Salary Review Letter (Kenya)

A Salary Review Letter in Kenya records a formal written communication and the action it calls for.

Section 10 of the Employment Act No. 11 of 2007 requires every employer who employs twenty-five or more employees to issue each employee with a written contract of service. Section 27 of the same Act requires the employer to notify the employee in writing of any changes to the particulars set out in the written contract, including changes to remuneration. A Salary Review Letter issued to an employee whose contract is in writing constitutes the formal written notification required by Section 27 of the Employment Act No. 11 of 2007.

The minimum wage framework in Kenya is set annually by the Cabinet Secretary for Labour through Legal Notices issued under the Regulation of Wages (General) Order made pursuant to the Labour Institutions Act No. 12 of 2007. The National Council for Law Reporting publishes updated minimum wage scales for various categories of workers — general labourers, domestic workers, security guards, artisans, and supervisors — classified by skill level and location (Nairobi metropolitan area, other municipalities, and rest of Kenya). A Salary Review Letter must always result in a revised salary that meets or exceeds the applicable minimum wage scale for the employee's job category.

The Kenya Revenue Authority (KRA) requires employers to deduct Pay As You Earn (PAYE) tax from employees' salaries under Section 37 of the Income Tax Act Cap. 470. A salary increase alters the employee's PAYE tax band. Employers must update the employee's PAYE deductions with effect from the same pay period in which the salary increase takes effect, remitting revised PAYE to KRA via the iTax portal by the ninth day of the following month under Section 37(3) of the Income Tax Act Cap. 470. The National Social Security Fund (NSSF) contributions under the NSSF Act No. 45 of 2013 and the National Health Insurance Fund (NHIF) contributions under the NHIF Act Cap. 255 are also affected by a salary change.

Where a Salary Review Letter increases the employee's salary above the threshold triggering a new NSSF contribution tier under the NSSF Act No. 45 of 2013 (as amended by the NSSF Act 2023, though note the ongoing court challenges to the tiered contribution structure), the employer must update the NSSF deductions accordingly. Similarly, the National Hospital Insurance Fund (NHIF) contributions under the NHIF Act Cap. 255 are income-graduated and must be recalculated at the revised salary level.

A Salary Review Letter is distinct from a bonus letter, a commission schedule, and a benefits amendment letter — those instruments deal with variable pay components and non-cash benefits, whereas the Salary Review Letter addresses the fixed basic salary forming the primary element of the contract of service under the Employment Act No. 11 of 2007.

A Salary Review Letter in Kenya is required in the following employment circumstances to document and formalise changes to an employee's remuneration.

Annual Merit Review: When an employer conducts an annual performance review and decides to award a merit salary increase to an employee. The Employment Act No. 11 of 2007 requires written notification of any variation to the contract of service. An annual merit review letter provides a formal, auditable record of the salary progression that protects both employer and employee in any future dispute before the Employment and Labour Relations Court of Kenya.

Promotion and Role Change: When an employee is promoted to a higher grade or assigned to a position with greater responsibility, a Salary Review Letter documents the new salary commensurate with the promoted role. Many Kenya employers use the Salary Review Letter in conjunction with a Promotion Letter, though the two documents may be combined or issued separately.

Cost-of-Living Adjustment: When an employer grants a cost-of-living adjustment (COLA) in response to inflation — particularly following increases in the Consumer Price Index (CPI) published by the Kenya National Bureau of Statistics (KNBS) — a Salary Review Letter formalises the adjustment and its effective date. Kenya trade unions negotiating under collective bargaining agreements (CBAs) registered under the Labour Relations Act No. 14 of 2007 with the Registrar of Trade Unions may require mandatory COLA adjustments, which must be evidenced by individual salary review letters issued to covered employees.

Minimum Wage Compliance: When the Cabinet Secretary for Labour issues a new Minimum Wage Legal Notice under the Labour Institutions Act No. 12 of 2007 — typically in May of each year — employers whose employees are paid at the minimum wage must issue Salary Review Letters adjusting salaries to the new minimum wage rates effective from the date specified in the Legal Notice, even if no merit increase is intended.

Probation Confirmation: When an employee successfully completes their probation period — typically three to six months under a standard Kenya employment contract — and the employer decides to confirm the employee's appointment, a Salary Review Letter documenting the post-probation salary is issued together with or following a Confirmation of Employment letter.

CBA-Mandated Increase: When a collective bargaining agreement registered with the Employment and Labour Relations Court under Section 59 of the Labour Relations Act No. 14 of 2007 provides for scheduled salary increases at defined intervals, the employer must issue individual Salary Review Letters to each covered employee to evidence compliance with the CBA terms.

A Kenya Salary Review Letter under the Employment Act No. 11 of 2007 must contain the following elements to be legally effective and complete.

Employer Details: Full name of the employer (company or individual), business registration number from the Business Registration Service (BRS) for companies, and the employer's address. The letter must be on the employer's official letterhead where one exists.

Employee Details: Full name of the employee; employee number or payroll reference number; job title and department; and the employee's current place of work or reporting location.

Date of Letter and Effective Date: The date the letter is issued and — critically — the effective date from which the revised salary applies. These may differ: a letter issued on 1 March may confirm a salary increase effective 1 January of the same year (backdated adjustment) or 1 April (prospective). The effective date determines the PAYE recalculation period under the Income Tax Act Cap. 470.

Current Salary: The employee's current basic monthly salary in Kenya Shillings (KES), stated before PAYE and statutory deductions. Where the employment contract specifies gross and net salary separately, both should be referenced.

Revised Salary: The new basic monthly salary in Kenya Shillings (KES) effective from the stated date; the percentage or absolute amount of the increase for transparency; and where applicable, any change to allowances — house allowance, commuter allowance, medical allowance — that form part of the total remuneration package.

Reason for Review: A brief statement of the basis for the salary change — merit review, promotion, cost-of-living adjustment, minimum wage compliance, CBA obligation, or probation confirmation. This is not legally mandatory under the Employment Act No. 11 of 2007 but is considered best practice and reduces the risk of future disputes before the Employment and Labour Relations Court of Kenya.

Variation of Contract Clause: A statement confirming that all other terms and conditions of the employee's contract of service remain unchanged except as expressly stated in the letter, and that the letter constitutes a variation of the contract of service under Section 27 of the Employment Act No. 11 of 2007. This clause prevents the employee from later arguing that the employer has fundamentally altered the contract by other means.

Tax and Statutory Deduction Notice: A note confirming that revised PAYE will be deducted from the effective date under the Income Tax Act Cap. 470, and that NSSF and NHIF contributions will be recalculated at the revised salary level. This protects the employer from disputes about deduction timing.

Acknowledgement Signature Block: A space for the employee to sign and return a duplicate copy to HR, acknowledging receipt and acceptance of the revised salary terms. Under Section 27 of the Employment Act No. 11 of 2007, the variation takes effect when communicated to the employee — the signed acknowledgement provides documentary evidence of communication.

Authorised Signatory: The letter must be signed by an authorised representative of the employer — a director, HR manager, or country manager — with their name, title, and date of signing.

Forms-legal.com's Kenya Salary Review Letter template incorporates all the elements required under the Employment Act No. 11 of 2007, the Income Tax Act Cap. 470 PAYE provisions, and the Labour Institutions Act No. 12 of 2007 minimum wage compliance framework, confirming employers can issue fully compliant salary variation notices efficiently.