Hiring in Kenya: PAYE, NSSF, SHIF and the housing levy explained

Many Ugandan businesses open a Kenyan branch or hire their first Nairobi-based salesperson before anyone in the office has run a Kenyan payroll. The structure is familiar, with a progressive income tax and a social security fund, but Kenya layers two further deductions on top and the deadline comes earlier in the month. This is the current picture from the Kenya Revenue Authority, the Social Health Authority and professional alerts on the NSSF changes.

PAYE: the bands and the relief

KRA requires employers to deduct PAYE at the individual income tax rates set by the Finance Act 2023, which took effect on 1 July 2023. Monthly, the first KES 24,000 is taxed at 10%, the next KES 8,333 at 25%, the next KES 467,667 at 30%, the next KES 300,000 at 32.5% and anything above KES 800,000 at 35%. Every resident employee then receives a personal relief of KES 2,400 a month against the tax computed, and insurance relief of 15% of qualifying premiums up to KES 60,000 a year.

Non-cash benefits worth more than KES 5,000 a month are taxable, and KRA's December 2024 notice on the Tax Laws (Amendment) Act 2024 confirms that the first KES 60,000 a year of employer-provided meals, and non-cash benefits under that value, are excluded from employment income.

The order of deductions changed in December 2024

The same notice, effective 27 December 2024, lists what is now deducted from gross pay before tax is computed: the Affordable Housing Levy, SHIF contributions, post-retirement medical fund contributions up to KES 15,000 a month, mortgage interest up to KES 30,000 a month on an owner-occupied home, and registered pension contributions up to KES 30,000 a month. The old affordable housing relief and post-retirement medical fund relief were removed. The practical effect is that PAYE is now computed on pay after housing levy, SHIF and pension deductions, which is the opposite of how many spreadsheets built before 2025 work.

NSSF: a two-tier contribution

Under the NSSF Act 2013 the employee contributes 6% of pensionable earnings and the employer matches it with 6%. The earnings are split into Tier I, up to a lower earnings limit, and Tier II, between the lower and upper limits. From February 2025 the limits rose to KES 8,000 and KES 72,000, making the maximum monthly contribution KES 4,320 from the employee and KES 4,320 from the employer, a total of KES 8,640. The Act's schedule steps the limits up each February, so confirm the limits that apply to the current year before running payroll. Contributions are due to NSSF by the 9th of the month following the payroll month. An employer with an approved private pension scheme may apply to the NSSF board to opt out of Tier II only.

SHIF: 2.75% of gross, employee only

The Social Health Insurance Fund replaced the old health insurance deductions for employers from 1 October 2024. The Social Health Authority's premium rates page states that employers deduct 2.75% of the employee's gross monthly salary and remit it, that the minimum contribution is KES 300 a month, and that there is no upper limit. EY's alert on the start of contributions adds that the remittance is due by the ninth day of the following month, that late payment attracts a 2% penalty, and that the Ministry of Health notice shifted the duty to register employees from the employees to their employers. SHIF is deducted from the employee; the employer does not match it.

The Affordable Housing Levy: 1.5% plus 1.5%

KRA's PAYE page states that the levy is 1.5% of gross salary deducted from the employee and matched by 1.5% from the employer, remitted to KRA within nine working days after the end of the month. As noted above, the employee's 1.5% is deductible before PAYE under the 2024 amendment.

Deadlines and penalties

PAYE and the P10 return are due on or before the 9th of the following month, filed through iTax, with a nil return required even when no tax is due. KRA's penalties are a late filing penalty of the higher of 25% of the tax due or KES 10,000, a late payment penalty of 5% plus interest at 1% a month, and a penalty for failing to deduct of 25% or KES 10,000, whichever is higher. With NSSF and SHIF also due by the 9th, a Kenyan payroll has to close in the first week of the month, not the middle.

A month-end checklist for a Kenyan branch

1. Build gross pay from basic, commission, overtime and taxable benefits.
2. Deduct NSSF Tier I and Tier II, SHIF at 2.75% and the housing levy at 1.5%.
3. Compute PAYE on the remainder, then subtract the KES 2,400 personal relief.
4. Add the employer's 6% NSSF and 1.5% housing levy to the cost of employment.
5. Remit everything and file by the 9th, and keep the acknowledgements.

Treat Kenya as a separate payroll with its own calendar, and the branch will cause less trouble than a late remittance ever would.

Sources

1. https://www.kra.go.ke/individual/filing-paying/types-of-taxes/paye
2. https://www.kra.go.ke/news-center/public-notices/2157-amendments-to-paye-computation-pursuant-to-the-tax-laws-amendment-act,-2024
3. https://vialtopartners.com/regional-alerts/kenya-employment-tax-national-social-security-fund-nssf-2025-changes
4. https://www.sha.go.ke/premium-rates/
5. https://www.ey.com/en_gl/technical/tax-alerts/kenya-employers-to-begin-making-contributions-to-social-health-insurance-fund