By FNJ & Associates | Last updated: 15 July 2026
What are the statutory payroll deductions in Kenya?
Statutory payroll deductions in Kenya are the mandatory deductions every employer is required to compute, withhold, and remit on behalf of employees each month. Four major deductions apply to virtually all employers operating in Kenya: Pay As You Earn (PAYE), the Social Health Insurance Fund (SHIF), the National Social Security Fund (NSSF), and the Affordable Housing Levy (AHL). A fifth, smaller obligation – the National Industrial Training Authority (NITA) levy – is borne by the employer and completes the monthly payroll compliance picture. The rates set out below reflect the position as at May 2026.
Each of these statutory payroll deductions in Kenya is governed by separate legislation, administered by a different agency, computed using a different formula, and remitted through a different portal. The aggregate effect is that every Kenyan employer manages several parallel monthly compliance cycles, each with its own deadlines and penalties. Getting one wrong does not excuse the others, and KRA, the Social Health Authority, NSSF, and the Housing Fund each enforce independently.
PAYE: Pay As You Earn bands and reliefs in 2026
Pay As You Earn (PAYE) is the income tax deducted from employees’ emoluments by the employer and remitted to KRA. PAYE is governed by the Income Tax Act Cap 470 and the Tax Procedures Act, 2015. The current PAYE bands effective 1 July 2023 are applied to the employee’s taxable pay on a monthly basis. The bands are progressive, meaning higher portions of income are taxed at higher rates.
The five monthly PAYE bands applicable in 2026 are: 10% on the first KES 24,000 of taxable monthly pay, 25% on the next KES 8,333 (i.e. KES 24,001 to KES 32,333), 30% on the next KES 467,667 (i.e. KES 32,334 to KES 500,000), 32.5% on the next KES 300,000 (i.e. KES 500,001 to KES 800,000), and 35% on any taxable monthly pay above KES 800,000.
Every resident individual is entitled to a personal relief of KES 2,400 per month (KES 28,800 per annum), which is deducted from the gross tax computed using the bands. The effective result is that no resident employee pays PAYE on the first KES 24,000 of monthly taxable pay because the personal relief equals the tax on that band. Insurance relief is available at 15% of qualifying premiums paid, capped at KES 5,000 per month (KES 60,000 per annum). The mortgage interest deduction is available up to KES 30,000 per month (KES 360,000 per annum) for owner-occupied residential property, pension contributions are deductible up to KES 30,000 per month (KES 360,000 per annum), and contributions to a post-retirement medical fund are deductible up to KES 15,000 per month – a payroll-administered deduction introduced by the Tax Laws (Amendment) Act, 2024 that many employers have not yet configured.
Under the Tax Laws (Amendment) Act, 2024, SHIF contributions and AHL contributions are now allowable deductions before PAYE is computed – they reduce taxable income rather than tax payable. This change took effect from December 2024. PAYE returns are filed through iTax using the P10 return template, with the return and payment due by the 9th day of the month following the payroll period.
SHIF: Social Health Insurance Fund at 2.75% of gross pay
The Social Health Insurance Fund (SHIF) replaced the National Hospital Insurance Fund (NHIF) under the Social Health Insurance Act, 2023, with payments commencing on 1 October 2024. Under SHIF, employees contribute 2.75% of their gross monthly salary, with no upper cap. The employer is responsible for deducting and remitting these contributions to the Social Health Authority by the 9th day of the following month.
SHIF is a pre-tax deduction – it reduces taxable income before PAYE is computed, following the Tax Laws (Amendment) Act, 2024. The previously available SHIF relief was repealed; only the deduction treatment remains. Late remittance of SHIF attracts a penalty of 2% of the unpaid amount per month under the Social Health Insurance Regulations, 2024.
Common employer issues with SHIF as one of the statutory payroll deductions in Kenya include incorrect registration of employees on the SHA portal, mismatch between the SHIF register and the PAYE payroll, and applying NHIF-era fixed bands instead of the SHIF percentage-based computation. Employers should reconcile the SHIF return to the same payroll source data used for PAYE to avoid mismatches.
NSSF: National Social Security Fund Tier I and Tier II contributions
The National Social Security Fund (NSSF) is Kenya’s mandatory pension scheme, governed by the NSSF Act, 2013. The Act introduced a two-tier contribution structure with phased implementation from February 2023. The employee contributes a percentage of pensionable earnings up to defined upper limits, and the employer matches the contribution. Effective 1 February 2026 (Year 4 rates per the NSSF Act schedule), the maximum employee NSSF contribution is KES 6,480 per month, with the employer matching the same amount for a combined remittance of up to KES 12,960 per employee per month.
