Pay As You Earn (PAYE) is a mandatory tax system in Kenya where employers deduct income tax from employees' salaries and remit it directly to the Kenya Revenue Authority (KRA). It is a vital part of Kenya’s tax framework, ensuring individuals contribute to the country’s revenue in real-time rather than through annual tax returns.
In this article, we explore how PAYE works in Kenya, how it is calculated, and what both employers and employees need to know to remain compliant.
What is PAYE?
PAYE is a method of tax collection on employment income. It is deducted by the employer before the employee receives their salary. This system ensures the government receives tax revenue on a monthly basis, supporting public services and infrastructure.
Employers are legally required to deduct PAYE from employee salaries and remit it to KRA by the 9th day of the following month.
How PAYE is Calculated in Kenya
PAYE in Kenya follows a graduated tax scale based on monthly income brackets. The higher the income, the higher the tax rate. The applicable tax rates as of now are:
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10% on the first portion of income
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25% on the next portion
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30% on income above the upper threshold
In addition to these brackets, employers must consider applicable reliefs such as:
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Personal Relief – A fixed monthly deduction for all resident employees
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Insurance Relief – For certain qualifying insurance premiums
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Pension Contributions – Both individual and employer contributions to registered schemes are considered in the computation
Employer’s Obligations Under PAYE
Employers in Kenya play a crucial role in PAYE compliance. Their responsibilities include:
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Accurate monthly calculation of PAYE
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Deducting and remitting taxes to KRA on time
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Issuing payslips and P9 forms to employees
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Filing monthly PAYE returns via KRA’s iTax system
Non-compliance can lead to:
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Penalties and interest on late remittances
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Reputational damage
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Legal issues with KRA
Benefits of a Proper PAYE System
For employees, PAYE simplifies the tax process by spreading out tax payments over the year. It reduces the burden of lump-sum tax payments and helps avoid penalties at the end of the year.
For employers, a well-managed PAYE system ensures compliance, boosts employee trust, and avoids legal trouble.
Modern businesses are increasingly adopting automated payroll systems that simplify PAYE calculations, generate accurate payslips, and file returns on time.
Conclusion
Pay As You Earn (PAYE) Kenya is more than just a tax—it's a legal and financial responsibility. Whether you're running a small business or a large organization, handling PAYE correctly is essential. Automation can help ensure accuracy, save time, and keep your business compliant with Kenyan tax laws.
Contact Us
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FaidiHR is a modern, cloud-based HR and payroll solution built for Kenyan businesses. Automate PAYE calculations, generate compliant payslips, and file tax returns with ease.
Sales: +(254) 702 339 699
Email: sales@faidihr.com
Let us help you simplify payroll and stay compliant.