Check-off lending only works if the employer's payroll team runs it cleanly. The employer signs a Memorandum of Understanding with the lender, deducts the monthly instalment from consenting employees' payroll, remits it to the lender before crediting the net salary, and enforces the statutory two-thirds cap on total deductions.
The Memorandum of Understanding
The MoU sets out: the deduction authorisation flow, the lender's deduction schedule, the employer's remittance cadence and account, the exit clearance obligations, and the dispute resolution channel. Most Kenyan employers negotiate the MoU centrally with their HR business partners before rolling out to staff.
The two-thirds rule
Under section 19(3) of the Employment Act 2007, an employer must not deduct from an employee's wages more than two-thirds of the amount due in any wage period for statutory deductions and other authorised deductions combined. Modern Kenyan payroll systems (SAP, Sage, Kestone, Wingubox, Odoo, Zoho) enforce this automatically: if a new check-off would breach the cap, the deduction is rejected and the loan cannot be approved at the requested amount.
HR and payroll checklist
- Signed MoU with the lender, reviewed by legal.
- Employee consent form on file for every check-off borrower.
- Payroll system configured with the lender remittance account and reference format.
- Monthly reconciliation of deductions taken vs remitted.
- Two-thirds rule enforcement live in the payroll system.
- Exit clearance workflow: HR notifies the lender within 48 hours of any resignation, dismissal, retirement or death.
- Terminal dues withheld and applied to loan settlement before net terminal payment.
- Any deduction dispute escalated through a documented complaints channel.
Risk for employers
If an employer fails to remit a deduction taken from an employee's payroll, the employer is liable to both the employee (for wrongful deduction) and the lender (for breach of MoU). Get the remittance discipline right or do not offer check-off at all.