Kenya Flag254 Payroll Hub

Your Complete Payroll, Tax Filing & Compliance Partner

📩 Request Filing

📘 Understanding PAYE (Pay As You Earn)

PAYE is a system where employers deduct tax from employees' salaries and remit it to KRA. Here's what you need to know:

What is Taxable Income?

Taxable employment income includes:

  • All cash payments: wages, salary, bonuses, commissions, allowances, overtime
  • Non-cash benefits exceeding KES 5,000 per month
  • Director's fees and service gratuity
  • Pension payments

Tax Rates (Current as of 2025)

Monthly Income (KES) Annual Income (KES) Tax Rate
0 - 24,000 0 - 288,000 10%
24,001 - 32,333 288,001 - 388,000 25%
32,334 - 500,000 388,001 - 6,000,000 30%
500,001 - 800,000 6,000,001 - 9,600,000 32.5%
Above 800,000 Above 9,600,000 35%
Personal Relief: Every employee gets KES 2,400 per month (KES 28,800 per year) deducted from their tax.

🏥 SHIF (Social Health Insurance Fund)

SHIF replaced NHIF in 2024 as Kenya's health insurance contribution.

How It Works

  • Rate: 2.75% of gross salary
  • Minimum: KES 300 per month
  • No upper limit - calculated on entire gross salary
  • Paid by: Employee only

Example Calculations

Gross Salary Old NHIF New SHIF
KES 30,000 KES 900 KES 825
KES 50,000 KES 1,200 KES 1,375
KES 100,000 KES 1,700 KES 2,750
KES 300,000 KES 1,700 KES 8,250
📌 Note: All employers must register on the SHA online platform at employers.sha.go.ke

🏦 NSSF (National Social Security Fund)

NSSF is Kenya's pension scheme with two contribution tiers. Updated rates effective February 1, 2025.

Contribution Structure (2025 Rates)

  • Tier I: 6% on first KES 8,000 of gross salary
  • Tier II: 6% on KES 8,001 to KES 72,000 of gross salary
  • Paid by: Both employee AND employer (matching contributions)
  • Maximum Monthly: KES 4,320 employee + KES 4,320 employer = KES 8,640 total
⚠️ Important Change: Effective February 1, 2025, NSSF rates doubled! Tier I increased from KES 7,000 to KES 8,000, and Tier II cap increased from KES 36,000 to KES 72,000.

How It's Calculated

For gross salary of KES 50,000:

  • Tier I: 6% × 8,000 = KES 480
  • Tier II: 6% × 42,000 = KES 2,520
  • Total Employee: KES 3,000
  • Total Employer: KES 3,000
  • Combined: KES 6,000
Quick Formula: Simply 6% of gross salary (capped at KES 72,000)

Examples at Different Salary Levels

Example 1: Gross Salary KES 20,000
  • Tier I: 6% × 8,000 = KES 480
  • Tier II: 6% × 12,000 = KES 720
  • Total Employee: KES 1,200
  • Total Employer: KES 1,200
  • Grand Total: KES 2,400
Example 2: Gross Salary KES 100,000 (Capped)
  • Only first KES 72,000 counts
  • Tier I: 6% × 8,000 = KES 480
  • Tier II: 6% × 64,000 = KES 3,840
  • Total Employee: KES 4,320 (Maximum)
  • Total Employer: KES 4,320 (Maximum)
  • Grand Total: KES 8,640 (Capped)

Impact Comparison Table

Gross Salary Old Rate (Pre-2025) New Rate (2025) Increase
KES 20,000 KES 1,080 KES 1,200 +KES 120
KES 30,000 KES 1,080 KES 1,800 +KES 720
KES 50,000 KES 1,080 KES 3,000 +KES 1,920
KES 100,000 KES 1,080 KES 4,320 +KES 3,240
📌 Note: Tier II contributions can be remitted to alternative approved pension schemes instead of NSSF, providing flexibility for retirement planning.

🏠 Affordable Housing Levy

Introduced in 2024 to fund affordable housing projects in Kenya.

Key Details

  • Employee Contribution: 1.5% of gross salary
  • Employer Contribution: 1.5% of gross salary
  • Total: 3% of gross salary combined
  • Tax Benefit: Employer's contribution is tax-deductible
⚠️ Important: Failure to remit attracts a 3% penalty per month on unpaid amounts!

⚖️ Penalties for Non-Compliance

Due Date: All PAYE, NSSF, SHIF, and Housing Levy must be paid by the 9th day of the following month.

Late Filing Penalty

The higher of:

  • 25% of tax due, OR
  • KES 10,000

Late Payment Penalty

  • 5% penalty on the tax due
  • PLUS 1% interest per month until paid in full

Failure to Deduct Tax

Penalty of the higher of:

  • 25% of tax involved, OR
  • KES 10,000
Example Penalty Calculation:

If you owe KES 100,000 in PAYE and pay 2 months late:

  • Late payment penalty: KES 5,000 (5% of 100,000)
  • Interest for 2 months: KES 2,000 (1% × 2 months × 100,000)
  • Total penalty: KES 7,000
  • Total to pay: KES 107,000

✅ Allowable Deductions

These amounts reduce your taxable income:

  • NSSF Contributions: Up to KES 30,000 per month (KES 360,000 per year)
  • Affordable Housing Levy: 1.5% of gross salary
  • SHIF Contributions: 2.75% of gross salary
  • Post-Retirement Medical Fund: Up to KES 15,000 per month
  • Mortgage Interest: Up to KES 30,000 per month from approved lenders

💼 Tax Reliefs Available

1. Personal Relief

KES 2,400 per month (KES 28,800 per year) - automatically applied to all employees

2. Insurance Relief

  • Rate: 15% of premiums paid
  • Maximum: KES 60,000 per year
  • Covers: Life, health, education policies (10+ years maturity)
  • Note: NHIF/SHIF contributions qualify for this relief

3. Affordable Housing Relief

Available to resident individuals who pay the housing levy

📋 How to Calculate Take-Home Pay

1
Calculate Gross Pay

Basic Salary + All Allowances = Gross Pay

2
Deduct NSSF

Based on basic salary only (Tier I + Tier II)

3
Deduct SHIF

2.75% of gross salary (minimum KES 300)

4
Deduct Housing Levy

1.5% of gross salary

5
Calculate Taxable Pay

Gross Pay - NSSF - SHIF - Housing Levy = Taxable Pay

6
Calculate PAYE

Apply tax bands to taxable pay, then subtract personal relief (KES 2,400)

7
Calculate Net Pay

Gross Pay - NSSF - SHIF - Housing Levy - PAYE = Take Home

📚 Additional Resources

⚠️ Disclaimer: This guide is for educational purposes. Tax laws may change. Always verify current rates and requirements with official KRA sources.