- March 26, 2026
- Posted by: admin
- Category: Advisor
Executive Summary
The concept of “usual place of work” sits at the heart of Kenya’s per diem taxation framework, yet remains undefined in statute. With the Finance Act, 2025 increasing the tax-free per diem threshold from KES 2,000 to KES 10,000 per day effective 1 July 2025, understanding this concept has never been more critical for employers and employees alike. This article examines how Kenyan courts have interpreted “usual place of work” through key judicial decisions, considers international jurisprudence, and provides practical guidance for navigating this complex area of employment tax.
1. Introduction: The Statutory Gap
Section 5(2)(a)(iii) of Kenya’s Income Tax Act (Cap 470) provides that where an employee receives payment for subsistence, travelling, entertainment or other allowance “in respect of a period spent outside his usual place of work while on official duties,” the first KES 10,000 per day is deemed reimbursable and excluded from taxable gains or profits.
Critically, the Act offers no definition of “usual place of work.” This legislative silence has generated considerable litigation, as taxpayers and the Kenya Revenue Authority (KRA) advance competing interpretations. The stakes are substantial: mischaracterizing an employee’s presence at a location can result in significant PAYE liabilities, penalties, and interest.
The recent increase from KES 2,000 to KES 10,000—described by tax practitioners as “a relief to employees working away from their employer’s premises”—makes proper classification even more consequential. As one tax commentary noted, the previous limit was “often too low to cover actual daily expenses”; the new threshold provides meaningful relief, but only for genuine out-of-station assignments.
2. Conceptual Framework: What Constitutes “Usual Place of Work”?
In the absence of statutory definition, employers and courts have developed practical approaches to determining an employee’s usual workplace. These may be categorized as follows:
2.1 Fixed Workplace
Where an employee has a designated permanent location—an office, factory, or specific worksite identified in their contract—that location constitutes their usual place of work. A Nairobi-based accountant whose employment contract specifies attendance at the company’s headquarters cannot claim per diem for commuting to that location.
2.2 No Fixed Workplace
For employees whose roles inherently require mobility—sales representatives, field engineers, auditors—the “usual place of work” may be interpreted as a defined operational area. A technician servicing clients across Mombasa County may properly consider Mombasa their usual workplace, but travel to Kisumu could qualify for the allowance exemption.
2.3 Remote and Home-Based Workers
The post-pandemic rise of remote work introduces new complexities. For employees with permanent work-from-home arrangements, their residence may be deemed their usual workplace. Travel to the company’s head office for meetings could therefore trigger per diem eligibility—a significant consideration for organizations adopting hybrid models.
3. Kenyan Case Laws
Kenyan courts have grappled with the “usual place of work” concept in two significant cases, each illuminating different facets of the inquiry.
3.1 Kinuthia v Nairobi City Water and Sewerage Company Limited [2025] KEELRC 622 (KLR)
Facts: The claimant was employed from September 2005 until August 2018. In January 2008, due to post-election violence, he was “temporarily transferred” via internal memo from Dandora to Ngethu Water Works, where he remained for four years and three months. Upon retirement, he claimed unpaid per diem of KES 7,000 per day for 20 days monthly throughout this period.
Key Arguments:
- Claimant: The transfer was temporary; he could not settle permanently at Ngethu; he spent nights away from his original station; company regulations and CBA entitled him to per diem.
- Respondent: The movement constituted a transfer, not out-of-station duty; the claimant received transfer allowance; HR policy limited per diem to employees away on official duty for ≤14 days.
Holding: The Employment and Labour Relations Court dismissed the claim. Justice Keli reasoned that the January 2008 memo explicitly stated “the production manager is to ensure proper take over” and “I wish you well in your new assignment”—language wholly inconsistent with temporary duty. The claimant’s duties at Dandora were assumed by another employee, and he remained at Ngethu for over four years. These were “hallmarks of transfer and not out of station duties.”
Significance: Kinuthia establishes that prolonged presence at a location, even if initially labelled “temporary,” transforms that location into the employee’s usual workplace. The substance of the arrangement—where the employee actually and habitually performs duties—prevails over labels.
3.2 OML Africa Logistics Limited v Kenya Revenue Authority [2023] KEHC 1211 (KLR)
Facts: OML dispatched employees from Nairobi to provide services at Tullow Kenya BV’s remote oil and gas exploration site. KRA assessed PAYE of KES 18.2 million on the value of meals and accommodation provided at the site, treating these as taxable benefits.