NSSF is a tax-deductible item that reduces taxable income before PAYE is computed. Contributions are remitted through the NSSF e-portal by the 9th day of the month following the payroll period, with returns capturing each employee’s contribution and personal details. Penalties for late NSSF contributions are set under the NSSF Act and include interest on overdue amounts. Persistent non-compliance can trigger NSSF enforcement, including direct deduction orders against the employer’s bank accounts and prosecution of directors.
One provision payroll teams frequently miss: the NSSF Act allows an employer to contract out of Tier II. With approval from the Retirement Benefits Authority (RBA), the Tier II portion of contributions can be directed to a registered occupational or umbrella pension scheme instead of NSSF, provided the scheme meets the reference scheme standards. Tier I contributions always remain with NSSF. For employers that already operate a staff pension scheme, contracting out consolidates retirement savings in one scheme the employer and employees already know, often with better investment reporting. The opt-out requires a formal RBA application and cannot simply be adopted administratively – FNJ supports employers through the assessment and application process.
AHL: Affordable Housing Levy at 1.5% from employee and 1.5% from employer
The Affordable Housing Levy (AHL) is the newest of the four major statutory payroll deductions in Kenya, introduced under the Affordable Housing Act, 2024 (effective March 2024 following the nullification of the 2023 version by the courts). The levy applies to both employees and employers – the employer deducts 1.5% of the employee’s gross monthly salary and matches it with an additional 1.5% employer contribution, giving a total AHL remittance of 3% of gross monthly salary per employee.
AHL gross monthly salary includes basic salary and regular cash allowances such as housing, travel, commute, and car allowances. It excludes non-cash payments and irregular payments such as leave allowance, bonus, gratuity, pension, severance pay, or other terminal dues. AHL is filed and paid through KRA’s iTax portal alongside PAYE under Sheet M of the P10 return. The deadline is the 9th day of the month following the payroll period. Late payment attracts a penalty of 3% of the unpaid amount per month under the Affordable Housing Act.
Under the Tax Laws (Amendment) Act, 2024 (effective 27 December 2024), the employee’s AHL contribution is an allowable deduction for PAYE purposes – reducing taxable income before PAYE is computed. The previously applicable 15% AHL tax relief was simultaneously repealed. Self-employed individuals also pay AHL under separate provisions of the Act.
NITA: the levy most payroll articles forget
The National Industrial Training Authority (NITA) levy is the fifth recurring payroll obligation, and the one most commonly omitted from payroll setups. Every employer registered under the Industrial Training Act pays KES 50 per employee per month into the industrial training fund. Unlike the other statutory payroll deductions in Kenya, the NITA levy is borne entirely by the employer – nothing is deducted from the employee’s pay.
The levy is declared through the unified payroll return on iTax alongside PAYE, which is precisely why it is easy to miss: payroll teams that configure PAYE, SHIF, NSSF, and AHL and consider the setup complete often discover the NITA omission only during a compliance audit or when applying for training cost reimbursements. Employers who contribute are entitled to claim reimbursement of approved training costs from the fund, which makes the levy partially recoverable for organisations that invest in staff training.
Worked example: statutory payroll deductions in Kenya at KES 100,000 gross
The computation below shows the full gross-to-net position for an employee earning a gross monthly salary of KES 100,000, with no benefits in kind, no additional pension beyond NSSF, and no insurance premiums. Figures are indicative and rounded to the nearest shilling; each employer’s payroll should be confirmed against its specific facts.
| Item | Computation | Amount (KES) |
| Gross monthly salary | 100,000 | |
| NSSF (employee) | 6% of pensionable earnings, within the Year 4 cap | 6,000 |
| SHIF | 2.75% of gross | 2,750 |
| AHL (employee) | 1.5% of gross | 1,500 |
| Taxable pay | 100,000 less 6,000 less 2,750 less 1,500 | 89,750 |
| PAYE band 1 | 10% of first 24,000 | 2,400 |
| PAYE band 2 | 25% of next 8,333 | 2,083 |
| PAYE band 3 | 30% of remaining 57,417 | 17,225 |
| Gross tax | Sum of bands | 21,708 |
| Less personal relief | (2,400) | |
| PAYE payable | 19,308 | |
| Net pay | 100,000 less 6,000 less 2,750 less 1,500 less 19,308 | 70,442 |
The employer’s parallel cost on the same employee adds the NSSF match of KES 6,000, the AHL employer contribution of KES 1,500, and the NITA levy of KES 50 – bringing the total employer cost to KES 107,550 for a KES 100,000 gross salary, before any private benefits. The computation order matters: NSSF, SHIF, and AHL are deducted from gross pay first, and PAYE is computed on the residual taxable pay, following the Tax Laws (Amendment) Act, 2024 deduction treatment.
