PAYE payroll deductions explained: in Kenya, employers deduct Pay As You Earn (PAYE) income tax from taxable employment income and remit it to the Kenya Revenue Authority (KRA). Employees may also see NSSF, Social Health Insurance Fund (SHIF) contributions and the Affordable Housing Levy on their payslips. These items do not all work in the same way when taxable income is calculated, so understanding the difference helps employers process payroll accurately and helps employees understand take-home pay.
What Are PAYE Payroll Deductions?
PAYE means Pay As You Earn. It collects income tax from employment income throughout the year. An employer calculates the tax due, deducts it from an employee’s pay, files the PAYE return and remits the amount to KRA.
PAYE is not the same as every deduction listed on a payslip. A payslip can include income tax, statutory social contributions, pension contributions and other lawful or authorized deductions. The tax treatment of each item depends on legislation and the employee’s circumstances.
Taxable employment income can include salary, wages, bonuses, commissions, allowances and the taxable value of certain non-cash benefits. KRA guidance also identifies specific exclusions and thresholds, so not every payment or benefit is taxable in the same way.
PAYE Payroll Deductions Explained: How the Calculation Works
- Establish taxable employment income, including salary and taxable allowances, bonuses and benefits under applicable rules.
- Apply only deductions recognized by tax law when determining taxable employment income, subject to limits.
- Apply the progressive tax bands to the relevant portions of taxable income.
- Subtract applicable tax reliefs. An eligible resident individual generally receives personal relief of KSh 2,400 per month.
- Determine PAYE payable for the payroll period.
- Calculate net pay by subtracting PAYE and other employee deductions from gross pay, ensuring no deduction is counted twice.
PAYE is progressive, not a flat percentage of the entire salary. A higher rate applies only to the portion of income falling within that band.
Current PAYE Tax Bands and Rates in Kenya
KRA’s published individual income tax rates, effective from 1 July 2023 and still shown in its guidance as at 9 October 2026, are listed below. A July 2026 tax update reports that the Finance Act 2026 did not change the PAYE bands or resident personal relief.
| Monthly taxable income band (KES) | Rate |
|---|---|
| First KSh 24,000 | 10% |
| Next KSh 8,333 | 25% |
| Next KSh 467,667 | 30% |
| Next KSh 300,000 | 32.5% |
| Income above KSh 800,000 | 35% |
Resident personal relief: KSh 2,400 per month (KSh 28,800 per year). Eligibility and other reliefs must be checked against KRA guidance. Non-residents generally do not qualify for resident personal relief. Source: KRA individual income tax bands and reliefs.
Types of Payroll Deductions in Kenya
1. PAYE income tax
PAYE is income tax collected through payroll. It is calculated using taxable employment income, applicable tax bands and eligible reliefs. Employers are responsible for deducting and accounting for PAYE on employees’ emoluments.
2. NSSF contributions
The National Social Security Fund (NSSF) is a statutory social security contribution. From February 2026, Year 4 limits are a lower earnings limit of KSh 9,000 and an upper earnings limit of KSh 108,000. Employee and employer contributions are each 6% of pensionable earnings within the applicable limits.
| NSSF Year 4 (from Feb 2026) | Employee | Employer |
|---|---|---|
| Tier I: 6% of first KSh 9,000 | Up to KSh 540 | Up to KSh 540 |
| Tier II: 6% above KSh 9,000, up to KSh 108,000 | Up to KSh 5,940 | Up to KSh 5,940 |
| Maximum monthly contribution | KSh 6,480 | KSh 6,480 |
The employer’s NSSF contribution is an additional employer cost and should not be deducted from employee take-home pay. Apply the relevant tax treatment and statutory limits when calculating taxable income. Source: NSSF Year 4 (2026) notice (PDF).
3. Social Health Insurance Fund (SHIF)
For salaried households, SHIF is generally 2.75% of gross salary or wages, subject to a minimum of KSh 300 per month. It is an employee contribution, not a matching employer contribution. KRA lists SHIF contributions among amounts deductible when determining taxable employment income. Employers should use current SHA rules and payroll instructions. Social Health Authority · KRA guidance on allowable deductions.
4. Affordable Housing Levy (AHL)
The employee contribution is 1.5% of gross monthly salary, with a separate employer contribution of 1.5%. The employer’s share is an additional employer cost, not an employee deduction. KRA states that the employee amount deducted as AHL is allowable when determining taxable employment income. KRA’s stated remittance deadline is the ninth working day after the end of the month in which salary was due. Source: KRA Affordable Housing Levy notice.
5. Pension and other allowable deductions
KRA lists contributions to registered pension or provident funds and registered individual retirement funds as allowable up to KSh 360,000 per year (KSh 30,000 per month), subject to law and conditions. Other listed deductions include qualifying mortgage interest up to KSh 30,000 per month and post-retirement medical fund contributions up to KSh 15,000 per month. Check eligibility and limits before applying these deductions.
Loan repayments, salary advances, union dues and insurance premiums may also appear on payslips, but they should not automatically be treated as deductions that reduce taxable income. Their treatment depends on the law, arrangement and employee’s circumstances.
Which Payroll Deductions Reduce Taxable Income?
