The large disparity between what foreigners and Kenyans can earn has also been criticised.
An estimated 240,000 people work for NGOs in Kenya, mostly local staff.
Kenya is a regional hub for NGOs, with aid agencies working in countries from Democratic Republic of Congo to South Sudan based in the country.
Charities play a large role in providing essential services in Kenya, observers say, with some running schools and clinics.
One international NGO told the BBC that higher pay for foreigners was essential as they are working far from home.
The new employment rules are likely to be met with criticism by some in the NGO world, which has been operating without much supervision from the authorities, reports the BBC's Abdinoor Aden in the capital, Nairobi.
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Kenya's NGO board, an official body which oversees the work of the charity sector, says that some organisations have been flouting the law by employing expatriates without proper work permits.
It says that foreigners can only be employed when there is no Kenyan available with the same skills, or when they are essential to the running of the charity, or when they are committed to training people to replace them.
Research by the board suggests that expatriates earn four times the salary of locals for doing the same job with comparable skills and qualifications.
NGO tension - Abdinoor Aden, BBC Africa, Nairobi
The enticement of working for an NGO is evident in Kenya.
Jobs in aid organisations in Kenya are seen as among the most lucrative due to the pay and benefits compared to other jobs.
For a long time, tensions have been brewing between Kenyan and foreign staff, as many locals are angry over what they see as unfair treatment.
Expatriate employees enjoy large allowances, security, housing, a vehicle and comprehensive attractive medical insurance.
Many of the houses in the leafy suburbs of Nairobi are occupied by foreign aid workers and landlords are known to inflate the rent thereby excluding some Kenyans.
Some local staff feel their colleagues are pampered.
The government argues the new restrictions are needed to safeguard the interests of Kenyans.(BBC)