Sales Commission in Kenya: Structures and Tax

A sales commission plan in Kenya should pay a compliant basic salary plus commission for employees, be written into the contract, and be simple enough that a salesperson can calculate their own pay. Commission paid to employees is taxed through PAYE; commission paid to independent agents is their business income, which may attract withholding tax.

Common commission structures

Employees vs independent agents

This is the most important decision in a commission plan, because it decides which law applies.

An employee works under your direction: you set their hours, territory, targets and methods, and they are part of your business. The Employment Act applies - contracts, leave, notice and fair termination - and so do minimum wage orders. Commission-only pay for an employee risks falling below the minimum wage in a slow month, so pay a compliant basic and put commission on top.

An independent agent runs their own business: they choose how and when to work, often sell for more than one company, use their own resources, and invoice you. They can work on commission only under a commercial agency agreement.

Kenyan courts look at the real relationship, not the label in the contract. Calling a full-time, directed salesperson an "agent" does not stop them being an employee. See hiring employees in Kenya for more on employment status.

How commission is taxed

Commission paid to employees

KRA treats commission paid to an employee as employment income. Its PAYE guidance lists commissions with wages, salaries, bonuses and other cash pay subject to PAYE. Add commission to the employee's pay for the month it is paid, and calculate PAYE, NSSF, SHIF and the Housing Levy on the total as usual. See Kenya statutory deductions, or try the Kenya PAYE calculator with salary plus commission.

Commission paid to independent agents

Commission paid to a genuine independent agent is the agent's business income, and the agent declares it in their own tax return. Depending on how the service is classified, the payer may have to deduct withholding tax and remit it to KRA. KRA lists, for example:

• Sales promotion, marketing and advertising services: 5% for residents, 20% for non-residents.
• Insurance commission: 5% for brokers and 10% for other agents (residents), 20% for non-residents.

Withholding tax is generally remitted to KRA within five working days of payment. Because the classification of sales commission can vary, confirm the treatment of your payments with KRA or a tax adviser before you set up the agreement.

Designing a plan that works

1. Start from the margin. Decide how much of each sale's gross margin you can share, then set the rate.
2. Pay on what you value. Commission on margin or collected revenue, rather than invoiced sales, avoids rewarding heavy discounts and bad debts.
3. Keep it simple. A salesperson should be able to work out their commission on a phone calculator. Complex plans cause disputes and distrust.
4. Set realistic targets. If most of the team never reaches target, the plan is not motivating anyone. See sales targets and KPIs.
5. Decide the edge cases in writing: returns and refunds, split deals, deals that close after the person leaves, payment timing, and whether commission is capped.
6. Pay on time. Late or disputed commission is one of the fastest ways to lose good salespeople.

Put the plan in writing

For employees, the commission plan should be in the employment contract or a signed commission policy it refers to, including how commission is calculated, when it is paid, and what happens on termination. Changing an employee's pay terms generally needs their agreement, so get the plan right before you sign.

For agents, use a written agency agreement covering the commission rate, territory, exclusivity, payment terms, withholding tax and how either side can end the agreement.

How Cazini helps

In Cazini's payroll, an employee's pay can carry named allowances alongside the basic salary, and PAYE, NSSF, SHIF and the Housing Levy are calculated on the total automatically. Independent contractors are paid on a separate payment statement with withholding tax as their only deduction. Its built-in CRM shows each salesperson's pipeline and closed deals. See payroll and CRM.

Sources

• KRA: Employer's guide to PAYE (PDF)
• KRA: withholding tax
• KRA: everything about withholding tax

Frequently asked questions

Is sales commission taxable in Kenya?+

Yes. Commission paid to an employee is employment income - KRA lists commissions among the cash pay subject to PAYE - so it is added to the month's pay and taxed through payroll. Commission paid to an independent agent who is not your employee is the agent's business income, and may be subject to withholding tax depending on the service.

What is the withholding tax on sales commission in Kenya?+

It depends on how the service is classified. KRA lists withholding tax of 5% for residents on sales promotion, marketing and advertising services, and 5% for brokers or 10% for other agents on insurance commission. Confirm the treatment for your payments with KRA or a tax adviser.

Can I pay a salesperson commission only in Kenya?+

Only if they are a genuine independent agent running their own business. If they work as your employee - your hours, your targets, your direction - the Employment Act and minimum wage rules apply, so pay a compliant basic salary and put commission on top.

What is a typical sales commission rate?+

There is no standard rate. It depends on the product's margin, the price of the sale and how much of the work the salesperson does. Work backwards from the margin you can share, then test the plan against realistic sales numbers.