A Kenyan payslip has four statutory deductions on it and they do not simply add up: two of them come off pay before PAYE is calculated, one is reduced by a relief after PAYE is calculated, and one changes its limits by statute roughly every February. Getting the order wrong is the most common payroll error in the country, and it is invisible until somebody checks.
The order, which is the whole of it
Payroll is a pipeline, and every deduction knows where it sits in it:
- Gross pay — basic plus allowances, plus the taxable value of any benefits.
- Subtract the allowable deductions — NSSF, SHIF and the affordable housing levy come off before tax is worked out. This is the step people miss.
- That gives taxable pay. Apply the PAYE bands to it.
- Subtract personal relief (and insurance relief, if any) from the tax figure — not from the pay figure.
- That is PAYE payable. Deduct it, along with the statutory deductions from step 2 and any voluntary deductions, from gross to get net pay.
The move of SHIF and the housing levy into step 2 — deductible from gross rather than attracting a percentage relief — was a change made by the Tax Laws (Amendment) Act, 2024. A payroll built before that and never revisited is over-deducting PAYE from every employee, every month.
PAYE
Monthly bands, applied progressively — each rate applies only to the slice of taxable pay inside its band, not to the whole amount:
| Monthly taxable pay (KES) | Rate |
|---|---|
| On the first 24,000 | 10% |
| On the next 8,333 (to 32,333) | 25% |
| On the next 467,667 (to 500,000) | 30% |
| On the next 300,000 (to 800,000) | 32.5% |
| Above 800,000 | 35% |
Personal relief is KES 2,400 a month (KES 28,800 a year) and is subtracted from the computed tax, not from pay. Every resident employee gets it, on their main employment only.
The practical consequence of relief being applied to tax: an employee whose computed PAYE is below KES 2,400 pays no PAYE at all, and the excess relief is not refunded or carried anywhere. This is why the effective tax-free threshold is higher than the bottom of the first band.
SHIF
The Social Health Insurance Fund replaced NHIF from October 2024, under the Social Health Insurance Act, 2023. Two things about it are structurally different from the fund it replaced, and both matter for a payroll engine:
- It is a percentage, not a band table. NHIF was a lookup: find the gross pay row, read the shilling amount. SHIF is 2.75% of gross salary, with a stated monthly minimum. A payroll that still holds an NHIF band table is producing wrong numbers, not merely outdated ones.
- There is no upper cap. NHIF stopped at a top band. SHIF continues at 2.75% however high the salary goes, which is a meaningful change for senior staff.
It is an allowable deduction, so it comes off before PAYE is computed.
NSSF, and why last year's number is already wrong
Contributions are made under the NSSF Act, 2013, in two tiers, at 6% from the employee matched by 6% from the employer:
- Tier I — 6% of pensionable earnings up to the Lower Earnings Limit.
- Tier II — 6% of the slice between the Lower and the Upper Earnings Limit.
The two limits step up by statute, on a schedule set out in the Act, and they have moved every year of the phased implementation. That is why no figure for them appears on this page: whatever we printed would be correct for a few months and then quietly wrong.
This is the strongest argument for keeping statutory rates in a configurable table with effective dates rather than in code or in a spreadsheet formula. A payroll run for March should use March's limits, and a payroll re-run for last November should still use November's — which is impossible if the rate lives in a cell somebody overwrote.
Tier II can be contracted out to an approved private scheme; if you have done that, your payroll needs to know which employees it applies to.
The affordable housing levy
1.5% of the employee's gross monthly salary, matched by 1.5% from the employer, under the Affordable Housing Act, 2024. The employee's half is an allowable deduction and so comes off before PAYE. The employer's half is a cost to the business, not a deduction from the employee, and belongs in the payroll expense rather than on the payslip's deduction column.
A worked payslip
Gross KES 80,000. NSSF shown as a placeholder X because the limits move; substitute the current Tier I + Tier II figure.
| Gross pay | 80,000.00 |
| Less NSSF (employee) | (X) |
| Less SHIF @ 2.75% | (2,200.00) |
| Less housing levy @ 1.5% | (1,200.00) |
| Taxable pay | 76,600.00 − X |
|---|---|
| PAYE on bands | … |
| Less personal relief | (2,400.00) |
| PAYE payable | … |
| Net pay | Gross − NSSF − SHIF − levy − PAYE |
Note that the statutory deductions appear twice in the arithmetic: once to reduce taxable pay, and once as actual deductions from gross to reach net. Deducting them once is the second most common payroll error after getting the order wrong.
What payroll owes the ledger
A payroll run is a financial event and should post like one. At minimum, per run:
- Debit salaries and wages expense with gross pay.
- Debit employer contributions expense with the employer's NSSF and housing levy share.
- Credit a payable for each statutory deduction — PAYE, SHIF, NSSF, levy — because these are amounts you are holding on somebody else's behalf until the due date.
- Credit net pay to the bank or a net-pay control account.
Keeping the statutory deductions as distinct liability accounts is what makes it possible to answer "have we remitted everything for March?" without reopening the payroll module. When they are lumped into one "statutory deductions" payable, a shortfall in one fund is hidden by a surplus in another.
Deadlines
Remittance deadlines for PAYE, SHIF, NSSF and the housing levy fall in the first half of the month following the payroll, and they are not all on the same day. Penalties for late remittance are per-fund and are calculated on the amount, so a late payroll is expensive in four separate places at once. Put each deadline in the calendar rather than remembering "around the ninth".