When an international company decides to establish a local presence in Kenya, the first real operational step that arises is how to onboard employees correctly. The business may already have customers, projects, partners or a clear reason to be in the country, but what it may not have answered yet are questions like, “Who will employ the staff? Who prepares the contracts? Who runs payroll? How are taxes and statutory deductions handled? etc.”

For such companies entering Kenya, an Employer of Record (EOR) can provide practical answers to many of these questions. An EOR is a third-party partner that acts as the legal employer for your workforce in Kenya. EOR offers practical solutions for companies that want to hire local talent without setting up a legal entity in the country. While the company retains full control over the day-to-day tasks and team management, the EOR serves as the official employer for tax, payroll, compliance and legal purposes.

This arrangement makes it possible for the company to hire quickly, remain compliant and focus on business operations without dealing with the complexities of Kenyan employment laws and regulations. Simply put, the EOR serves as the legal bridge between a business and its workforce.

How the EOR Arrangement Works

The legal structure between an EOR and the client company in Kenya is a triangular relationship designed to facilitate local employment without the client needing to establish a local presence. Under this structure, the EOR acts as the legal employer on record, while the client company remains the operational manager.

The relationship is typically formalized through three distinct legal pillars: -

1. Service Agreement (EOR versus Client Company): A service contract between the EOR provider and the foreign/local client company, outlining payroll funding, fees, benefits, expenses, confidentiality, employee data, disciplinary matters, compliance responsibilities and termination.

2. Employment Contract (EOR versus Worker): A written contract compliant with the Employment Act 2007 signed between the EOR and the worker. The EOR is listed as the employer on paper. The contract should clearly set out the employee’s role, pay, working hours, place of work, leave and other terms.

3. Assignment Arrangement (Employee versus Client): The employee is assigned to provide services to the client company, which directs their daily tasks, performance, and workload. 

The structure is straightforward, but the responsibilities must be clear from the start.

The Value of an EOR

The value of an EOR is not simply that it can issue a pay slip every month. A professional EOR should be able to manage the main employment obligations that come with hiring staff in Kenya. These usually include preparing employment contracts, onboarding employees, maintaining employment records, running payroll, administering leave and benefits, making statutory deductions and assisting with disciplinary and termination processes.

Recent Changes in Law

For every employee, the client company should be able to see the full employment cost being,

Salary + employer statutory costs + benefits + insurance + reimbursable expenses + EOR fee.

This matters because the gross salary offered to an employee is not the same as the total amount the company will spend.

The Finance Act, 2026 introduced a new provision giving clarity on the taxable value for EOR costs for VAT purposes. Sub-section (5A) clarifies that, “where a supplier provides labour, outsourcing or employee placement services and incurs employee-related costs, such costs shall be deemed to be disbursements made by the supplier on behalf of the client”. Employee related costs have been defined under Sub-section (5B) as including salaries, wages, statutory deductions and such other related costs.

Conclusion

An EOR does not remove questions around corporate tax, permanent establishment, immigration, licenses or sector-specific regulations. Those matters depend on what the international company is actually doing in Kenya and may require specific advice.

The best way to look at EOR is therefore simple. It is the local employment platform on which an international company can build its Kenyan team. The quality of that platform matters. For companies investing in Kenya, choosing the right EOR should not simply be a payroll decision. It should be treated as part of establishing a properly run local business.