PAYE in Kenya: tax bands, reliefs and worked examples

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PAYE in Kenya is the income tax employers deduct from employees' salaries every month and pay to the Kenya Revenue Authority. The calculation changed in December 2024, when SHIF, the Affordable Housing Levy and NSSF contributions became deductible before tax, and NSSF limits rose again in February 2026. This guide explains the current bands and reliefs, walks through worked examples at four salary levels, and covers deadlines, penalties and common mistakes.

What PAYE is

Pay As You Earn (PAYE) is the system for collecting income tax from employment income. The employer calculates the tax due on each employee's pay every month, deducts it from their salary, and pays it to KRA. It applies to salaries, wages, overtime, bonuses, commissions, most allowances and taxable benefits, such as a company car or housing.

Employers are legally responsible for deducting and paying PAYE correctly. If they deduct too little, KRA can recover the shortfall from the employer with penalties and interest, so getting it right matters for the business as well as the employee.

Current PAYE tax bands

PAYE is calculated on monthly taxable pay using graduated bands. The bands that apply from July 2023 are:

• First KES 24,000: 10%.
• Next KES 8,333 (from KES 24,001 to KES 32,333): 25%.
• Next amount up to KES 500,000: 30%.
• Next amount up to KES 800,000: 32.5%.
• Above KES 800,000: 35%.

Each band's rate applies only to the part of pay that falls within it. Someone earning KES 100,000 in taxable pay does not pay 30% on everything; they pay 10% on the first KES 24,000, 25% on the next KES 8,333 and 30% on the rest.

Personal relief

Every resident employee receives a personal relief of KES 2,400 a month (KES 28,800 a year). It is subtracted from the tax calculated using the bands. In practice, this means people with very low taxable pay owe no PAYE, because the relief cancels out the tax on the first band.

Personal relief applies once per person. Someone with two jobs should only receive it from their main employer; the second employer applies the bands without relief, and often at the highest rate for secondary employment under KRA rules.

Deductions that reduce taxable pay

Since the Tax Laws (Amendment) Act, 2024, which took effect on 27 December 2024, three statutory deductions are subtracted from gross pay before PAYE is calculated:

• SHIF contributions: 2.75% of gross pay, with a minimum of KES 300.
• Affordable Housing Levy: the employee's 1.5% of gross pay.
• NSSF contributions: the employee's 6% of pensionable pay, up to the upper earnings limit of KES 108,000 from February 2026.

Contributions to registered pension schemes are also deductible, within an overall pension limit of KES 30,000 a month. Before these changes, the Housing Levy and health insurance gave reliefs instead of deductions, so older calculators give different results.

How to calculate PAYE step by step

1. Start with gross pay: salary plus taxable allowances and benefits for the month.
2. Deduct SHIF (2.75% of gross, minimum KES 300).
3. Deduct the employee's Housing Levy (1.5% of gross).
4. Deduct the employee's NSSF (6% of pensionable pay up to KES 108,000) and any other allowable pension contributions.
5. The result is taxable pay.
6. Apply the tax bands to taxable pay to get the gross tax.
7. Subtract personal relief of KES 2,400 and any other reliefs.
8. The result, if positive, is PAYE for the month.

Net pay is gross pay minus SHIF, the Housing Levy, NSSF, PAYE and any other deductions such as loans.

Worked example: KES 30,000 a month

For a gross salary of KES 30,000:

• SHIF: KES 825. Housing Levy: KES 450. NSSF: KES 1,800.
• Taxable pay: 30,000 − 825 − 450 − 1,800 = KES 26,925.
• Tax: 10% of 24,000 = 2,400, plus 25% of 2,925 = 731.25. Total KES 3,131.25.
• Less personal relief of KES 2,400: PAYE = KES 731.25.
• Net pay: 30,000 − 825 − 450 − 1,800 − 731.25 = KES 26,193.75.

Worked example: KES 50,000 a month

• SHIF: KES 1,375. Housing Levy: KES 750. NSSF: KES 3,000.
• Taxable pay: KES 44,875.
• Tax: 2,400 on the first 24,000; 2,083.25 on the next 8,333; 30% of 12,542 = 3,762.60. Total KES 8,245.85.
• Less personal relief: PAYE = KES 5,845.85.
• Net pay: KES 39,029.15.

Worked example: KES 100,000 a month

• SHIF: KES 2,750. Housing Levy: KES 1,500. NSSF: KES 6,000.
• Taxable pay: KES 89,750.
• Tax: 2,400 + 2,083.25 + 30% of 57,417 (17,225.10) = KES 21,708.35.
• Less personal relief: PAYE = KES 19,308.35.
• Net pay: KES 70,441.65.

The employer additionally pays its own NSSF share of KES 6,000, its Housing Levy share of KES 1,500 and the KES 50 NITA levy.

Worked example: KES 250,000 a month

• SHIF: KES 6,875. Housing Levy: KES 3,750. NSSF: KES 6,480 (capped, because pensionable pay is above KES 108,000).
• Taxable pay: KES 232,895.
• Tax: 2,400 + 2,083.25 + 30% of 200,562 (60,168.60) = KES 64,651.85.
• Less personal relief: PAYE = KES 62,251.85.
• Net pay: KES 170,643.15.

