂 After 15years another law will come in to prevent us from taking the cash. They calculated Uhuru +Ruto tenure if looting =15yrs (Ruto has even assured of presidency courtesy of Cam Analytica)

  4. Robert Kelly says:

    I am wonderingcwhich category ofcworkers qualify for this deduction is it all workers in regular employment or there is a cut-off?

    1. Anne Babu says:

      All employees are expected to contribute. No limitations have been placed in the provision.

  5. Robert Kelly says:

    There has been a narrative that only public servants with salaries above 100,000 are the ones to contribute. From which month should this begin implimentation? Thanks for taking time to respond.

    1. Anne Babu says:

      That narrative is not correct according to the wording of the Act. It will take effect once the requisite regulations are passed.

  6. RUTH says:

    Anne, when is this suppose to take effect?

    1. Anne Babu says:

      When the requisite regulations are passed.

  7. Hi Anne,

    Thank you for this good summary.
    I am a local software developer with a payroll application ( ).
    This article will help answer many of the questions clients are asking.


  8. Pls send us the updates

  9. June Ngiye says:

    Dear Ann,
    Hope this finds you well. how sure are we that this wont be another scum and how sure are we that this fund will cater for for the need as per indicated?

    1. Anne Babu says:

      That’s a genuine concern and part of the reason that it’s been challenged in court by COTU.

  10. matheka says:

    I appreciate the great insight you give on employment laws, A minor error though, it is article 43(1)(b) of the 2010 constitution.

    1. Anne Babu says:

      Confirmed and corrected. Thanks.

  11. Carol Wanza Musau says:

    Very educative.

    1. Anne Babu says:

      Thank you

  12. Winnie Kiongo says:

    Please add me to recipients of your very informative posts

    1. Anne Babu says:

      Please subscribe to the blog – there is a box in each of the pages where you should add your email address.

  13. Robert Kelly Odira says:

    Does it apply to private employers too!

    1. Anne Babu says:

      Yes it does.

    2. Anne Babu says:

      Yes it does

  14. Vishal Soni says:

    Hi Anne,

    Is there any update on the COTU Court case on the deduction of a 1.5 percent housing levy?
    If so, we would highly appreciate an update.


    Vishal Soni

    1. Anne Babu says:

      Hi, the matter is still being discussed by the Govt, COTU and FKE. The court case will be mentioned on 8th April 2019.

  15. William Aol says:

    Hello Anne,

    Very educative article here,
    I’m not up to date on whether this has taken effect yet. Kindly have me posted.Thanks

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