OML’s Arguments:
- Employees were temporarily assigned to Tullow’s site due to security risks (no safe alternatives)
- Assignment was contractually required under the Tullow agreement
- Employees’ usual workplace remained OML’s Nairobi headquarters
- Meals and accommodation were necessary for duty performance, not employee benefit
KRA’s Position:
- No legal exemption for “necessity” exists in the Income Tax Act
- Physical presence at Tullow’s site (for extended periods) made it the de facto workplace
- Costs were expensed in OML’s books and back-charged, confirming they were employer-provided benefits
Holding: The High Court upheld KRA’s assessment. Justice Mshila emphasized that tax laws must be interpreted strictly—exemptions cannot be implied based on operational necessity. The court rejected OML’s reliance on English authorities (Reed v Cattermole) as distinguishable and unable to override clear statutory provisions.
Critical Finding: “The resolution of this appeal lies in the proper interpretation of the… Income Tax Act provisions. A plethora of case law… reiterate the established principles that tax legislation must be interpreted strictly without implication or intendment.”
Significance: OML confirms that employer motivations—security, contractual compliance, performance enhancement—are irrelevant to the “usual place of work” inquiry. Where employees are physically present and performing duties, that location becomes their workplace for tax purposes, regardless of why they are there.
4. International Perspectives
Comparative jurisprudence reinforces the principles emerging from Kenyan courts.
4.1 United Kingdom: Pook v Owen (1969)
Facts: A general practitioner held part-time hospital appointments 15 miles from his practice. He was on stand-by duty, required to be accessible by telephone. Upon receiving emergency calls, he would provide telephone instructions before travelling to the hospital.
Holding: The House of Lords held that his duties commenced upon receiving the telephone call, making travel expenses deductible. The hospitals were not his “permanent workplace.”
Relevance to Kenya: Pook illustrates that “usual place of work” is not necessarily the employer’s headquarters but depends on where duties are habitually performed. Critically, the case distinguishes between travel to work (non-deductible) and travel in the course of work (potentially deductible).
4.2 United States: Commissioner v. Flowers (1946)
Facts: An employee worked in one city but maintained residence in another, claiming travel costs as deductible business expenses.
Holding: The US Supreme Court denied the deduction, reasoning that travel expenses are not deductible where the travel is a matter of personal choice rather than employer requirement.
Lesson for Kenya: This case underscores that tax authorities will scrutinize whether travel is genuinely for official duties or reflects personal convenience. Employers must document the business necessity of assignments.
5. Practical Implications and Recommendations
5.1 Distinguishing Transfer from Out-of-Station Duty
The Kinuthia case provides critical guidance: per diem is payable only for genuine travel away from the usual workplace, not for relocation to a new station. Indicators of transfer include:
- Assumption of duties by another employee at original location
- Duration exceeding organizational policy limits
- Payment of transfer allowance
- Language in assignment letters indicating permanent or indefinite placement
5.2 Documentation Best Practices
To withstand KRA scrutiny, employers should:
- Maintain clear assignment letters specifying duration, purpose, and whether the assignment constitutes transfer or temporary duty
- Establish per diem policies compliant with the new KES 10,000 threshold
- Document rotation schedules for project-based assignments
- Retain evidence of business necessity for remote site placements
5.3 The “Substance Over Form” Principle
Both Kenyan cases affirm that courts and KRA will examine the substance of work arrangements, not merely their labels. Labelling an assignment “temporary” does not automatically entitle employees to per diem if the arrangement’s duration and integration indicate a new usual workplace.
5.4 Navigating the New KES 10,000 Threshold
The Finance Act, 2025 amendment provides welcome relief, but employers must ensure:
- Per diem payments are properly documented and approved
- Payments exceeding KES 10,000 daily are subjected to PAYE
- Employees understand that the exemption applies only to time “spent outside [the] usual place of work while on official duties”
6. Conclusion
The concept of “usual place of work” in Kenyan tax law, though statutorily undefined, has been substantially clarified through judicial interpretation. The Kinuthia and OML decisions establish that where employees are physically present and habitually perform duties—regardless of labels like “temporary” or motivations like security—that location becomes their usual workplace for tax purposes.
With the per diem threshold now increased to KES 10,000, accurate classification of employee movements carries even greater financial significance. Employers must move beyond simplistic reliance on assignment labels and instead examine the substance of work arrangements: duration, integration into new operations, assumption of duties at original locations, and the genuine nature of travel.
As Justice Mshila emphasized in OML, tax obligations “override the inconvenience to be endured by the taxpayer even when it looks inequitable.” In the realm of per diem, understanding where an employee actually works—not where the employer prefers they be considered to work—is the key to compliance.
Disclaimer: This article provides general information only and does not constitute legal or tax advice. Tax laws are complex and subject to change. Always consult qualified professionals for advice specific to your situation.
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