Secondment Agreement Kenya: NSSF, NHIF and Tax — Who Pays When an Employee Works for Another Entity? (2026)

What a secondment is — and what the law says

A secondment is a temporary arrangement where an employer (the "sending entity") assigns an employee to work under the day-to-day control of another organisation (the "host entity") for a defined period. The sending entity does not terminate the employment contract; it continues throughout.

Under the Employment Act 2007 (Cap. 226), an employment contract cannot be transferred to a third party without the written consent of the employee — a principle recognised throughout Kenyan employment law and consistent with the fundamental rule that employment is a personal relationship. That means a secondment, properly structured, is not an assignment of the contract — the sending entity stays bound. Any agreement that purports to make the host the employer without a formal novation and employee consent is on shaky legal ground.

A well-drafted secondment agreement Kenya should spell out exactly which obligations remain with the sending entity and which the host assumes operationally, so that both sides know who is exposed if a dispute lands before the Employment and Labour Relations Court.

NSSF: who remits, and at what rate

The National Social Security Fund Act 2013 (No. 45 of 2013) imposes contribution obligations on "every employer" in respect of each employee. The sending entity, as the legal employer, is the one the NSSF registers and holds liable. Host entities that pay the employee's salary directly during a secondment without ensuring proper remittance are not off the hook — the Act treats both employer and employee as jointly responsible for ensuring contributions are made.

The 2013 Act introduced a tiered contribution structure pegged to the lower and upper earnings limits. After years of litigation — most notably the Court of Appeal decision in National Social Security Fund Board of Trustees v Kenya Tea Growers Association and 14 Others [2023] KECA 80 (KLR), which reversed the Employment and Labour Relations Court and cleared the way for implementation — the Supreme Court in February 2024 affirmed that the ELRC had jurisdiction to rule on the Act's constitutionality and remitted the substantive merits to the Court of Appeal for fresh hearing. Employers operating in 2026 should apply the current NSSF rates, which the Fund publishes through formal gazette notices; the figures have been subject to phased implementation, so confirm the applicable tier with the NSSF directly or via the Kenya Revenue Authority's employer guidance.

For seconded employees, the practical approach is for the sending entity to continue remitting NSSF and for the recharge agreement to include those contributions as a recoverable cost from the host. If the host entity is in a different jurisdiction — say, the employee is seconded to a Ugandan parent — the sending entity still remits to NSSF Kenya, and the cross-border recharge agreement must account for Kenyan social security costs explicitly.

NHIF: the employer-employee split during secondment

The National Health Insurance Fund Act (Cap. 255, as amended) requires employers to deduct the employee's NHIF contribution from salary and remit it together with the employer's contribution. For 2026, NHIF has transitioned to the Social Health Insurance Fund (SHIF) structure under the Social Health Insurance Act 2023. Employers must register with the Social Health Authority (SHA) and apply the income-based contribution rates prescribed under the 2023 Act.

During a secondment, the sending entity's payroll remains the vehicle for deduction and remittance. If the host entity pays a salary supplement — say, a cost-of-living allowance — that supplement may itself attract SHIF contributions depending on how the Social Health Authority treats it as "earnings." The secondment agreement should address this directly: does the host's allowance pass through the sending entity's payroll, or is it paid independently? Independent payments that bypass the payroll run the risk of missed contributions and penalties under section 27 of the Social Health Insurance Act 2023.

PAYE: the source-of-income analysis

Income tax on employment income in Kenya is governed by the Income Tax Act (Cap. 470). Section 5(1) brings into charge "gains or profits from employment" wherever arising, and the PAYE mechanism under section 37 and the Income Tax (Pay As You Earn) Rules 2010 places the deduction obligation on the employer paying the emoluments.

The complication in secondments is this: who is "paying" the emoluments? Three common structures produce different answers.

Structure 1 — sending entity pays, recharges host. The sending entity maintains payroll, deducts PAYE, and issues the P9A at year end. The recharge to the host is a service fee or cost reallocation, not employment income. This is the cleanest PAYE position.

Structure 2 — host entity pays the employee directly. The host becomes the payer of emoluments for PAYE purposes under the KRA's interpretation of section 37. The host must register as an employer with the KRA, obtain a PIN, and operate PAYE. Failure to do so exposes the host to penalties under section 37A of the Income Tax Act, which can reach 25% of the tax involved or Ksh 10,000, whichever is greater, plus interest on the unpaid amount.

