In 2026, the Kenya Revenue Authority (KRA) has transitioned to a high-tech, data-driven enforcement model. With the full implementation of eTIMS validation for business expenses and automated cross-checking on iTax, manual payroll "workarounds" are now the fastest way to trigger a costly audit.
Here are the most common payroll errors currently landing Kenyan businesses in hot water:
1. Applying Outdated Tax Bands and Reliefs
With the Finance Acts of recent years, tax bands have shifted. As of 2026, the top individual tax rate stands at 35% for high earners.
-
The Error: Using a 30% cap for employees earning over KSh 800,000 or failing to apply the correct Personal Relief (KSh 2,400 monthly).
-
The Penalty: KRA imposes a 5% penalty on the under-remitted amount, plus 1% monthly interest that compounds until the debt is cleared.
2. SHIF and NSSF Tier II Miscalculations
The transition from NHIF to the Social Health Insurance Fund (SHIF) at a flat 2.75% of gross salary, combined with the phased NSSF Tier II increases, has created a "calculation maze."
-
The Error: Capping SHIF contributions (which are now uncapped) or using the old 2024/2025 NSSF salary ceilings.
-
The Penalty: Since KRA now cross-checks these figures against your declared Gross Pay, discrepancies trigger an automatic "Non-Compliance" flag on your iTax ledger.
3. Inconsistencies Between Bank Payments and iTax Returns
Starting January 2026, KRA’s automated validation system compares three data points: your payroll register, your iTax P10 return, and your bank remittance records.
-
The Error: Making "off-book" adjustments or paying bonuses via bank transfer without reflecting them in the monthly PAYE return.
-
The Penalty: Discrepancies often lead to a full payroll audit, where KRA can demand back-taxes for the last five years.
4. Misclassifying "Permanent" Staff as "Casuals"
To avoid statutory costs, some businesses keep workers on "casual" status indefinitely.
-
The Error: Failing to convert a casual worker to a term contract after they have worked for more than a cumulative 30 days in a year (or as per current labor laws).
-
The Penalty: KRA and the Ministry of Labour can retrospectively demand all unpaid NSSF, SHIF, and Housing Levy contributions for the entire period of employment.
How Faidihr Keeps You Safe
Automating with Faidihr removes the "human element" from compliance. The system is natively built for the Kenyan market, meaning:
-
Real-time Updates: When KRA changes a tax band, Faidihr updates automatically.
-
One-Click Returns: Generate iTax-ready ZIP files that match your bank payments cent-for-cent.
-
Statutory Accuracy: SHIF, NSSF Tier I & II, and the Affordable Housing Levy are calculated perfectly based on the latest 2026 regulations.
For more, contact:
-
Call/WhatsApp: +256 702 339 699
-
Email: sales@faidihr.com