Key takeaways
- Every Kenyan employer must deduct PAYE, SHIF, NSSF and the Affordable Housing Levy from staff salaries and remit them on time.
- Most of these deductions are due by the 9th of the following month; late payment attracts penalties and interest.
- SHIF, NSSF and the Housing Levy are deducted before PAYE is calculated, which lowers the employee's taxable pay.
- A payroll system calculates every deduction, prints payslips and produces the returns, so you avoid costly manual errors.
In this guide
Since NHIF became SHIF and the Housing Levy was introduced, many Kenyan employers have asked the same question at the end of every month: what exactly should I deduct from my staff salaries, and when do I pay it? This guide explains each statutory deduction, how they are calculated and how to stay compliant.
1. PAYE (Pay As You Earn)
PAYE is income tax deducted from employees’ pay using KRA’s graduated tax bands, then reduced by personal relief and any insurance relief. The employer files and pays it on iTax by the 9th of the following month. See our step-by-step guide to computing taxes in Kenya.
2. SHIF (Social Health Insurance Fund)
SHIF replaced NHIF under the Social Health Authority (SHA). Salaried employees contribute 2.75% of gross salary, subject to a minimum amount. There is no upper cap, so higher earners pay more. Employers deduct and remit it to SHA by the 9th of the next month.
3. NSSF (National Social Security Fund)
Under the NSSF Act, 2013, the employee and employer each contribute 6% of pensionable pay, split into Tier I and Tier II up to the upper earnings limit set for the year. The limits are increasing in phases, so check the current figures on the NSSF website every January and February.
4. Affordable Housing Levy
The employee pays 1.5% of gross salary and the employer matches it with another 1.5%. It is paid through iTax within nine working days after the end of the month.
Tired of payroll spreadsheets and late penalties?
Deductions before tax: why the order matters
Following changes in the Tax Laws (Amendment) Act, 2024, SHIF contributions, the Housing Levy and NSSF contributions are deducted before PAYE is calculated. Getting the order wrong means you over-tax or under-tax staff, and KRA can charge penalties and interest on the difference.
A simple monthly payroll checklist
- Record attendance, overtime, allowances and unpaid leave.
- Calculate gross pay.
- Deduct NSSF, SHIF and Housing Levy.
- Calculate taxable pay and PAYE, then apply reliefs.
- Subtract other deductions such as SACCO, HELB or loan repayments.
- Pay net salaries by bank or M-Pesa bulk payment.
- Issue payslips to every employee.
- File and pay each deduction before the deadline.
Penalties for getting it wrong
Late PAYE attracts a penalty plus monthly interest, and late Housing Levy, SHIF and NSSF payments carry their own penalties. Repeated errors also make your business fail tax compliance checks, which can lock you out of government tenders.
Why use a payroll system?
A payroll system updates rates when the law changes, calculates every deduction, emails payslips, produces the P9 forms and creates files ready for iTax, SHA and NSSF. It also keeps an audit trail for KRA. Read signs your business has outgrown spreadsheets.
This article is general information, not tax advice. Rates and limits change; confirm current figures with KRA, SHA and NSSF or a qualified accountant.
Permalink Business Ltd. builds payroll, HR and accounting systems for Kenyan businesses. Request a quote.
Payroll deductions at a glance
| Deduction | Who pays | Paid to | Usual deadline |
|---|---|---|---|
| PAYE | Employee (employer deducts) | KRA via iTax | 9th of next month |
| SHIF (2.75% of gross pay) | Employee | Social Health Authority (SHA) | 9th of next month |
| NSSF | Employee and employer, matched | NSSF | 9th of next month |
| Affordable Housing Levy (1.5% + 1.5%) | Employee and employer | KRA via iTax | 9th working day of next month |
| NITA levy | Employer | NITA | Monthly |
Rates and limits change through Finance Acts and regulations. Confirm current figures with KRA, SHA and NSSF before running payroll. This guide is general information, not tax advice.
Frequently asked questions
What is the SHIF deduction in Kenya?
SHIF (Social Health Insurance Fund) replaced NHIF. Salaried employees contribute 2.75% of gross pay, subject to the minimum set by the Social Health Authority.
When are payroll deductions due in Kenya?
PAYE, SHIF and NSSF are generally due by the 9th of the following month. The Housing Levy is due within nine working days after the end of the month.
Is the Housing Levy deducted from casual workers?
The levy applies to gross salary of employees, including casual employees, as defined in the law. Check the latest KRA guidance for your situation.
Can a payroll system file my returns?
A good payroll system calculates all deductions and generates the reports and files you upload to iTax, SHA and NSSF, cutting the work to minutes.
A Nairobi IT company helping Kenyan businesses grow with websites, software, marketing, networking and security. Our guides are written from real client projects.
