Difference Between a Consultant and an Employee in Kenya: Simple Guide
Maina Susan is a content researcher at Bubi-Alexander, who simplifies Virtual CFO services for multinationals and NGOs with her finance expertise.
LinkedIn >>Estimated read time: 3 minutes
If you run a business or are hiring in Kenya, you need to clearly understand the difference between a consultant and an employee in Kenya.
In simple terms:
- An employee works for your business while a consultant runs their own business and provides services to you
Why this matters to you:
Because how you classify someone directly affects:
- Your taxes (PAYE vs Withholding Tax)
- Your payroll obligations
- Your compliance with KRA
If you get it wrong, you could face penalties, backdated PAYE, and tax audits.
This simple guide by Bubi Alexander will help you understand the difference, apply the correct tax treatment, and avoid costly mistakes.
Let’s jump in!!
Table of Contents:
- What is the difference between a consultant and an employee in Kenya?
- Who is an Employee in Kenya?
- How Is an Employee Taxed in Kenya?
- How Is a Consultant Taxed in Kenya?
- What Is Withholding Tax (WHT)?
- Key Tax Features of a Consultant in Kenya
- Consultant Tax Treatment in Kenya
- Recommended Articles
- Do You Need eTIMS Invoices for Salaries or Consultant Payments?
- How to Correctly Categorize Your Workers
- Why Getting This Wrong Can Cost You
- Payroll outsourcing in Kenya with Bubi Alexander
- FAQs on the Difference Between a Consultant and an Employee in Kenya
- Conclusion
- Do You Need Help Outsourcing your Payroll in Kenya?
What Is the Difference Between a Consultant and an Employee in Kenya?
The easiest way to understand the difference between a consultant and an employee in Kenya is to look at control and independence.
- If the person works under your control, they are an employee
- If they work independently, they are a consultant
Confused about whether your workers should be classified as employees or consultants in Kenya?
Bubi Alexander can help you structure your payroll correctly and stay fully compliant with KRA.
Book a Free Consultation with Bubi Alexander TodayWhatsAppWho is an Employee in Kenya?
An employee in Kenya is someone who works for your business under your control and direction.
When you hire an employee:
- You decide their working hours and schedule
- You assign and supervise their work
- They are part of your internal team
- They depend on your business for their income
In simple terms, an employee works for you, not independently.
How Is an Employee Taxed in Kenya?
If you are an NGO or running a small organisation in Kenya, understanding the tax Difference Between a Consultant and an Employee in Kenya is very important.
When you hire an employee, they are part of your organisation. This means you are responsible for handling their taxes every month before they are paid.
This system is called PAYE (Pay As You Earn).
| Deduction | Rate | What It Means | Who Pays It |
|---|---|---|---|
|
PAYE (Income Tax)
|
10% – 35% (progressive)
|
– Tax based on salary level
|
Employee (you deduct & remit)
|
|
NSSF (Pension)
|
6% of gross salary (shared contribution structure)
|
– Retirement savings
|
Employer + Employee
|
|
SHIF (Health Insurance)
|
Approx. 2.75% of gross salary
|
– Medical cover
|
Employee (deducted by employer)
|
|
Affordable Housing Levy (AHL)
|
1.5% of gross salary
|
– Housing fund contribution
|
Employer + Employee
|
Simple Example for You (NGO Context)
Let’s say your NGO pays a staff member Ksh 50,000 per month:
- You calculate PAYE based on KRA tax bands (10%–35%)
- You deduct NSSF at 6% contribution level
- You deduct SHIF (health insurance contribution)
- You deduct Affordable Housing Levy at 1.5%
- You send all deductions to KRA and statutory bodies
- You pay the employee their net salary (after deductions)
The employee does not deal with KRA directly — you do
What This Means for You
If you are an NGO or non-profit organisation in Kenya:
- You must run monthly payroll correctly
- You must classify staff properly (employee vs consultant)
- You must remit taxes on time to avoid penalties
- You must keep payroll records for audits and compliance reviews
NGOs are often audited, so payroll accuracy is critical.
