Navigating Kenyan payroll requires precision to balance employee take-home pay with strict statutory obligations. In 2026, the landscape is defined by several mandatory deductions that every employer must remit to the Kenya Revenue Authority (KRA) and relevant social funds.
1. Pay As You Earn (PAYE)
PAYE is a progressive income tax deducted from an employee’s gross salary. The calculation follows graduated tax bands, meaning higher income portions are taxed at higher rates.
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Tax Relief: Every resident individual is entitled to a monthly personal relief (currently KES 2,400), which is deducted from the calculated tax to arrive at the final PAYE amount.
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Non-Cash Benefits: Benefits like company cars or housing are also taxable and must be added to the gross salary before calculating PAYE.
2. Social Health Insurance Fund (SHIF)
Replacing the old NHIF, SHIF is a mandatory medical contribution for all residents.
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The Rate: It is calculated at a flat rate of 2.75% of the gross salary.
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No Cap: Unlike the previous system, there is no ceiling on SHIF contributions, meaning higher earners contribute more to the national pool.
3. National Social Security Fund (NSSF)
NSSF is the mandatory retirement savings scheme. Under the current Act, contributions are split into two tiers:
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Tier I: Calculated based on the Lower Earnings Limit.
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Tier II: Calculated based on the Upper Earnings Limit.
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Matching: The employer must match the employee's contribution Shilling for Shilling. For example, if an employee contributes KES 2,160, the total remitted is KES 4,320.
4. Affordable Housing Levy (AHL)
The Housing Levy is a mandatory deduction intended to fund the national housing project.
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Contribution: Both the employer and the employee contribute 1.5% of the gross salary.
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Remittance: This must be paid to the KRA by the 9th day of the following month.
The Calculation Flow
To arrive at the Net Pay, the process follows this logic:
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Gross Salary (Basic Pay + Allowances).
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Subtract NSSF (This reduces the taxable income).
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Calculate PAYE on the remaining amount and subtract Personal Relief.
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Subtract SHIF (2.75% of Gross).
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Subtract Housing Levy (1.5% of Gross).
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The remainder is the Net Pay.
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