The New SHIF Deductions on Taxpayers' Payslips and How It Will Affect Employees

It seems like there will be no end to taxing changes in Kenya. The housing levy changes came with disapproval from employees in the country. So when the government proposed another 2.75% deduction, there was an uproar from members of the public. 

The SHIF bill is entering the implementation phase, which means major changes for employees. In addition, employers may have to make changes within the company since more deductions mean more responsibility.

So, what can Kenyan employees expect from the new SHIF deductions? This article outlines everything employees need to know about this deduction and tips on dealing with the change. 

What is SHIF?

The SHIF, or the Social Health Insurance Fund, will take over the National Hospital Insurance Fund. Individuals will use SHIF for preventive and promotive, and primary care services at dispensary, community, and health center levels. It will also build a chronic illness and emergency fund to provide for chronic diseases.

The government first proposed the bill, arguing that the existing system was unfair and favored high-income earners. The change is said to allow vulnerable individuals to access NHIF for free, let those in low-income brackets pay less, and make those who earn a lot pay more.

Contribution requirements fall to every household, the national government, the county government, and any non-Kenyan resident living in the country for more than a year. The deductions will be up to 2.75% of gross pay from each employee per month.  

Any household that does not have an income derived from employees will contribute annually, matching the 2.75% of the household's income. Community health workers across the country will conduct a socio-economic assessment to determine said income of the household.

The government will cover those who qualify as needy through a Ksh.26 billion kitty. All Kenyans must register as members of the SHIF.

Impact of New SHIF Deductions on Employees

The new SHIF (Social Health Insurance Fund) deductions on employees will have several significant impacts on individuals in Kenya. They include the following:

Cost of Healthcare

The first thing that will change is that healthcare will be more equitable. This means that low-income individuals will pay less or access healthcare for free. It significantly alleviates the financial burden on people with limited financial resources while providing them with access to medical care.

However, it also means that some employees will have to sacrifice more of their income to meet contribution requirements. For example, those earning 50,000 monthly will have to part with about 20.5%, translating to Ksh.10,264. In tough economic times, it could prove strenuous. 

Access to Healthcare Services

The SHIF aims to improve access to healthcare, especially for low-income individuals. The expansive coverage will help employees access a broader range of healthcare services. As the accepted bill states, each beneficiary will have access to an essential healthcare benefits package as described by the cabinet secretary. 

In addition, the passed SHIF bill will incorporate various healthcare facilities into a primary care network. These facilities are not just public but private and faith-based facilities. It ensures that individuals will have access to services where they are available. 

Healthcare Quality

The increased funding from the approved bill could mean improvements in the quality of care, facilities, and access to advanced medical technologies.

In addition, the SHIF offers extensive healthcare coverage, offering support for chronic illnesses. It will encourage individuals to seek healthcare and preventive services since they are contributing to the healthcare system. This can lead to better public health outcomes. 

What About Employers?

The introduction of a new healthcare tax deduction for employees can also have various impacts on employers, including:

Increased Administrative Work

Employers may have to deal with an additional administrative burden related to the implementation of the SHIF deduction. It can include accurately calculating and withholding the tax from employees' paychecks, ensuring compliance with tax regulations, and reporting tax data to relevant authorities.

Employers may need to invest in systems and software to ensure they are compliant with the new deductions. 

Compensation Adjustments

Employers may need to consider adjusting compensation packages and benefits to accommodate the changes in take-home pay due to the SHIF. It can include revising salary structures or revisiting benefit offerings.

Employee Morale and Retention

How employees perceive the impact of the SHIF deduction on their take-home pay can influence their morale. Employers may need to take steps to maintain employee satisfaction and retain talent.

Similarly, how employers respond to the new healthcare tax can impact their competitive position. Some employers may use the deduction as an opportunity to provide attractive healthcare benefits and stand out in the labor market.

Economic Impacts

But even with these considerations and changes, employers may need to evaluate the overall economic impact of the SHIF deduction, including its effects on their bottom line and the costs of doing business. The introduction of SHIF can influence employers' hiring decisions, especially if they have concerns about the impact on labor costs.

Tips for Employees

• Understand the Healthcare Tax. First and foremost, employees should educate themselves about the SHIF deduction. They should understand how it works, the percentage of their income it deducts, and the purpose of the tax.
• Review Finances. Employees should assess their financial situation to understand how SHIF will impact their take-home pay. Consider creating a budget to accommodate the reduced income.
• Explore Healthcare Benefits. Employers should review their employer-provided healthcare benefits. Determine how these benefits may change in response to the SHIF deduction. Employees should consider whether there are opportunities to optimize their healthcare coverage based on the new tax structure.

Navigating the New SHIF Deductions: What Kenyan Employees Need to Know

The SHIF, a pioneering initiative designed to overhaul the healthcare landscape, promises a more equitable approach to healthcare access. Yet, it also means that some employees may need to allocate a bigger portion of their income to meet these contributions, particularly in challenging economic times. 

So, employees adapting to the new SHIF deductions necessitates financial preparedness and an understanding of how these changes will impact their budgets and healthcare benefits.

The road ahead may bring both challenges and opportunities. However, with a clear understanding of SHIF and a proactive approach, employees can navigate this transformative phase in the healthcare landscape and ultimately benefit from a more equitable and accessible healthcare system.

Keep up with the changing landscapes of Kenyan taxes by following Workpay's informative blogs. 

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