Structure 3 — split salary. Part of the salary is paid by the sending entity, part by the host. Both entities are payers and both must deduct PAYE on their respective portions. Coordination is essential to avoid under- or over-deduction against the graduated PAYE bands.

The KRA's Public Notice on employer obligations confirms that any entity making a cash payment to an individual in respect of services rendered is an employer for PAYE purposes, regardless of what the underlying contract calls itself.

Transfer pricing on intercompany recharges

This is where secondments in multinational groups create their biggest risk. When a Kenyan parent seconds an employee to a foreign subsidiary, or a foreign parent seconds an employee to a Kenyan entity, the recharge for that employee's costs is a controlled transaction subject to Kenya's transfer-pricing rules.

The Income Tax Act (Transfer Pricing) Rules 2006 (Legal Notice No. 67 of 2006) require that transactions between associated persons be conducted at arm's length. A secondment recharge covering salary, NSSF, SHIF, and overhead loading must therefore reflect what two independent parties would agree. In practice, the KRA accepts cost-plus arrangements for intra-group service recharges — but the markup must be documented and defensible.

The KRA's transfer-pricing guidelines draw on the OECD Transfer Pricing Guidelines, and the Low Value-Adding Intra-Group Services rules are directly relevant to secondments. Under that framework, routine support services — including temporary employee transfers — can be recharged at cost plus a margin of up to 5%, provided the benefit to the recipient can be demonstrated. Document the benefit to the Kenyan host entity; if the KRA audits and finds no benefit test, the recharge may be disallowed as a deductible expense entirely.

Kenyan companies with cross-border secondments must also file a Local File under the Transfer Pricing (Country-by-Country Reporting) Rules 2022 if their group meets the Ksh 95 billion threshold. Smaller groups are still subject to the 2006 Rules and must maintain contemporaneous documentation.

Tax residence complications for the employee

An employee on a long secondment — generally more than 183 days in a tax year under section 2 of the Income Tax Act — risks becoming a Kenyan tax resident (or ceasing to be one, if the secondment is outbound). Residency affects which income is taxable in Kenya and can trigger double-taxation issues in the absence of a Double Tax Agreement.

Kenya has DTAs with several jurisdictions including the UK, Germany, France, India, and Zambia. Where a DTA applies, the Article on Income from Employment determines which state has taxing rights. If the employee's remuneration is borne by a host entity in Kenya and the secondment exceeds 183 days, Kenya's right to tax under most DTAs is engaged even if the employee is not formally Kenyan-resident.

The sending entity's tax advisers should assess this before the secondment begins — not after the KRA raises a query.

What the secondment agreement must cover

Given the statutory landscape, a secondment agreement in Kenya should address at minimum:

• Employer of record — which entity is the legal employer throughout, and that this is not changing without the employee's consent
• Payroll and deductions — who operates payroll, who remits PAYE, NSSF and SHIF, and on what timetable
• Recharge mechanism — the basis for cost recovery (cost-plus or full pass-through), the currency, and the frequency
• Transfer-pricing documentation — a clause requiring the parties to maintain records sufficient to satisfy KRA scrutiny
• Benefits continuity — whether the employee's leave accruals, pension benefits, and medical cover continue uninterrupted or are suspended
• End-of-secondment provisions — the return date, notice required to terminate early, and how a permanent transfer would be handled
• Governing law — typically Kenyan law for domestic secondments; for cross-border arrangements, a choice-of-law clause and dispute-resolution mechanism

Omitting any of these turns a secondment into a liability. The Employment and Labour Relations Court has awarded terminal benefits against sending entities that tried to disclaim responsibility at the end of an unstructured secondment on the basis that the host had been "running" the employee.

Practical compliance checklist

Before a secondment begins, run through these items:

1. Employee has given written consent to the arrangement (required under Kenyan employment law; the Employment Act 2007 makes clear that employment cannot be transferred without the employee's agreement)
2. Secondment agreement signed by all three parties — sending entity, host entity, and employee
3. NSSF and SHIF remittance obligations assigned in writing; sending entity remains registered payer
4. KRA notified if host entity will operate its own PAYE for the seconded employee
5. Transfer-pricing file opened with the intercompany recharge rate and benefit analysis documented
6. DTA assessed if the employee is cross-border or the host entity is in a treaty jurisdiction
7. Return date and early-termination notice period confirmed in the agreement

Kenya's employment law framework is clear on the formal employment relationship but largely silent on secondment mechanics. That silence means the parties have contractual freedom — and contractual risk. A structured agreement signed before the employee walks through the host's door eliminates most of that risk before it can crystallise.