PAYE in Kenya: A Practical Guide for Every Employer

What is PAYE and Who Must Deduct It?

Pay As You Earn (PAYE) is the mechanism through which employers in Kenya withhold income tax from employees’ salaries and remit it directly to the Kenya Revenue Authority. It is governed by the Income Tax Act, Cap 470 and is mandatory for every employer with salaried employees — from a micro-enterprise with two staff to a multinational with thousands. Failure to deduct and remit PAYE makes the employer personally liable for the tax, plus penalties and interest.

PAYE Tax Bands for 2025 (Monthly)

PAYE is calculated using a graduated scale. The applicable monthly bands and rates are:

• KES 0 – 24,000: 10%
• KES 24,001 – 32,333: 25%
• KES 32,334 – 500,000: 30%
• KES 500,001 – 800,000: 32.5%
• Above KES 800,000: 35%

These rates apply to chargeable income — gross pay less allowable deductions such as pension contributions (up to KES 30,000/month), owner-occupier interest (up to KES 30,000/month), and contributions to the Housing Levy and SHIF.

Personal Relief

Every individual taxpayer in Kenya is entitled to a personal relief of KES 2,400 per month (KES 28,800 per year), which is deducted from the gross PAYE liability. This relief is automatic and applies to all resident individuals with employment income.

Insurance Relief

Employees who pay premiums on life insurance, education policies, or health insurance policies approved by the Commissioner may claim insurance relief at 15% of premiums paid, capped at KES 5,000 per month (KES 60,000 per year). Employers processing payroll should collect premium certificates from employees annually.

Payroll Deductions Beyond PAYE

A compliant Kenyan payroll includes several statutory deductions beyond PAYE:

• NSSF: Employee contributes 6% of gross pay; employer matches 6%. The National Social Security Fund amendment increased contribution levels significantly.
• SHIF (Social Health Insurance Fund): 2.75% of gross monthly salary, replacing the former NHIF contributions.
• Affordable Housing Levy (AHL): 1.5% from the employee; employer contributes a matching 1.5%.

Remittance Deadline and Penalties

PAYE must be remitted to the KRA by the 9th of the month following deduction. Late remittance attracts a penalty of 25% of the tax due plus interest at 1% per month on the outstanding amount. These penalties compound quickly — a single missed remittance can represent a significant liability, especially for businesses with a large payroll.

Directors and PAYE

Director fees paid by a company to its directors are subject to PAYE at the individual’s applicable tax band. Many small company owners mistakenly treat director drawings as non-taxable or handle them only at the annual return stage. The KRA treats any remuneration from employment — including director fees and benefits in kind such as company cars, housing, and school fees — as subject to PAYE in the month it is received.

LuxePro manages monthly payroll for businesses across Kenya, ensuring every deduction is calculated correctly and remittances are made on time. Learn more about our payroll services or request a payroll review today.