Hire Contractors in Kenya

In Kenya, Self-employment accounts for about two-thirds of the national workforce. It includes workforce participation in contractual jobs as independent contractors; gig works as freelancers, small trades, etc. 

To expand your African operations, you can hire contractors in Kenya to cut costs on employee benefits and compliance requirements. 

Hiring contractors gives you the flexibility of accessing specialized talent for a short time while achieving your business objectives. 

This guide covers various ways to hire, manage, and pay independent contractors in Kenya. It will also discuss the challenges of hiring contractors and how agent-of-record (AOR) solutions like Skuad can help.

How to Hire Contractors in Kenya

You have two primary choices for sourcing Kenya independent contractors:

• Through a Legal Entity
• With an Employer of Record such as Skuad

The most suitable approach depends on your business needs, resources, and project scope. Here is how each works:

Hiring through a legal entity

A legal entity in Kenya is the traditional, though more resource-intensive, way of hiring contractors. This process involves the following steps:

• You need to register a company in Kenya, choosing from four primary types: Sole Proprietorship, Partnership, Limited Liability Partnership, and Companies.
• Even though contractors are not full-time employees, compliance with labor laws is crucial to avoid disputes or penalties.
• You must establish recruitment, onboarding, and performance evaluation processes to manage your contractors effectively.
• Office space, equipment, and systems must be in place for effective contractor management in-house. 
• You must comply with Kenya's tax regulations, including corporate taxes, payroll taxes, and many more levies.

Hiring contractors through Skuad AOR

Switch to an external service provider to manage the administrative and legal implications of hiring contractors in Kenya and supervising them:

• With agent-of-record (AOR) solutions, you get a ready structure for payroll and benefits administration, HR support, and smooth contractor functions.
• The AOR is responsible for the legal and tax requirements and complies with Kenya's labor laws.
• AORs enable the transferring and managing of the contractor's intellectual property, which safeguards business assets.

Skuad is an excellent AOR that simplifies contractor management in Kenya, providing compliance, efficiency, and flexibility for your business. 

Further, you can easily convert contractors to employees at a time of choice with Skuad's HR solutions.

How to pay contractors in Kenya

While Kenya contractors manage their taxes, you can set up a smooth and compliant payroll process using the following steps: 

1. Payment terms: 

• Define the scope, deliverables, and compensation in the contract stage.
• Choose the payment currency: KES or foreign currency.
• Set a payment frequency: weekly, bi-weekly, monthly, or at each milestone.

2. Tax obligations:

• Deduct and remit withholding tax accordingly.
• Contractors should provide valid personal identification for Kenya Revenue Authority (KRA) compliance.

3. Payment modes:

You must ask your freelance contractors to enroll in the Electronic Tax Invoice Management System (eTIMS). Further, you can process using any one of the following methods: 

• Bank transfers are the safest option but require complete banking details.
• Use solutions like M-Pesa for instant local payments.
• Use PayPal, Payoneer, or Wise for international payments.
• The newest and easiest method is to engage an AOR to pay multiple contractors in Kenya at a time and comply with all requirements.

4. Record keeping:

• Keep all invoices, receipts, and tax remittance documents.
• Use payroll software to track all payment schedules and amounts.

Hiring contractors directly vs Hiring contractors via Skuad

Here’s how you can hire contractors in Kenya, highlighting the differences between hiring contractors directly and hiring contractors via Skuad:

You can review this checklist to avoid misclassifying employees as independent contractors.  

Cost of Hiring Contractors in Kenya

The cost of hiring contractors in Kenya is comparable to the current expenses of employing full-time staff; however, ignoring the cost of statutory benefits: 

The minimum wage differs from industry to region. However, it is similar to Kenya's guidelines, which set a benchmark of KES 15,201 per month for general workers in urban areas.

Contractors are not entitled to statutory employee benefits, such as health insurance or paid leave. Thus, they may negotiate for higher pay or additional perks.

Hiring costs can also vary with the contractor's skill level and the complexity of the assignment. 

Here’s a quick summary of international contractor salary Kenya payscale:

How to Convert a Contractor into an Employee in Kenya

If you need better control over your contractors' schedules, making them full-time employees is a great idea. This process is similar to a 1099 to W2 change in tax classification in the United States.

To begin, you should:

1. Create a thorough employment agreement: This would detail all aspects of employment, including salary, benefits, work hours, and termination procedures.
2. Register with tax authorities for deductions: Make sure the worker is properly registered with the local tax agencies to be compliant with payroll and tax requirements.
3. Transfer statutory benefits and insurance contributions: Enroll the worker in other benefits programs and ensure contributions to plans like National Insurance, National Housing Trust, Education Tax, and Human Employment and Resources Training.