Simple Rule to Remember (Very Important)
- Employee = Full Payroll Responsibility for You
Not sure if you are applying PAYE or Withholding Tax correctly in your organisation?
We help NGOs and SMEs simplify payroll and avoid costly tax mistakes.
Book a Free Consultation with Bubi Alexander TodayWhatsAppHow Is a Consultant Taxed in Kenya?
If you are an NGO or running a small organisation in Kenya, understanding the Difference Between a Consultant and an Employee in Kenya is very important.
When you hire a consultant, they are not part of your organisation’s payroll. Instead, they operate as independent professionals who provide services to you.
This means they are responsible for how they deliver the work—and how they manage their own taxes.
This system is called Withholding Tax (WHT).
What Is Withholding Tax (WHT)?
Withholding Tax is a tax that you deduct at source when paying a consultant or service provider.
Instead of paying the full amount, you:
- Deduct a small percentage (commonly 5% for consultancy services)
- Remit that tax directly to KRA
- Pay the consultant the remaining balance
Key Tax Features of a Consultant in Kenya
When you hire a consultant:
- They are treated as self-employed
- They manage and file their own income tax returns
- They may charge VAT (if they are VAT registered and meet the threshold)
- They issue eTIMS-compliant invoices for their services
You do NOT:
- Deduct PAYE
- Add them to your payroll system
- Provide employee benefits (leave, pension, medical cover, etc.)
Consultant Tax Treatment in Kenya (Simple Breakdown)
| Deduction | Rate | What It Means | Who Pays It |
|---|---|---|---|
|
Withholding Tax (WHT)
|
5% (example for consultancy services)
|
– Deducted from invoice before payment
|
You deduct & remit to KRA
|
|
Net Payment
|
95%
|
– Paid to consultant after deduction
|
You pay consultant
|
|
Income Tax (Balance)
|
Varies
|
– Consultant declares remaining income in tax returns
|
Consultant handles this
|
Important Note
- If the consultant payment is KSh 24,000 or below, no withholding tax is deducted.
- Only payments above this threshold attract withholding tax as per Kenyan tax rules.
Simple Example for You (NGO Context)
Let’s say your NGO hires a consultant for Ksh 100,000:
- You deduct 5% Withholding Tax (Ksh 5,000)
- You remit the Ksh 5,000 directly to KRA
- You pay the consultant Ksh 95,000 (net amount)
The consultant then:
- Includes the full Ksh 100,000 in their income records
- Pays income tax on their total earnings when filing returns
- Manages their own tax obligations
What This Means for You (Especially NGOs in Kenya)
If you are an NGO or non-profit organisation:
- You must correctly apply Withholding Tax on consultant payments
- You must remit the tax (e.g. 5%) to KRA on time
- You must ensure consultants issue proper invoices (often eTIMS compliant)
- You must NOT treat consultants as employees in payroll
- You must maintain proper bookkeeping for audits and donor reporting
NGOs are frequently audited, so correct classification is critical to avoid tax penalties or PAYE reclassification.
Simple Rule to Remember
- Consultant = You deduct 5% WHT and remit to KRA, then pay the balance (95%)
- Employee = You deduct PAYE and run full payroll
Do You Need eTIMS Invoices for Salaries or Consultant Payments?
This is one of the most common areas of confusion when understanding the Difference Between a Consultant and an Employee in Kenya, especially for NGOs and small organisations.
The rule is actually very simple once you break it down.
For Employees (Salaries)
- No eTIMS invoice is required
- Salaries are processed through your payroll system
- Payments are made based on employment contracts, not invoices
Employees do not issue invoices because they are part of your organisation.
For Consultants
- eTIMS compliance is required
- Consultants must issue eTIMS invoices for services rendered
- These invoices support:
- Expense claims
- Tax compliance
- Audit documentation (especially important for NGOs)
Consultants are treated as independent businesses, so invoicing is mandatory.
How to Correctly Categorize Your Workers
This is where most businesses make mistakes.
Even if you call someone a “consultant,” KRA will look at the reality.