A deduction that reduces taxable income works differently from a deduction made after PAYE has been calculated. Confirm each employee’s eligibility and applicable limits.
| Item | Treatment | Effect |
|---|---|---|
| Employee SHIF contribution | Listed by KRA as allowable, subject to current rules | Can reduce taxable employment income |
| Employee AHL | Listed by KRA as allowable | Can reduce taxable employment income |
| Qualifying registered pension contributions | Allowable up to applicable limits | Can reduce taxable employment income |
| Personal relief | Tax relief, not an income deduction | Reduces calculated tax payable |
| Loan repayment or salary advance | Not automatically a tax deduction | Usually affects net pay, subject to circumstances |
Official reference: KRA FAQ on allowable deductions.
PAYE Payroll Deductions Example in Kenya
The examples are simplified illustrations using the published monthly tax bands, resident personal relief and statutory rates above. They assume an eligible resident employee, no additional taxable benefits, no insurance relief or special deductions, and that listed contributions are allowable in the employee’s circumstances. Confirm the treatment of NSSF/pension contributions and other items before using figures for actual payroll.
Example 1: Gross monthly salary of KSh 60,000
Illustrative employee deductions: NSSF KSh 3,600, SHIF KSh 1,650 and employee AHL KSh 900. For this illustration, taxable pay is shown after those deductions, assuming each is allowable for the employee.
| Gross monthly salary | KSh 60,000.00 |
| Illustrative allowable deductions (NSSF + SHIF + AHL) | KSh 6,150.00 |
| Illustrative taxable income | KSh 53,850.00 |
| Tax before relief: 2,400 + 2,083.25 + (21,517 × 30%) | KSh 10,938.35 |
| Less resident personal relief | KSh 2,400.00 |
| Illustrative PAYE payable | KSh 8,538.35 |
| Illustrative net pay after PAYE and listed deductions | KSh 45,311.65 |
Example 2: Gross monthly salary of KSh 100,000
Using the same assumptions, employee NSSF is KSh 6,000, SHIF is KSh 2,750 and employee AHL is KSh 1,500. The employer contributes its own NSSF and AHL amounts separately; those employer contributions are not deducted again from employee net pay.
| Gross monthly salary | KSh 100,000.00 |
| Illustrative allowable deductions (NSSF + SHIF + AHL) | KSh 10,250.00 |
| Illustrative taxable income | KSh 89,750.00 |
| Tax before relief: 2,400 + 2,083.25 + (57,417 × 30%) | KSh 21,708.35 |
| Less resident personal relief | KSh 2,400.00 |
| Illustrative PAYE payable | KSh 19,308.35 |
| Illustrative net pay after PAYE and listed deductions | KSh 70,441.65 |
These examples are explanatory, not an individual tax assessment. Actual payroll can differ due to pension arrangements, benefits, insurance relief, other allowable deductions, tax status, rounding or legislative changes. Confirm calculations against current KRA and statutory guidance.
How Payroll Deductions Affect Take-Home Pay
Gross salary is earnings before employee deductions. Net pay is what remains after PAYE and other applicable employee deductions. Employer statutory contributions are separate business costs and should not be taken from employee salary.
A clear payslip should show gross earnings, taxable benefits where applicable, taxable income, PAYE, employee statutory contributions, other authorized deductions and net pay. Separating these categories makes errors easier to spot and explain.
Common Payroll Deduction Mistakes Employers Should Avoid
- Using outdated PAYE bands or NSSF limits.
- Treating every deduction as tax-deductible.
- Confusing employee and employer contributions.
- Failing to apply eligible reliefs.
- Misclassifying taxable allowances or benefits.
- Double-counting deductions.
- Missing filing or remittance deadlines.
Keep employee records current, verify statutory updates, review payroll reports and retain supporting records.
PAYE Filing and Employer Responsibilities in Kenya
KRA states that employers must file PAYE returns through iTax and remit PAYE deducted from employees on or before the ninth day of the following month. Employers should check current KRA instructions for the relevant return, payment process, penalties and special circumstances. A nil return may be required where there is no PAYE to declare. Read KRA’s PAYE filing guidance.
How Payroll Software Simplifies PAYE Payroll Deductions
Payroll software can help teams organize employee earnings and deductions, apply configured rules consistently, generate payslips and prepare reports. Employers must still ensure the software settings, employee records and statutory rules are current and correct.
Wagemaster Payroll & HR Software helps businesses manage payroll information, employee earnings and deductions, payslips and payroll reports from one system. Visit the Wagemaster website, explore Wagemaster Downloads or contact the Wagemaster team.
Official References
- KRA — Pay As You Earn (PAYE)
- KRA — Individual Income Tax bands and reliefs
- KRA — Amendments to PAYE computation
- KRA — Affordable Housing Levy
- NSSF — Year 4 (2026) contribution rates
- Social Health Authority
- KRA — Guidance on employer obligations for deductions, reliefs and exemptions
Simplify Your Payroll with Wagemaster
Managing PAYE and other payroll calculations manually can be time-consuming. Keep employee earnings, deductions, payslips and payroll reports organized with Wagemaster Payroll & HR Software.
Explore Wagemaster or speak to our team about your payroll needs.
Payroll rules can change, and tax treatment depends on employee circumstances. Verify applicable rules with KRA and the relevant statutory authority before processing payroll.
