Avoid housing levy through outsourcing services in Kenya
Employers in Kenya are looking for ways to reduce the financial burden caused by the housing levy. One strategy is outsourcing services instead of hiring their own employees. Outsourcing can help minimize costs associated with employer-employee contributions towards the housing levy, as stipulated by the Kenya Revenue Authority (KRA). This detailed guide explains how employers can avoid the housing levy by leveraging outsourced services.
Understanding the Housing Levy in Kenya
The housing levy was introduced under the Affordable Housing Program (AHP) as part of the Big Four Agenda by the Government of Kenya. It requires both employers and employees to contribute 1.5% of an employee’s monthly basic salary to fund affordable housing projects. As per the KRA, employers are expected to match employee contributions, increasing payroll expenses. Outsourcing services can help employers sidestep these obligations while still ensuring that business operations continue efficiently.
Why Employers Consider Outsourcing
Outsourcing allows companies to contract external firms for certain tasks or services instead of hiring full-time employees. This approach can reduce overhead costs, such as salaries, benefits, and contributions to statutory deductions like the housing levy. By outsourcing, companies minimize direct employment contracts, avoiding statutory contributions as they no longer have employees on their payroll.
According to the Kenya Revenue Authority (KRA), the housing levy is mandatory for employers with formal employees. However, outsourcing services can help companies reduce their employee base and focus on hiring contractual workers through third-party service providers, who take responsibility for employee benefits and taxes.
Outsourcing vs. Employment: Which Is Better for Employers?
When comparing outsourcing and direct employment, there are several key differences:
- Cost savings: Outsourcing cuts down on costs such as employer contributions to the National Social Security Fund (NSSF), National Hospital Insurance Fund (NHIF), and the housing levy. Employers also avoid salary-related costs and employee benefits.
- Flexibility: Companies can scale services up or down based on current needs without the long-term commitment of employment contracts.
- Compliance: Outsourcing firms handle compliance issues related to employment laws and contributions to the government. The third-party company managing the outsourced employees is responsible for taxes and levies.
Email: info@michroniaconsultants.co.ke
Website: www.michroniaconsultants.co.ke
Phone: 0745 359397
How Outsourcing Helps Avoid Housing Levy Contributions
Employers who choose to outsource specific functions, such as Tax, accounting services, IT, human resources, or accounting software solutions services, can avoid paying the housing levy for these workers. Instead, the outsourcing firm is considered the legal employer of the workers and is responsible for the associated levies and contributions. The legal framework allows companies to avoid housing levy obligations because the outsourced workers are not directly employed by them. As a result, businesses can save on housing levy contributions without compromising their workforce needs.
Furthermore, the KRA acknowledges that only businesses with formal employees are liable for statutory deductions. Therefore, engaging third-party providers eliminates the need for employers to directly handle housing levy contributions for outsourced workers.
Considerations for Employers Opting for Outsourcing
While outsourcing offers a solution to avoid housing levy contributions, there are critical factors to consider:
- Service quality: Employers should ensure that the outsourcing firm maintains high-quality standards for the services provided.
- Compliance with labor laws: Employers must choose reputable outsourcing partners that comply with Kenyan labor laws to avoid potential legal complications.
- Cost-benefit analysis: Although outsourcing reduces statutory contributions, employers should weigh the cost of outsourcing services against the potential savings from avoiding the housing levy.
Transitioning to outsourcing services also allows companies to focus on their core business operations while ensuring that regulatory requirements are met. This flexibility is critical, especially in industries with fluctuating labor demands.
Email: info@michroniaconsultants.co.ke
Website: www.michroniaconsultants.co.ke
Phone: 0745 359397
Benefits of Outsourcing for Kenyan Employers
Employers who choose outsourcing as a strategy to avoid housing levy payments can expect the following benefits:
- Lower operating costs: Outsourcing reduces the financial burden associated with statutory payments, including the housing levy.
- Streamlined HR operations: By outsourcing services, companies can eliminate the need for in-house human resource management, including payroll processing and tax filings.
- Risk management: Outsourcing firms bear the responsibility for any legal or regulatory issues related to employment, shielding the company from direct liabilities.
To fully leverage outsourcing and avoid housing levy contributions, employers should work with qualified and compliant outsourcing firms. These firms ensure that outsourced employees receive all necessary benefits and that the company remains compliant with Kenya’s labor laws.
Conclusion
Employers in Kenya can legally avoid paying the housing levy by opting for outsourcing services instead of employing full-time staff. This approach significantly reduces operating costs while providing businesses with greater flexibility and compliance assurance. By partnering with reputable outsourcing providers, employers can ensure they meet their business needs without the additional burden of statutory deductions like the housing levy.
For assistance with outsourcing services , reach out to Michronia Consultants for expert advice and tailored solutions.
Email: info@michroniaconsultants.co.ke
Website: www.michroniaconsultants.co.ke
Phone: 0745 359397