These examples assume no other benefits, pension contributions or reliefs. Use the Kenya PAYE calculator for your own figures; it shows each line.

Taxable allowances and benefits

Most cash allowances are taxable, including housing, transport, airtime and entertainment allowances. Non-cash benefits are also taxable above certain thresholds, such as company cars (valued using KRA's prescribed rates), employer-provided housing, and loans at below-market interest. Some items are exempt or partly exempt, for example certain meals provided at the workplace up to a limit, and reimbursements of genuine business expenses supported by receipts.

Bonuses and overtime are added to pay in the month they are paid and taxed through PAYE. Because Kenya's bands are monthly, a large bonus in one month can push more income into higher bands for that month.

Other reliefs and exemptions

Some reliefs can reduce PAYE further, including insurance relief on qualifying life and education policies (15% of premiums, up to a monthly cap) and relief for registered home ownership savings plans, within limits. Persons with disabilities who hold an exemption certificate from KRA are exempt on income up to a set amount. Employers apply these reliefs only when the employee provides the required documents.

Paying and filing PAYE

Employers must pay PAYE deducted in a month by the ninth day of the following month, using a payment registration number generated on iTax. They also file a monthly PAYE return on iTax (P10) showing each employee's pay and tax. At year end, employers issue a P9 form to each employee showing pay and tax for the year, which employees use to file their own annual returns by 30 June.

The Housing Levy is also due by the ninth working day of the following month. SHIF and NSSF have their own remittance deadlines. See statutory deductions in Kenya for the full list.

Penalties for late or incorrect PAYE

Late payment of PAYE attracts a penalty and interest on the unpaid tax, and late filing has its own penalty. Under-deducting PAYE leaves the employer liable for the shortfall plus penalties, even though the tax was the employee's. KRA can also review payroll records in audits, so keep payslips, payroll reports and supporting documents for at least five years.

Using payroll software

Manual PAYE calculations are error-prone, especially when rules change. Kenyan payroll software applies the current bands, deductions and reliefs automatically, generates payslips, and produces the iTax return files. Compare options in our Kenya payroll software ranking and the Kenya payroll software guide, and see WinguBox Payroll pricing and Workpay alternatives.

If you employ in Kenya from abroad without an entity, an employer of record runs PAYE for you; see how to hire employees in Kenya.

PAYE for directors, casuals and consultants

Directors who receive salaries are taxed through PAYE like other employees. Casual workers engaged for short periods are also subject to PAYE on their pay. Consultants and professionals who are genuinely independent are not on PAYE, but payments to them for certain services may be subject to withholding tax, which the payer deducts and remits. If a "consultant" works like an employee, KRA may treat the payments as employment income; see contractor misclassification.

PAYE and eTIMS

Salaries paid through payroll are not invoiced, so eTIMS does not apply to them. However, businesses must hold valid eTIMS invoices to claim many business expenses, and payments to suppliers increasingly need eTIMS invoices. If you are setting up a Kenyan business, see how to register for eTIMS and accounting software in Kenya.

Common mistakes

• Using pre-December 2024 rules, where the Housing Levy and SHIF gave reliefs rather than deductions.
• Using old NSSF limits instead of the current upper earnings limit.
• Giving personal relief from two employers.
• Forgetting to tax allowances and benefits.
• Paying after the ninth of the following month.
• Not issuing P9 forms to employees.

How PAYE changes as salary rises

Because of the graduated bands and the fixed personal relief, the share of salary paid in PAYE rises with income. From the worked examples above, PAYE is roughly 2% of gross pay at KES 30,000, about 12% at KES 50,000, around 19% at KES 100,000 and about 25% at KES 250,000. The marginal rate, the tax on each extra shilling of taxable pay, is 30% for most professional salaries between about KES 32,000 and KES 500,000 of taxable pay.

This matters when negotiating raises or bonuses. An extra KES 10,000 of gross pay for someone in the 30% band does not add KES 10,000 to net pay: SHIF and the Housing Levy take 4.25% first, and PAYE takes 30% of the remainder, with NSSF also rising until the cap is reached. Show employees the net effect, which the PAYE calculator makes easy.

PAYE on terminal dues and leave pay

When employment ends, payments such as notice pay, leave pay, gratuity and severance are generally taxable employment income. Some lump sums can be spread back over the years in which they were earned for tax purposes, which can reduce the tax compared with taxing them all in one month. Pension withdrawals from registered schemes follow their own rules and exemptions. Because terminal payments can be large, check the treatment with your payroll provider or tax adviser rather than running them through a normal month's payroll without thought.

Employees with more than one job

Employees who work for two employers receive personal relief only from their primary employer. The secondary employer generally deducts PAYE at the highest applicable rate without relief, under KRA's rules for secondary employment. At year end, the employee files one annual return combining both incomes, and any over- or under-payment is settled then. Ask new employees whether they have another job, and record which employer is primary.

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