- As at October 2026, PAYE uses five monthly bands: 10% on the first KES 24,000, 25% on the next KES 8,333, 30% up to KES 500,000, 32.5% up to KES 800,000 and 35% above that, less personal relief of KES 2,400 a month.
- NSSF Year 4 rates apply from February 2026: 6% from the employee and 6% from the employer on pay up to KES 108,000, a maximum of KES 6,480 each (KES 540 Tier I plus up to KES 5,940 Tier II).
- SHIF replaced NHIF: employees pay 2.75% of gross salary, minimum KES 300 a month, with no employer contribution. The old NHIF band table no longer applies.
- The Affordable Housing Levy is 1.5% of gross salary from the employee plus a matching 1.5% from the employer, declared on sheet M of the PAYE return and paid to KRA.
- NSSF, SHIF and the Housing Levy are deducted before PAYE is calculated. On KES 100,000 gross this gives taxable pay of KES 89,750, PAYE of KES 19,308.35 and net pay of KES 70,441.65.
- PAYE, NSSF and SHIF are due by the 9th of the following month and the Housing Levy by the 9th working day. Keep payroll records for five years (Tax Procedures Act, section 23).
Payroll statutory deductions in Kenya
Managing payroll in Kenya is more complex than ever, especially with the 2026 statutory requirements for PAYE, NSSF, SHIF and the Housing Levy. Businesses must remain compliant with KRA and other regulatory bodies to avoid penalties, interest, and potential audits. This comprehensive guide explains all payroll statutory deductions, calculation methods, filing obligations, and best practices for tax compliance.
At Adamjee Auditors, we provide businesses across Nairobi, Mombasa, Kisumu, Nakuru, and beyond with professional payroll services, bookkeeping, audit and assurance, and CFO advisory services to ensure full compliance with Kenya’s payroll laws.
Understanding Payroll Statutory Deductions in Kenya
Payroll statutory deductions are amounts legally required to be withheld from employees’ salaries and remitted to relevant authorities. The key deductions in Kenya include:
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PAYE (Pay As You Earn) – Income tax collected by employers from employee salaries and remitted to KRA via the iTax system.
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NSSF (National Social Security Fund) – Social security contributions to provide retirement benefits.
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SHIF (Social Health Insurance Fund) – 2.75% of gross salary for health cover, paid to the Social Health Authority. SHIF replaced NHIF.
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Affordable Housing Levy – 1.5% of gross salary from the employee plus a matching 1.5% from the employer, collected by KRA.
Failure to comply can lead to fines, interest, audits, and reputational risk. Staying up-to-date with changes in rates and thresholds is essential.
Learn more about our Tax Compliance Kenya services.
Step 1: PAYE Rates and Bands (as at October 2026)
PAYE is the largest component of payroll deductions. As at October 2026, KRA applies five monthly bands to taxable pay (gross pay less NSSF, SHIF, the Housing Levy and other allowable deductions):
| Taxable Monthly Income (KES) | Rate (%) |
|---|---|
| 0 – 24,000 | 10 |
| 24,001 – 32,333 | 25 |
| 32,334 – 500,000 | 30 |
| 500,001 – 800,000 | 32.5 |
| Above 800,000 | 35 |
Key Considerations for Employers:
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Use our PAYE calculator to check computations, then file the return and pay through KRA iTax.
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Deduct NSSF, SHIF and the Housing Levy before applying the bands, then subtract personal relief (KES 2,400 a month) and any insurance relief (15% of premiums, up to KES 60,000 a year).
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Remit PAYE by the 9th of the following month to avoid penalties.
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The bands and reliefs above apply until Parliament amends the law. Check KRA’s PAYE page for changes before each payroll run.
Adamjee Payroll Services Kenya ensures accurate PAYE calculation, filing, and compliance reporting.
Step 2: NSSF Contributions
The National Social Security Fund (NSSF) provides retirement benefits to employees.
NSSF Year 4 rates (from February 2026):
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Employee: 6% of pensionable pay up to the upper earnings limit of KES 108,000 – Tier I KES 540 (on the first KES 9,000) plus Tier II up to KES 5,940, so a maximum of KES 6,480 a month
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Employer: a matching 6%, up to KES 6,480 a month (maximum KES 12,960 per employee in total)
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Contributions are remitted through the NSSF portal by the 9th day of the following month.
Employers must maintain accurate records to avoid audits. Non-compliance may lead to fines and interest accumulation.
Learn more about Adamjee Audit & Assurance.
Step 3: Affordable Housing Levy and SHIF
The Affordable Housing Levy and the Social Health Insurance Fund (SHIF) are two separate deductions. SHIF replaced NHIF, so the old NHIF band table (KES 150 to KES 1,700) no longer applies. Rates as at October 2026:
| Deduction | Employee | Employer | Paid to / deadline |
|---|---|---|---|
| Affordable Housing Levy | 1.5% of gross monthly salary | Matching 1.5% | KRA, declared on sheet M of the PAYE return on iTax; due by the 9th working day after the end of the month |
| SHIF | 2.75% of gross salary, minimum KES 300 a month, no upper cap | None (deducted from the employee) | Social Health Authority; due by the 9th of the month |
KRA charges a penalty of 3% a month on unpaid Housing Levy. Both the levy and SHIF are deducted from gross pay before PAYE is calculated.
