Kenya Payroll Guide for Foreign Companies: PAYE, NSSF, NHIF and Compliance
Managing payroll in Kenya requires understanding multiple statutory deductions, tax bands, and strict filing deadlines. This guide covers everything foreign employers need to stay compliant.
Overview of Kenya's Payroll System
Kenya operates a comprehensive payroll compliance framework administered primarily by the Kenya Revenue Authority (KRA) and the National Social Security Fund (NSSF). Employers act as collection agents, deducting various contributions from employee salaries and remitting them to respective authorities.
The complexity has increased significantly with recent legislative changes, including the 2023 NSSF tiered contribution system and the 2024 transition from NHIF to SHIF (Social Health Insurance Fund).
PAYE: Current Tax Bands and Calculation
Pay As You Earn (PAYE) is Kenya's income tax withholding system. Tax is calculated on gross taxable income after deducting allowable relief. The current monthly tax bands are:
| Monthly Taxable Income (KES) | Tax Rate |
|---|---|
| Up to 24,000 | 10% |
| 24,001 - 32,333 | 25% |
| 32,334 - 500,000 | 30% |
| 500,001 - 800,000 | 32.5% |
| Above 800,000 | 35% |
Personal Relief
Every resident employee is entitled to a monthly personal relief of KES 2,400 (KES 28,800 annually), which reduces the PAYE payable.
PAYE Calculation Example
For an employee earning KES 100,000 gross monthly:
- First KES 24,000 @ 10% = KES 2,400
- Next KES 8,333 @ 25% = KES 2,083
- Remaining KES 67,667 @ 30% = KES 20,300
- Gross tax = KES 24,783
- Less personal relief (KES 2,400)
- PAYE payable = KES 22,383
NSSF: New Rates 2023–2025
The NSSF Act 2013 introduced a two-tier contribution system that became fully effective in 2023:
Tier I (Pensionable earnings up to KES 7,000)
- Employee contribution: 6% of KES 7,000 = KES 420
- Employer contribution: 6% of KES 7,000 = KES 420
- Total Tier I: KES 840
Tier II (Pensionable earnings above KES 7,000 up to KES 36,000)
- Employee contribution: 6% of (KES 36,000 - KES 7,000) = KES 1,740
- Employer contribution: 6% of (KES 36,000 - KES 7,000) = KES 1,740
- Total Tier II: KES 3,480
Maximum Monthly NSSF Contribution
For employees earning KES 36,000 or more:
- Employee total: KES 2,160
- Employer total: KES 2,160
- Combined total: KES 4,320
SHIF (Formerly NHIF): Current Contribution Structure
In 2024, Kenya transitioned from the National Hospital Insurance Fund (NHIF) to the Social Health Insurance Fund (SHIF). The contribution structure changed from a fixed amount to a percentage-based system:
- Standard rate: 2.75% of gross monthly income
- Minimum contribution: KES 300 per month
- No maximum cap on contributions
For an employee earning KES 100,000, the SHIF contribution would be KES 2,750 (2.75% of gross salary).
Affordable Housing Levy: 1.5% Employer + 1.5% Employee
Introduced in 2023, the Affordable Housing Levy requires both employers and employees to contribute:
- Employee contribution: 1.5% of gross monthly salary
- Employer contribution: 1.5% of the employee's gross monthly salary
- Total: 3% of gross salary
Contributions are remitted to the Kenya Revenue Authority along with PAYE. There is currently no maximum cap on the housing levy.
NITA Levy
The National Industrial Training Authority (NITA) levy applies to employers with 100 or more employees:
- Annual amount: KES 50 per employee
- Due date: Annually by March 31
Payslip Requirements
Kenyan law requires employers to provide detailed payslips showing:
- Employee name and PIN
- Employer name and PIN
- Pay period
- Gross earnings breakdown
- All statutory deductions (PAYE, NSSF, SHIF, Housing Levy)
- Other deductions (if any)
- Net pay
Filing Deadlines
All monthly statutory deductions must be remitted by the 9th day of the following month. Late filing or payment attracts penalties:
| Deduction | Late Filing Penalty | Late Payment Interest |
|---|---|---|
| PAYE | 5% of tax due or KES 10,000 | 1% per month on unpaid tax |
| NSSF | 5% of contributions due | Subject to collection enforcement |
| SHIF | As per SHA regulations | As per SHA regulations |
| Housing Levy | 5% of levy due | 1% per month on unpaid amount |
Penalties for Non-Compliance
Beyond financial penalties, payroll non-compliance can result in:
- Restriction from conducting business with government
- Difficulty renewing business permits
- Legal action from employees
- Damage to company reputation
How EOR Handles Payroll for Foreign Companies
An Employer of Record like BaseKenya removes the entire payroll compliance burden:
- Accurate calculation of all statutory deductions every month
- Timely remittance to KRA, NSSF, and SHIF by the 9th
- Professional payslip generation for all employees
- Monthly payroll reports for your records
- Year-end tax reconciliation (P9 forms)
- Handling of any payroll queries or disputes
- Staying current with changing regulations
BaseKenya's EOR service at $199/employee/month includes complete payroll management, ensuring you never miss a deadline or calculation.
Downloadable Payroll Summary
For quick reference, here is a summary of all deductions as a percentage of gross salary for a typical employee:
| Deduction | Employee Share | Employer Share | Remarks |
|---|---|---|---|
| PAYE | 10% - 35% | - | Progressive tax |
| NSSF | 6% (capped) | 6% (capped) | Max KES 2,160 each |
| SHIF | 2.75% | - | No cap |
| Housing Levy | 1.5% | 1.5% | No cap |
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