The combined monthly cycle for statutory payroll deductions in Kenya
Although the statutory payroll deductions in Kenya have separate portals and rules, they share the 9th-of-the-month deadline for most employer obligations. A disciplined employer payroll cycle follows a standard sequence.
Step 1: Close the payroll for the month. Lock the payroll register, confirm all employees’ gross pay, allowances, benefits in kind, and other inputs. Step 2: Compute statutory deductions in the correct order. NSSF first (deducted from gross to determine pensionable earnings position), then SHIF (2.75% of gross) and AHL (1.5% of gross), and finally PAYE on the residual taxable pay after deductions and reliefs. Step 3: Generate the returns – the iTax P10 covering PAYE, AHL, and the NITA levy, the SHIF employer return on the SHA portal, and the NSSF employer return on the NSSF portal. Step 4: Submit each return and generate the payment slips. Step 5: Pay each obligation through the appropriate bank or mobile banking channel before the 9th. Step 6: Reconcile the payments to the returns and file the proof of payment in the payroll records.
Gratuity payments: the Finance Act, 2026 tightening
Employers processing exits and end-of-contract payments should note a change effective 1 July 2026. The Finance Act, 2026 tightens the tax exemption for employer-paid gratuities contributed to registered pension schemes. The exemption now requires the gratuity to relate to a contract of service lasting at least three consecutive years, caps total contributions at 31% of the employee’s basic salary, and continues to exclude employees already eligible for deductions under Section 22A of the Income Tax Act.
The practical effect is that gratuities on short contracts, and top-ups above the 31% ceiling, no longer flow into a pension scheme tax-free. Payroll and HR teams should review standing gratuity policies, employment contract templates, and exit computation checklists against the new conditions before processing any gratuity after 1 July 2026. FNJ supports employers in restructuring gratuity arrangements to remain both compliant and tax-efficient.
Records to keep for statutory payroll deductions in Kenya
The Tax Procedures Act, 2015 requires employers to retain payroll records for at least five years. The records should support every entry on every monthly return and should be capable of being reconstructed during a KRA, SHIF, NSSF, or Housing Fund audit. Records typically include employment contracts, monthly payroll registers, gross-to-net computation worksheets, P9 forms issued to employees at year end, P10 PAYE returns and acknowledgement receipts, SHIF and NSSF returns and receipts, AHL declarations and receipts, NITA levy declarations, bank statements showing the payments, and any benefits-in-kind valuations.
Where employees leave during the year, the employer should issue a final P9 capturing the period of employment and the deductions made. Where employees transfer between group companies, the receiving employer must continue the cumulative computation for the year to avoid under-deduction of PAYE through duplicate personal relief.
Common employer errors with statutory payroll deductions in Kenya
FNJ observes recurring errors across employer payrolls. The most common is computing PAYE on net pay or on basic pay instead of gross emoluments including allowances, benefits in kind, and bonuses. Another frequent error is failing to update the payroll calculator when statutory rates change – for example, when SHIF replaced NHIF in October 2024, when the AHL deduction treatment changed in December 2024 under the TLAA 2024, or when NSSF rates moved to Year 4 in February 2026.
Other recurring errors include duplicating insurance relief at both employer and individual level, computing AHL on irregular payments (leave allowance, bonuses, gratuity) that should be excluded, computing NSSF on gross pay instead of pensionable earnings, treating AHL as a personal income tax credit rather than an allowable deduction, omitting the NITA levy from the unified payroll return, and missing the 9th-of-the-month deadline. Each error in statutory payroll deductions in Kenya can compound across multiple months before discovery, making early detection important.
How FNJ & Associates supports statutory payroll deductions in Kenya
FNJ provides consultative support to employers managing statutory payroll deductions in Kenya, including payroll compliance reviews, PAYE health checks, structured response to KRA, SHIF, NSSF, and Housing Fund inquiries, NSSF Tier II contracting-out applications, gratuity policy reviews under the Finance Act, 2026, and bespoke advisory on complex situations such as expatriate payrolls, board fee taxation, secondment arrangements, and group payroll consolidation.
Where the employer is also using Zoho Books and Zoho People as part of an FNJ ERP implementation, the payroll computation, reporting, and reconciliation can be substantially automated, with the statutory payroll deductions in Kenya generated directly from the payroll module aligned to current 2026 rates. To schedule a payroll compliance consultation, visit fnjassociates.co.ke and use the contact us page.
Frequently Asked Questions
When are statutory payroll deductions in Kenya remitted?