You should switch to Employer-of-Record (EOR) solutions like Skuad. 

Our biggest advantage is simplifying the process of hiring and onboarding contractors in Kenya without establishing a legal entity or causing any other compliance headaches.

Challenges of Hiring Contractors in Kenya

Employing contractors in Kenya presents unique challenges such as: 

1) Complicated labor laws

Navigating Kenya's labor and tax regulations may be complicated. These laws are in place to protect workers' rights, but as an employer, you must meet all the statutory compliance requirements. 

One of the biggest challenges is misclassifying a contractor as an employee, which leads to lawsuits, fines, and reputational damage. Not being able to differentiate between an independent contractor and an employee may result in penalties, such as backdated employment benefits. 

Two references to a decade-old misclassification case in Kenya ruled a 25 percent penalty on the principal tax and charged an additional 2 percent interest on due payment. 

This occurs when the nature of work is not clearly defined in the contract, or proper documentation is not maintained. Managing your contractors in Kenya through a reputed Agent-of-Record solution like Skuad will meet local compliance requirements.  

2) Payroll challenges

Managing in-house payroll systems can become complex when managing multiple contractors in Kenya. You must deal with fluctuating exchange rates, local tax compliance, and varying payment preferences. Delays in payments, incorrect tax deductions, or a lack of integration between global and local payroll systems may strain relationships with contractors. 

In addition, to avoid legal complications, withholding taxes must be calculated correctly, and reporting requirements must be met. 

To maintain contractor trust and avoid penalties, you can ensure a seamless and compliant payroll process with dedicated contractor management software. Skuad's AOR solutions help track contractor performance and offer various international payment options and tax compliance for timely disbursements.  

3) Competition for quality labor

Kenya and Africa host some of the youngest populations worldwide, but many lack the specialized skills or high levels of experience that employers expect. 

Experienced professionals, especially in the tech sector, are quickly absorbed by multinational corporations, allowing them to continue with stiff competition for the cream of the crop talent. 

When looking to hire contractors in Kenya, you may face the pertinent issue of matching the right talent within the local market. 

4) Contractor vetting issues 

Studies by Mcebo Mathenjwa reveal that novice contractors in the construction industry experience difficulties with resource management, communication, and compliance with standard safety precautions. These difficulties affect the overall timeliness and quality of projects. 

Therefore, you must be involved in the rigorous vetting and skill assessments and provide Kenya contractors with clear guidelines and training to ensure alignment with project expectations.

Hire Contractors in Kenya with Skuad

You can save on HR costs and expenses for your Kenya operations by hiring contractors directly. 

However, the right contractor management partner can make the entire process easy and efficient. 

For instance, Skuad allows you to hire, pay, and manage multiple independent contractors while fully complying with Kenya's labor laws.

With Skuad AOR solutions, you don't have to set up a local entity or deal with the intricacies of tax regulations, payroll, or benefits administration. 

Furthermore, Skuad’s EOR solutions can help convert loyal contractors into full-time employees. Skuad operates in more than 160 countries and offers comprehensive contractor management solutions that cover everything from hiring to managing your workforce. 

Skuad makes it easy for you to focus on growing your business from onboarding to payments and compliance. Book a demo to learn more.

FAQs

Who is an independent contractor in Kenya?

An independent contractor in Kenya is a service provider or a supplier who works on a pre-defined project scope for a short time. Unlike full-time employees, Kenya labor laws do not oblige you to extend statutory benefits.

However, to avoid misclassification risks, fines, and penalties, you must clearly define the scope of work, project durations, and control over work schedules.

Do contractors pay tax in Kenya?

Contractors are individual proprietors or small-scale businesses that manage their taxes without help from their employers or clients. In Kenya, contractors pay VAT on income exceeding Ksh 5 million annually. The rate varies between 5% and 25%.

Can I hire a contractor overseas?

Yes, you can hire an overseas contractor for your operations in Kenya. However, the most preferred method is to manage your overseas contractors through AOR solutions. This ensures tracking contractor performance, timely payment disbursements, and compliance with local laws.

Is it cheaper to hire employees or independent contractors?

Independent contractors are cheaper to hire than employees. In Kenya, you don't have to extend statutory benefits such as health insurance to independent contractors; terminating them is straightforward. This reduces the overall cost of hiring contractors in Kenya.

How does Skuad help hire and pay independent contractors in Kenya?

Skuad offers well-recognized agent-of-record solutions for hiring, paying, and managing independent contractors in Kenya. You can draft contracts, track multiple contractors' milestones, pay in any currency, and more.