With the passing of the Finance Act 2024 Kenya, there have been key updates to how income tax is calculated—specifically on how Pay As You Earn (PAYE) is determined. Two major deductions are now included as allowable deductions: the Affordable Housing Levy (AHL) and the Social Health Insurance Fund (SHIF).
In this guide, we’ll explain—step by step—how to calculate PAYE under the new law using AHL and SHIF, and why this matters for both employers and employees.
What Is PAYE?
PAYE (Pay As You Earn) is a method through which employees’ income tax is deducted directly from their salary by the employer and submitted to the Kenya Revenue Authority (KRA) on a monthly basis.
What Has Changed?
Before December 2024:
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AHL and NHIF were treated as post-tax deductions. This means PAYE was calculated first, and then AHL/NHIF were deducted afterward.
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Taxable income was generally gross salary minus NSSF only.
After the Finance Act 2024:
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Affordable Housing Levy (AHL) and SHIF (which replaced NHIF) are now considered allowable deductions.
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These deductions are made before PAYE is calculated, reducing the employee’s taxable income.
Step-by-Step: How to Calculate PAYE with AHL and SHIF
Let’s walk through an example using the latest rates and structure.
Step 1: Know the Basic Figures
Assume the following:
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Gross Salary: KSh 100,000
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NSSF (Tier I & II): KSh 2,160 (Statutory maximum as per 2024 rates)
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AHL: 1.5% of gross salary = KSh 1,500
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SHIF: KSh 2,500 (based on income band)
Step 2: Add Up All Allowable Deductions
Allowable deductions = NSSF + AHL + SHIF
= 2,160 + 1,500 + 2,500
= KSh 6,160
Step 3: Calculate Taxable Income
Taxable Income = Gross Salary – Allowable Deductions
= 100,000 – 6,160
= KSh 93,840
This is the income used to calculate PAYE.
Step 4: Apply PAYE Tax Bands (2024)
Use the updated PAYE tax bands for 2024:
| Band | Tax Rate |
|---|---|
| First KSh 24,000 | 10% |
| Next KSh 8,333 (to 32,333) | 25% |
| Above KSh 32,333 | 30% |
Now apply the bands to the KSh 93,840 taxable income:
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First KSh 24,000 × 10% = KSh 2,400
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Next KSh 8,333 × 25% = KSh 2,083.25
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Remaining KSh 61,507 (93,840 – 32,333) × 30% = KSh 18,452.10
Total PAYE = 2,400 + 2,083.25 + 18,452.10
= KSh 22,935.35
Step 5: Apply Tax Reliefs
Every Kenyan resident is entitled to a monthly personal relief of KSh 2,400.
So the final PAYE payable = 22,935.35 – 2,400 = KSh 20,535.35
Summary: Payroll Breakdown
| Description | Amount (KES) |
|---|---|
| Gross Salary | 100,000 |
| Less NSSF | 2,160 |
| Less AHL | 1,500 |
| Less SHIF | 2,500 |
| Taxable Income | 93,840 |
| PAYE Before Relief | 22,935.35 |
| Less Personal Relief | 2,400 |
| Final PAYE Payable | 20,535.35 |
Why This Matters
For Employees:
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You may notice a slightly higher net salary, since AHL and SHIF reduce your taxable income.
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Your monthly payslip and KRA P9 form should reflect these deductions under “Allowable Deductions.”
For Employers:
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It’s your legal duty to calculate PAYE correctly under the new framework.
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Ensure your payroll system is updated to apply AHL and SHIF before tax computation.
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Use the new KRA P9 form format when issuing employee tax documents.
Frequently Asked Questions
Q: Is SHIF the same as NHIF?
A: No. SHIF replaced NHIF as Kenya’s new health insurance fund and became effective in 2024.
Q: Is AHL refundable?
A: The government has stated that employee AHL contributions may be refundable under certain terms, but specific refund processes are still being clarified.
Q: What if my employer is still using the old tax structure?
A: This may lead to over-taxation. You should raise the issue with HR and request updated payroll processing.
Need Help With PAYE Compliance?
At FaidiHR, we help businesses across Kenya automate and manage payroll accurately—fully aligned with the latest tax laws and Finance Act updates.
Call: +254 702 339 699
Email: sales@faidihr.com
Whether you're managing 5 employees or 500, we make PAYE, AHL, SHIF, and compliance simple and stress-free.