Simple Questions You Should Ask
Use these simple questions to guide you:
- Do you control how they work, when they work, or where they work? → Employee
- Do they work only for your organisation like part of your team? → Employee
- Do they issue you invoices for services? → Consultant
- Do they run their own independent business and serve other clients? → Consultant
Why Getting This Wrong Can Cost You
If you misclassify a worker in Kenya — especially treating an employee as a consultant—the consequences can be serious for your business or NGO.
Even if it was done unknowingly, KRA focuses on the actual working relationship, not the job title.
What Can Happen If You Get It Wrong
- KRA may issue backdated PAYE assessments (sometimes for several months or years)
- You may be charged penalties and interest on unpaid taxes
- Your organisation may be flagged for a tax audit or compliance review
- You may be required to reconstruct payroll records and correct filings retroactively
Payroll Outsourcing in Kenya with Bubi Alexander
Managing payroll, PAYE, and withholding tax can quickly become overwhelming—especially if you’re a growing business.
This is where payroll outsourcing in Kenya becomes essential.
How Bubi Alexander can help you Outsource your Payroll:
We don’t just process payroll—we help you get it right from the start, by helping you create an effective payroll structure so your organisation avoids costly tax mistakes and KRA penalties.
If you are an NGO or an SME in Kenya, getting the Difference Between a Consultant and an Employee in Kenya correct is the foundation of payroll compliance.
That’s exactly what we help you do.
What We Help You With
- Correctly classify employees vs consultants
- Apply the right tax treatment (PAYE vs Withholding Tax)
- Set up and manage your payroll system properly
- Process monthly payroll, deductions, and statutory contributions
- Handle KRA filings and compliance requirements
- Reduce your risk of penalties, audits, and backdated taxes
Book Your Free Consultation Today
Get expert help to simplify your payroll, stay compliant, and avoid KRA penalties.
- Book your free consultation with Bubi Alexander today and get your payroll done right the first time.
FAQs on the Difference Between a Consultant and an Employee in Kenya
1. What’s the difference between PAYE and Withholding Tax in Kenya?
- PAYE applies when you hire employees and is deducted from their monthly salary together with other statutory deductions.
- Withholding tax applies when you pay consultants and is deducted before payment is made.
Simply put, PAYE is for employees and withholding tax is for consultants.
2. Do consultants pay tax in Kenya?
- Yes, consultants still pay tax in Kenya.
- You deduct withholding tax before paying them.
- They then declare their income and file their own tax returns.
3. Are consultants entitled to annual leave in Kenya?
- No, consultants are not employees of your organisation.
- They do not receive annual leave or employee benefits like pension or medical cover.
- They work independently and manage their own arrangements.
4. What’s the difference between a casual worker and an employee in Kenya?
- A casual worker is hired for short-term or daily tasks and paid per day or job.
- An employee works under a formal contract and is paid monthly through payroll.
- Employees are subject to PAYE and statutory deductions while casual workers are not fully structured like employees.
5. What is payroll outsourcing in Kenya?
- Payroll outsourcing is when you hire experts to manage your payroll and tax compliance.
- They handle PAYE, withholding tax, and statutory deductions on your behalf.
- This helps you stay compliant and avoid payroll mistakes and penalties.
Outsource your Payroll with Bubi Alexander today!!
Conclusion
Understanding the Difference Between a Consultant and an Employee in Kenya helps you apply the correct tax treatment in your organisation.
It also helps you stay fully compliant with KRA requirements and avoid costly penalties or audits.
When you classify workers correctly from the start, you protect your business or NGO from unnecessary tax risks.
Do You Need Help Outsourcing your Payroll in Kenya?
If you want to avoid payroll mistakes and stay fully compliant, Bubi Alexander is your trusted payroll outsourcing partner in Kenya.
Let us handle your payroll while you focus on growing your business.
Get a Free Quote from us Today!!
Would you like us to assist you with:
Classifying your employees and consultants correctly in Kenya?
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WhatsAppDisclaimer
This article is for general informational purposes only and does not constitute tax or legal advice. For specific guidance, please consult Bubi Alexander.
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