Kenya Payroll Guide: PAYE, iTax, NSSF & Compliance Tips

Picture this: closing the month, handing your HR officer the payroll spreadsheet, and discovering the PAYE column is under-calculated, the KRA return fails validation and penalties start ticking. That payroll panic is real, but it’s avoidable.
This complete guide to payroll in Kenya helps you calculate PAYE, NSSF, SHIF/NHIF, stay compliant and avoid costly payroll errors.
We guide you step by step using Kenyan examples and compliance references through payroll calculations, statutory obligations (PAYE, NSSF, SHIF/NHIF, Affordable Housing Levy) and best practices that save time, reduce risk, and protect your bottom line.

(If you want to jump to SkillMind’s cloud payroll solution referenced throughout, see the pillar resource here: Why Kenyan businesses are switching to cloud payroll software.)

Payroll in Kenya Essentials: PAYE, NSSF & Checklists

• How payroll works in Kenya, the pieces that matter to HR and finance.
• Exact statutory pieces: PAYE, personal relief, NSSF, SHIF/NHIF, Affordable Housing Levy, with citations and examples.
• Monthly payroll checklist and best practices (lists you can copy)
• A short real-world story of a payroll rescue (and how cloud payroll fixed it)
• FAQ and actionable next steps (including how to link payroll to iTax P9/P10 exports)

Why Accuracy, iTax & Compliance Matter Most

Payroll in Kenya isn’t just “pay plus tax.” Employers must calculate statutory deductions correctly, file returns via iTax, produce P9/P10 records where required, and remit payments on time (PAYE returns and payments are due on or before the 9th day of the following month). Employers who fail to comply face penalties and interest.

Key regulators you need to watch:

• Kenya Revenue Authority (KRA) for PAYE, iTax filing and P9/P10 guidance
• NSSF for pension contributions (recent phased increases effective 2025).
• NHIF / SHIF for health insurance contributions (2025 updates moving to SHIF with contribution logic).

Kenya Payroll Cycle: PAYE, NSSF, NHIF & Other Deductions

1) PAYE (Pay as You Earn), how it’s applied

PAYE is deducted by the employer from an employee’s taxable emoluments and remitted to KRA by the 9th of the following month. Employers apply the individual income tax bands set by the Finance Act (effective 1 July 2023): the monthly bands begin with the first KES 24,000taxed at 10%, followed by smaller slabs at 25%, 30%, 32.5% and up to 35% for very high incomes. A personal relief of KES 2,400 per month reduces the employee’s PAYE.

Example: PAYE calculation: step-by-step (digit-by-digit)

Let’s calculate PAYE for an employee with monthly gross pay of KES 120,000.

1. Taxable employment income = KES 120,000 (assume no pre-tax deductions for simplicity).
2. Apply monthly tax bands (as per KRA):
3. On the first KES 24,000 @ 10% → tax = 24,000 × 0.10 = KES 2,400.
4. Next band: 8,333 @ 25% → tax = 8,333 × 0.25 = KES 2,083.25.
5. Remaining amount after first two bands:

2. Sum of first two bands = 24,000 + 8,333 = 32,333.
3. Remaining taxable = 120,000 − 32,333 = KES 87,667.
4. Next band (30%) applies to the next chunk (up to the band limit), but for our simplified calculation we apply 30% to the remaining 87,667 if it falls within that band: tax = 87,667 × 0.30 = KES 26,300.10.

3. Total gross tax before relief = 2,400 + 2,083.25 + 26,300.10 = KES 30,783.35.
4. Subtract personal relief (KES 2,400): Net PAYE = 30,783.35 − 2,400 = KES 28,383.35.

Note: This example is illustrative, in real payroll you must apply the exact band ceilings month-by-month (KRA publishes the band ceilings and how the “next” bands are applied). The KRA PAYE guide gives the official table and examples.
If you want a go at a real world PAYE calculator, check out Skillmind’s PAYE calculator.

2) NSSF (National Social Security Fund)

NSSF contributions have been moved to a phased, tiered arrangement; which started being effective on February 2025 there were notable increases and changes in how tiers are calculated. Employers must apply the new tier rules (Tier I and Tier II) and remit accordingly, both employer and employee portions are required. Professional advisories and statutory alerts summarize the implementation details employers must follow.

(If you’re using a local payroll system, ensure it supports the updated NSSF tier logic and automatically recalculates contributions when the upper/lower limits change.)

3) SHIF / NHIF (Health contributions)

NHIF evolved into SHIF (Social Health Insurance Fund) with contribution models changing, recent guidance and local HR blogs note contributions set at 2.75% of gross income, with a floor (minimum payment) and specific banding details. Make sure pay slip templates show SHIF contributions and that payroll exports match the format required for any SHIF reporting

4) Affordable Housing Levy (AHL) & Other Statutory Items

The Affordable Housing Levy (AHL) is paid by both employer and employee at 1.5% of the gross monthly salary (per the law/guidance referenced in KRA publications). There are also allowable deductions and tax reliefs (e.g., pension and insurance reliefs) you must account for when computing taxable income.

Payroll Best Practices in Kenya: Compliance & Accuracy Tips

Use this monthly checklist to avoid penalties and streamline payroll:

1. Confirm employee master data (full name, KRA PIN, bank details, NHIF/NSSF numbers).
2. Reconcile time & attendance against payroll (include overtime and leave adjustments).
3. Calculate gross pay, pre-tax deductions (pension, approved reliefs), taxable pay.
4. Apply PAYE bands and personal relief; compute PAYE and net pay
5. Calculate employer/employee NSSF contributions per tier and remit.
6. Calculate SHIF/NHIF contributions and apply caps/floors where required.
7. Generate pay slips (breakdowns for gross pay, all statutory deductions, net pay).
8. Export and validate iTax P10/P9 files (or upload CSV) and file PAYE returns on iTax before the 9^th of every month.
9. Remit taxes and statutory contributions (use MPESA Paybill 222222 or RTGS as per iTax instructions).
10. Archive payroll backup and audit trail (signed pay slips, bank confirmation).

