Employer’s Guide to Payroll Tax in Kenya 2025 Edition
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Employer’s Guide to Payroll Tax in Kenya 2025 Edition

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May 14th, 2025

Employer’s Guide to Payroll Tax in Kenya 2025 Edition

Managing payroll in Kenya involves understanding various statutory deductions and recent legislative updates. This guide provides a clear overview of the key components affecting employers in 2025.

1. Pay As You Earn (PAYE)

PAYE is the income tax that employers deduct from employees' salaries and remit to the Kenya Revenue Authority (KRA). As of July 1, 2023, the individual income tax rates are:

  • 10% on the first KSh 24,000 monthly

  • 25% on the next KSh 8,333

  • 30% on the next KSh 467,667

  • 32.5% on income between KSh 500,000 and KSh 800,000

  • 35% on income above KSh 800,000

Starting July 1, 2025, employers are mandated to automatically apply all eligible PAYE tax reliefs and exemptions during payroll processing, streamlining the tax process and reducing the burden on employees.

2. National Social Security Fund (NSSF)

Effective February 1, 2025, the NSSF contributions are structured into two tiers:

  • Tier I: 6% of the first KSh 8,000 of monthly earnings (KSh 480 each from employer and employee)

  • Tier II: 6% of earnings between KSh 8,001 and KSh 72,000 (up to KSh 3,840 each from employer and employee)

The maximum total contribution per party is KSh 4,320 monthly.

3. Social Health Insurance Fund (SHIF)

With the introduction of the Social Health Authority (SHA) under the Social Health Insurance Act, 2024, NHIF was replaced by SHIF. SHIF contributions are mandatory for all employees and are based on income brackets.

  • Contribution rate: 2.75% of the employee's gross salary, with a minimum of KSh 300 and no maximum cap

  • Remittance Deadline: Deductions must be remitted by the 9th day of the following month.

Employers are responsible for deducting and remitting SHIF contributions to SHA. Failure to comply incurs penalties of up to KSh 2 million or imprisonment for up to three years.

4. Housing Levy

Employers are required to contribute 1.5% of an employee's gross monthly salary to the Housing Levy, with a matching 1.5% deduction from the employee. This fund aims to support affordable housing initiatives in Kenya.

5. Compliance and Deadlines

  • Remittance Deadline: All statutory deductions (PAYE, NSSF, SHIF, Housing Levy) must be remitted by the 9th day of the following month.

  • Filing Returns: Employers must file monthly returns through the KRA iTax portal and respective NSSF/SHIF portals.

Interactive Example: Calculating Deductions for a Gross Salary of KSh 50,000

Let’s break down the statutory deductions for an employee earning a gross monthly salary of KSh 50,000:

  • NSSF:

    • Tier I: 6% of KSh 8,000 = KSh 480

    • Tier II: 6% of (KSh 50,000 - KSh 8,000) = KSh 2,520

    • Total NSSF: KSh 3,000 (both employer and employee)

  • SHIF: 2.75% of KSh 50,000 = KSh 1,375

  • Housing Levy: 1.5% of KSh 50,000 = KSh 750 (both employer and employee)

  • PAYE: Calculated based on the tax bands mentioned above.

Employers should ensure accurate calculations and timely remittances to remain compliant with Kenyan tax laws.

Final Thoughts

Staying updated with the latest payroll tax regulations is crucial for compliance and efficient payroll management. Employers are encouraged to consult with tax professionals or utilize reliable payroll software to navigate these obligations effectively.

Need Assistance with Payroll Management?

For a streamlined and reliable payroll system, reach out to us at sales@faidihr.com or call +(254) 702 339 699.