Kenyan payroll in 2025 involves multiple statutory deductions beyond just PAYE. Employers must be diligent in calculating and remitting PAYE, NSSF, SHIF, and Housing Levy by strict deadlines, while ensuring taxable income reflects allowable deductions. This evolving landscape demands precision and centralized systems like Sunpro Systems to manage compliance and maintain employee trust.
1. Pay-As-You-Earn (PAYE)
PAYE is the income tax deducted at source from employees' salaries and paid to KRA.
- First KES 24,000 @ 10%
- Next KES 8,333 @ 25%
- Next KES 467,667 @ 30%
- Next KES 300,000 @ 32.5%
- Above KES 800,000 @ 35%
Reliefs and allowances include:
- Personal relief: KES 2,400 per month
- Mortgage interest up to KES 30,000/month (KES 360,000/year)
- SHIF & housing levy contributions now deductible under the Income Tax Act (effective Dec 2024)
2. National Social Security Fund (NSSF)
NSSF supports retirement savings via mandatory payroll deductions.
Effective 1 Feb 2025
- Tier I (KES 8,000 LEL): Employee KES 480, Employer KES 480
- Tier II (KES 72,000 UEL): Employee KES 3,840, Employer KES 3,840
- Total max: KES 4,320 employee + KES 4,320 employer = KES 8,640 per month
- Remittance due by the 9th of each following month
3. Social Health Insurance Fund (SHIF)
Replacing NHIF from 1 Oct 2024, SHIF provides broader healthcare coverage, including chronic illness and emergency care. Contribution is 2.75% of gross salary, minimum KES 300/month. Employer remittance deadline is 9th of the following month.
4. Affordable Housing Levy (AHL)
Launched March 2024 under Affordable Housing Act
- Rate: 1.5% of gross salary, matched by employer
- Remittance: by 9th of following month; 3% monthly penalty on late payments
- This levy is now an allowable deduction for PAYE purposes
5. Life Insurance & Tax Relief in Kenya
Under Kenyan tax law, life, health, and education insurance premiums paid by an employee or employer (if taxed in the hands of the employee) qualify for tax relief. Relief is 15% of premium, capped at KES 60,000 per year (or KES 5,000/month).
6. Motor Vehicle Benefits
2% per month of the vehicle's initial cost to the employer.
7. Housing Benefits
15% of the employee’s employment income (excluding housing benefit), or Actual rent paid by the employer, or Fair market rental value (if owned by the employer or lease not at arm’s length)
For directors (whole-time or non-whole-time), 15% applies to total income, excluding property benefits.
Agricultural employees use 10% of employment income.
Furnished premises also incur a furniture benefit taxed at 1% per month of furniture cost.