This checklist is intentionally short. It is the minimum survival kit every Kenyan HR/finance team should have.

Aisha’s Payroll Friday: How Cloud Software Solved Compliance

Aisha runs HR for a 65-person Nairobi tech firm. On the last working day of the month, their payroll spreadsheet refused to balance, several employees had incorrect PAYE and the P10 export failed validation on iTax. The finance team spent two nights manually fixing formulas and re-submitting. Penalties were avoided by luck, not by design.

After migrating to AI-powered HR Genie payroll system by SkillMind, the team automated statutory calculations (PAYE, NSSF tiers, SHIF), generated iTax-validated P10 exports, and integrated biometric attendance so overtime and leave flowed automatically into gross pay. What used to take two days of panic became a 90-minute audit and sign-off. That’s the typical ROI story local customers report. If you want to read more about why Kenyan businesses are switching to cloud payroll, the SkillMind pillar article explains real customer benefits and features in detail.

How cloud payroll in Kenya saves time & reduces risk

• Auto-apply statutory rules: PAYE bands, reliefs, NSSF tiers and SHIF rates are preconfigured and updated when laws change.
• iTax export & validation: One-click P10/P9 export, formatted to iTax templates, reducing validation errors.
• Attendance integration: Automatically import biometric or time-tracking data to avoid manual entry errors.
• Pay slip automation & employee self-service: Reduces queries and helps HR scale.

P9 & P10 in Kenya Payroll: iTax Filing Guide for Compliance

• P10: Employers use the P10 to report monthly PAYE deductions for employees and to file PAYE returns via iTax. It’s an employer-centric submission and must be validated for import or upload via iTax.
• P9: Employees use the P9 at year-end (or as needed) to file individual tax returns, it summarizes their annual emoluments and tax withheld. Employers issue P9s to employees for their own filing.

Pro tip: Automate your P9/P10 exports from payroll software to match iTax templates, that avoids manual re-entry and validation errors. Many Kenyan payroll systems (HR Genie’s payroll software) include P10 export features.

Sample Payslip in Kenya: Key Details Every Payslip Must Show

A compliant pay slip should clearly show: employee details and PIN, pay period, gross pay, each deduction (PAYE, NSSF, SHIF/NHIF, AHL), net pay, employer contributions (NSSF employer share), and a unique reference. Pay slips are the first records KRA or auditors will look for during a dispute. Ensure you make them neat and unambiguous.

Kenya Payroll FAQs: PAYE, iTAX, NSSF & Payslip Questions

Q1. What is the PAYE due date for employers?

A: PAYE returns and payments are due on or before the 9th day of the month following the payroll month. Late filing and late payment attract penalties and interest.

Q2. How do I compute NSSF with the 2025 changes?

A: NSSF moved to a tiered approach with revised upper limits effective early 2025 (employers must apply Tier I and Tier II calculations). Consult NSSF/KPMG statutory alerts or your payroll vendor for automated logic.

Q3. How do I submit P10 and what format is required?

A: Use iTax: download the PAYE Excel return template from iTax, fill in validated data or upload the exported CSV/zip from your payroll system, validate and upload via the iTax “File Return” flow. KRA’s user guide documents the exact steps.

Q4. Must I show NHIF/SHIF and NSSF on the pay slip?

A: Yes, pay slips should show statutory deductions and employer contributions for transparency and audit purposes. SHIF (the new health fund rules) has its own contribution logic, check the latest guidance when bands/rates change.

Kenya Payroll Case Study: Automating a 25-Person SME Payroll

If you run payroll for a 10–50-person SME, automate the following at minimum:

• Employee data (PIN, bank details) validation
• Time & attendance import (or manual batch upload)
• Preconfigured statutory rates & band updates (PAYE slabs, NSSF tiers, SHIF/NHIF)
• P10 export to iTax template and validation
• Pay slip emailing and archiving

A local cloud payroll product that does these reduces headcount risk and monthly admin time significantly. Local case studies (including customers using HR Genie’s payroll software) show measurable time savings and fewer iTax validation failures.

How to Choose the Best Payroll Software in Kenya

When evaluating payroll software, score vendors on:

1. Compliance readiness: Are PAYE, NSSF, SHIF/NHIF, and AHL implemented and updated automatically?
2. iTax export & validation: Can the system produce P10 and P9 exports that iTax accepts?
3. Integration: Does it sync with attendance, HRIS, and accounting?
4. Local support: Does the vendor understand Kenyan payroll nuances and update software quickly when laws change?
5. Security & audit logs: Essential for compliance and audits.
6. Price & scalability: Can it scale from SME to enterprise without painful migrations?

Your Turn: What Payroll in Kenya Challenge Do You Face Most?

Your Turn: What Payroll in Kenya Challenge Do You Face Most?

How many hours does your finance/HR team spend every month just fixing payroll mistakes?

Reply and I’ll suggest which items on your monthly checklist to automate first.

Conclusion

Payroll in Kenya is a mixture of arithmetic, legal rules, and operational discipline. Get the arithmetic right (PAYE bands and relief), stay current on statutory changes (NSSF, SHIF), and remove manual handoffs with automation (attendance → payroll → iTax export). If you want a ready-made next step, book a demo of HR Genie’s payroll software solutions to see P10 export and pay slip automation in action.