Taxes on workers’ salaries, allowances, and wages grew a subdued 5.4 percent in the nine months to March 2025, the slowest growth in at least 10 years outside the pandemic period, signaling a deepening job crisis as large firms increasingly resorted to temporary employment contracts.
Data by the National Treasury shows that the Kenya Revenue Authority netted Sh412.10 billion in pay-as-you-earn (Paye) receipts in the review period, compared to Sh390.96 billion in a similar window of the previous year—a meek growth that points to a toughening labour market where decent formal jobs are shrinking amid a freeze on pay raise in most sectors.
The KRA said last November it was witnessing a trend where companies are trimming average gross monthly pay for employees, while others are increasingly tapping tax refunds to offset payroll taxes.
The taxman’s analysis of payroll numbers in the private sector between June and September showed that average gross monthly pay for workers posted a rare 2.89 percent year-on-year drop to Sh75,781 from Sh78,034 in a similar period in 2023.
KRA said the drop was linked to the “effects of ongoing restructuring by various organisations to manage operational costs, etc”.
A drop in average gross pay, which is used to calculate Paye, has not been witnessed in at least 30 years.
The Federation of Kenya Employers earlier in the year cited “depressed demand for goods and services, liquidity constraints, rising operating costs, challenging tax regime, frequent legislative changes, a shrinking market and loss of competitiveness” for constraining growth in the private sector and hindering job creation.
Analysis of the Stanbic Kenya Purchasing Managers Index (PMI), which tracks monthly private sector performance, suggests firms are increasingly replacing permanent employees with workers on temporary contracts.
Job openings in key economic sectors such as manufacturing, agriculture, construction, wholesale & retail, and services such as banking have largely been for contract staff, according to the monthly PMI surveys which poll about 400 panelists.
“Employment levels in the private sector economy increased for the fourth consecutive month in May. The rise was marginal and broadly similar to that recorded in April,” analysts at Stanbic Bank and American analytics firm, S&P Global, wrote in the PMI report for May, published last Thursday.
“According to anecdotal evidence, companies typically took on casual staff to help with completing new orders.”
The 2025 Economic Survey findings indicated new job openings fell last year, narrowing opportunities for workers seeking to change work in the hope of better pay.
New jobs dropped to about 782,300 from 848,100 new hires in 2023, the lowest since the 2020 Covid-19 pandemic.
About 90 percent of jobs created were from the largely unregulated informal sector, underlining the difficulties of corporate Kenya in creating quality employment for thousands of graduates leaving universities and colleges annually.
The economy created 75,000 formal jobs compared to 122,900 the year before, the KNBS report showed.
The Stanbic Kenya PMI survey findings paint a bleak outlook of economic activities, with an average of four out of 100 firms in the private sector looking to expand business in the next 12 months.
The data suggests that a measly 4.0 percent of surveyed firms expect to expand by opening new outlets, launching new products, or growing marketing budgets. Optimism has largely been muted, starting the year at 6.0 percent in January before falling to 5.0 percent in February and sinking further to 2.0 percent in March — a record low in the PMI history dating back to January 2014.
“In line with the trend recorded in 2025 so far, private sector firms in Kenya showed only modest optimism towards future activity levels. Just 4.0 percent of panelists expressed a positive outlook, and expectations were the second-lowest in the survey's history,” the PMI report for May states.
Businesses in May experienced the toughest economic conditions in seven months, with activities in construction, wholesale & retail, and services sectors hardest hit.
This was after the Stanbic Kenya PMI —a gauge for monthly private sector activity such as output, new orders, and employment— slowed to 49.6 from 52.0 in April.
This marked the first time that output in the private sector contracted for the first time since September 2024, reflecting falling demand for goods and services, highlighting “hesitancy from clients to commit to new spending due to economic challenges and higher prices”.
“Consumers remain hesitant to spend due to concerns about their economic state and the dim outlook. Still, whereas output, new orders, and purchasing activity declined, employment and inventories rose, while backlogs remained steady,” Stanbic economist Christopher Legilisho wrote in the report.
FKE has blamed the falling consumer purchasing power partly on increased pay slip deductions partly to support President William Ruto’s universal health coverage and affordable housing programmes.
This has seen average take-home pay for workers drop to historic lows of 45 to 50 percent of monthly income.
“The greater concern is the living standards of our employees that are deteriorating because of enhanced deductions. Clearly, if we continue raiding the pay slips it means we will hardly have any money to take home. So they [employees] will keep on borrowing and they will be distressed and that eventually translates into social unrest,” FKE executive director Jacqueline Mugo said earlier in the year.
“Then people will start to wonder about the value of being in employment. It makes employment meaningless and we will then have what we call the working poor and that’s what we don’t want as a country.”
