MINIMUM WAGE

Why employers are not happy with Uhuru

Employers warn that the increase on the statutory minimum wage by 12 per cent will result in as low hiring and increased redundancies in the coming months.

In Summary

•FKE President Habil Olaka, said companies will have a negative outlook on cashflows due to increased demand for a review of general wages and collective bargaining agreements.

•Employers warn that the increase on the statutory minimum wage by 12 per cent will result in as low hiring and increased redundancies in the coming months.

Federation of Kenya Employers CEO Jacqueline Mugo with the management board held in a press briefing on Friday, May 5.
Federation of Kenya Employers CEO Jacqueline Mugo with the management board held in a press briefing on Friday, May 5.
Image: FKE,

Kenyan employers are not pleased with President Uhuru Kenyatta's move to increase the statutory minimum wage by 12 per cent.

Employers, through the Federation of Kenya Employers(FKE) said the increment is unsustainable given the country is still recovering from a rough economic terrain. 

They warned that the new directive will result in tough consequences such as low hiring and increased redundancies in the coming months.

President Uhuru termed the increase "an appreciation to workers for their critical contribution to the economy during the pandemic", but this could end up hurting Kenyans.

FKE President Habil Olaka, in a media briefing on Friday, said companies will have a negative outlook on cashflows and financial positions due to a higher demand for a review of general wages and collective bargaining agreements.

“In the medium term, as enterprises readjust their operations to meet the increased payroll costs, we expect to see an increase in redundancies, increased automation and outsourcing, and depressed hiring,” he said.

He added that new graduates entering the market at all levels should be prepared for an extended period of searching for employment and remaining employed.

FKE said the agriculture sector which contracted by 0.4 per cent in 2021, according to latest KNBS Economic Survey, will be among the most hurt  as it employs the majority of  Kenyans especially minimum wage workers.

While the federation said that it will comply with the directive, it called for the government to also raise the upper limit of the lower income tax bracket from Sh24,000 to Sh35,000 per month and increase the tax relief to Sh 3,500 per month.

“This would have had a greater positive impact in increasing people’s purchasing power while cushioning enterprises,” FKE said.

It urged the government to recognize the high cost of living and the state of the economy and adopt a balanced approach to protect jobs and promote the sustainability of enterprises.

The government had not reviewed the minimum wage for years despite a rising cost of living.

KNBS Economic Survey 2022 released on Thursday indicated that inflation rose to a four-year high to 6.1 per cent in 2021 up from 5.4 per cent the previous year.

This was the highest cost of living recorded in the country since 2017 when it hit eight per cent.

“In full appreciation of the critical contribution of workers to the economy [and] following the recommendation of various stakeholders… we find that there is a compelling case to review the minimum wages so as to cushion our workers against further erosion of their purchasing power, while also guaranteeing the competitiveness of our economy,”  Uhuru said when he ordered the wage modification .

The minimum basic pay was last reviewed upwards in May 2018 at the rate of five percent.


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