PAYE, SHIF, NSSF, and the Affordable Housing Levy are all remitted by the 9th day of the month following the payroll period. PAYE, AHL, and the NITA levy are filed and paid through iTax under the P10 return. SHIF is remitted through the Social Health Authority employer portal. NSSF is remitted through the NSSF e-portal.
What is the current SHIF rate?
SHIF is 2.75% of the employee’s gross monthly salary, with no upper cap. It replaced NHIF from 1 October 2024 under the Social Health Insurance Act, 2023. SHIF is a pre-tax deduction, reducing taxable income before PAYE is computed. Late payment attracts a penalty of 2% per month.
What is the current AHL rate?
The Affordable Housing Levy is 1.5% from the employee and 1.5% from the employer, totalling 3% of gross monthly salary remitted to KRA. AHL applies to gross monthly salary including basic salary and regular cash allowances, but excluding irregular payments. Late payment attracts a penalty of 3% per month.
What is the current NSSF cap?
Effective 1 February 2026 (Year 4 of the NSSF Act 2013 implementation), the maximum employee NSSF contribution is KES 6,480 per month, matched by the employer for a combined remittance of up to KES 12,960 per employee per month. NSSF contributions are tax-deductible.
Can an employer opt out of NSSF Tier II?
Yes, partially. With approval from the Retirement Benefits Authority, an employer can contract the Tier II portion of NSSF contributions out to a registered occupational or umbrella pension scheme that meets the reference scheme standards. Tier I contributions always remain with NSSF. The opt-out requires a formal RBA application; it cannot be adopted administratively.
How much is deducted from a KES 100,000 salary in Kenya?
On a gross monthly salary of KES 100,000 with no other benefits, the indicative statutory payroll deductions in Kenya are NSSF of KES 6,000, SHIF of KES 2,750, AHL of KES 1,500, and PAYE of approximately KES 19,308 after personal relief, leaving a net pay of approximately KES 70,442. The employer separately bears the NSSF match, the AHL employer contribution, and the NITA levy of KES 50.
What is the NITA levy?
The NITA levy is KES 50 per employee per month payable by the employer into the industrial training fund under the Industrial Training Act. Nothing is deducted from the employee. It is declared through the unified payroll return on iTax alongside PAYE, and contributing employers can claim reimbursement of approved training costs from the fund.
Can FNJ & Associates help with statutory payroll deductions in Kenya?
Yes. FNJ provides consultative support, payroll compliance reviews, PAYE health checks, NSSF Tier II contracting-out applications, gratuity policy reviews, response to KRA and other agency inquiries, and bespoke advisory on complex employer situations. Visit fnjassociates.co.ke to schedule a payroll compliance consultation.
| Stay Compliant with Statutory Payroll Deductions in Kenya FNJ & Associates provides consultative support for employers managing PAYE, SHIF (2.75%), NSSF, the Affordable Housing Levy (1.5% employee + 1.5% employer), and the NITA levy. Engagements include payroll compliance reviews, PAYE health checks, NSSF Tier II contracting-out applications, gratuity policy reviews under the Finance Act, 2026, and response to KRA, SHIF, NSSF, and Housing Fund inquiries – delivered by 20+ CPA-qualified professionals across NGOs, financial services, manufacturing, hospitality, retail, transport and logistics, tech and startups, public sector, education, and healthcare. Visit fnjassociates.co.ke/contact-us to schedule a payroll compliance consultation. |
| About FNJ & Associates FNJ & Associates is an ICPAK-registered audit firm founded in 2021 and based in Lavington, Nairobi. The firm offers audit and assurance, tax advisory, bookkeeping, compliance, forensic audit, ERP implementation (including Zoho Books, Zoho Inventory, Zoho Expense, Zoho One, and Zoho Finance Plus as an Authorized Zoho Partner), and corporate training services across the East African Community. FNJ has delivered 300+ engagements for 100+ organisations across NGOs, financial services, manufacturing, hospitality, retail, transport and logistics, tech and startups, public sector, education, and healthcare, with a team of 20+ professionals holding CPA, CISA, CFE, CIA, CEH, and CAMS credentials and an average of 12+ years of professional experience. Services are delivered in English, French, and Swahili. The Trigarc GRC Suite by FNJ & Associates, comprising Trigarc Audit, Trigarc Risk, and Trigarc Compliance, helps organisations automate governance, risk, and compliance outcomes. Visit fnjassociates.co.ke to learn more. |
This article is provided for general information purposes only and does not constitute professional tax, legal, or financial advice. Tax legislation in Kenya changes frequently, and the rates and rules described here reflect the position as at the last updated date shown above. Readers should not act on the contents without obtaining specific advice from a qualified professional. FNJ & Associates accepts no liability for any loss arising from reliance on this article.