Adamjee Auditors Bookkeeping Services ensures payroll deductions are properly reflected in financial records.
Step 4: How to Calculate Payroll Deductions Accurately
To calculate statutory deductions:
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Determine gross salary (basic pay plus taxable allowances and benefits).
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Deduct NSSF, SHIF (2.75%) and the Housing Levy (1.5%) to get taxable pay.
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Apply the PAYE bands to taxable pay.
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Subtract personal relief (KES 2,400) and any insurance relief to get PAYE due.
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Net pay = gross salary less NSSF, SHIF, Housing Levy and PAYE.
Worked example (KES 100,000 gross a month, as at October 2026, assuming no other taxable benefits, pension contributions or reliefs):
- NSSF: KES 540 (Tier I) + 6% of KES 91,000 = KES 5,460 (Tier II) = KES 6,000
- SHIF: 2.75% × 100,000 = KES 2,750
- Housing Levy: 1.5% × 100,000 = KES 1,500
- Taxable pay: 100,000 − 6,000 − 2,750 − 1,500 = KES 89,750
- Tax: 2,400 (10% of 24,000) + 2,083.25 (25% of 8,333) + 17,225.10 (30% of 57,417) = KES 21,708.35; less personal relief 2,400 = PAYE KES 19,308.35
- Net pay: KES 70,441.65. The employer also pays NSSF of KES 6,000 and Housing Levy of KES 1,500.
Employers should document every calculation to remain audit-ready and compliant with KRA.
Use our PAYE Calculator for automated computations.
Step 5: Filing and Remittance Requirements
Monthly Obligations:
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PAYE: Remit via iTax by the 9th of the following month
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NSSF: Remit via NSSF portal by 9th
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SHIF: Remit to the Social Health Authority by the 9th
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Housing Levy: Declare on the PAYE return (sheet M) and pay to KRA by the 9th working day after the month end
Annual Obligations:
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Give each employee a P9 form after the year end so they can file their individual income tax return by 30 June
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Maintain payroll registers for 5 years (Tax Procedures Act, section 23)
Adamjee Tax Compliance Kenya ensures businesses meet both monthly and annual statutory deadlines.
Step 6: Common Payroll Compliance Mistakes
Businesses often make mistakes that trigger KRA audits:
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Incorrect PAYE band application
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Late remittance of NSSF, SHIF or the Housing Levy
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Improper documentation of reliefs and allowances
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Omitting casual or contract staff from payroll
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Using outdated statutory rates
Avoiding these errors ensures smoother compliance and reduces audit risk.
Step 7: Using Payroll Software
Modern payroll software ensures accuracy and audit readiness:
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Automates PAYE, NSSF, SHIF and Housing Levy calculations
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Generates monthly and annual reports
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Maintains employee records and payslips
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Reduces human error and manual filing
Adamjee Payroll Services integrates payroll automation with compliance, reducing administrative burden for finance teams.
Payroll Compliance Checklist (2026)
| Task | Frequency | Responsible | Notes |
|---|---|---|---|
| Calculate PAYE | Monthly | Accountant | Apply correct rates & reliefs |
| Deduct NSSF | Monthly | Payroll Officer | Verify employee and employer contributions |
| Deduct SHIF and Housing Levy | Monthly | Payroll Officer | SHIF 2.75% (min KES 300); levy 1.5% + 1.5% employer |
| Remit deductions | Monthly | Finance Manager | iTax, NSSF and SHA portals |
| Issue P9 forms to employees | Annually | CFO | Employees file by 30 June |
| Maintain payroll records | Ongoing | HR / Finance | Keep for 5 years |
Frequently Asked Questions about Payroll Deductions in Kenya
What is the Housing Levy in Kenya?
A levy of 1.5% of gross monthly salary, matched by a further 1.5% from the employer, collected by KRA under the Affordable Housing Act, 2024 to fund affordable housing. It is separate from SHIF.
How is PAYE calculated in Kenya?
Deduct NSSF, SHIF and the Housing Levy from gross pay, apply the five bands (10% to 35%) to the balance, then subtract personal relief of KES 2,400 a month.
What are the penalties for non-compliance?
Late PAYE attracts a 5% penalty plus interest of 1% a month; late filing costs 25% of the tax due or KES 10,000, whichever is higher. Unpaid Housing Levy attracts 3% a month.
Do all employees contribute to NSSF?
Generally yes. Employers deduct 6% of pensionable pay up to KES 108,000 (maximum KES 6,480 a month from February 2026) and add a matching 6%.
Has SHIF replaced NHIF?
Yes. Salaried employees pay SHIF at 2.75% of gross salary, with a minimum of KES 300 a month. The employer deducts it and remits it to the Social Health Authority by the 9th.
Can Adamjee Auditors handle payroll for my company?
Yes, we offer full payroll management and compliance services.
Partner With Kenya’s Trusted Payroll and Tax Advisors
Managing payroll deductions accurately is critical for tax compliance and overall business health. Adamjee Auditors provides guidance on PAYE, NSSF, SHIF, the Housing Levy, payroll automation, bookkeeping, and CFO advisory services.
Contact us about payroll and statutory deductions: Adamjee Auditors Contact
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