An official response from Bestcare Manpower Services
Allowances are not all treated equally under tax law. The distinction between taxable and non-taxable allowances is an area where many outsourcing arrangements go wrong — creating unexpected tax liabilities for employees and compliance risks for employers. Bestcare Manpower Services applies a careful, informed approach to the tax treatment of every allowance we administer.
The Tax Treatment of Common Allowances
Transport Allowance Under Kenya Revenue Authority (KRA) guidelines, a portion of transport allowance may be exempt from PAYE tax, provided it does not exceed prescribed thresholds. Allowances above the exempt threshold are included in the employee’s taxable income. Bestcare monitors these thresholds and adjusts payroll calculations accordingly.
Meal Allowance Meal allowances are generally considered taxable unless they are provided in kind (i.e., actual meals at a workplace canteen). Cash meal allowances paid alongside salary are included in the computation of PAYE. Bestcare correctly codes these in payroll to avoid under-deduction.
Housing Allowance Housing allowance is typically treated as part of gross income for PAYE purposes. Where housing is provided as a benefit in kind — rather than as a cash allowance — it may be assessed at a prescribed percentage of the employee’s basic salary for fringe benefits tax purposes.
Statutory Reporting Obligations
Bestcare, as employer of record for outsourced staff, is responsible for correctly reporting all compensation components to the KRA and other statutory bodies. This includes ensuring that taxable allowances are reflected in monthly PAYE returns, contributions to NSSF and NHIF are calculated on the correct earnings, and annual P9 forms issued to employees accurately reflect total emoluments.
Errors in allowance treatment can result in penalties from the KRA, back-tax assessments, and employee complaints. Bestcare’s payroll team undergoes regular training to stay current with regulatory changes.
“Tax compliance on allowances is an area where precision matters enormously. A well-meaning but incorrectly structured allowance can cost an employee significantly in unexpected deductions. We get this right so they don’t have to worry about it.”
— The Director and Team, Bestcare Manpower Services
The tax and statutory treatment of outsourced employee allowances requires specialist knowledge and consistent application. Bestcare Manpower Services provides that expertise as a standard feature of our payroll management service, protecting both clients and employees from compliance risk.