Understanding Payroll Processing in Kenya

Payroll processing in Kenya involves several complex moving parts. Employers must calculate salaries accurately, deduct PAYE, manage NSSF and SHIF contributions, account for Affordable Housing Levy and meet payroll reporting requirements.

The process becomes more demanding as employee numbers grow. A small calculation error can affect employee pay or statutory deductions. That is why businesses need payroll processing software that keeps calculations accurate and makes each payroll cycle easier to manage.

In this article, we cover the key payroll requirements in Kenya, the steps involved in processing payroll, and how payroll software can simplify the process.

Key Payroll Legislations in Kenya

Employment Act 2007

The Employment Act, 2007 sets out key employment requirements that affect payroll processing in Kenya, including wage payments, payslips, leave entitlements, deductions, and final payments. 

Income Tax Act, Kenya

The Income Tax Act provides the framework for calculating and deducting Pay As You Earn (PAYE) tax from employees’ taxable income in Kenya. Employers calculate the applicable PAYE tax, deduct it from employee salaries, and remit it to the Kenya Revenue Authority (KRA) within the prescribed deadline.

NSSF Act

The National Social Security Fund (NSSF) is a statutory social security scheme in Kenya that provides benefits such as retirement, survivor, and invalidity benefits to eligible workers. 

Social Health Insurance Act

The Social Health Insurance Act, 2023 established the Social Health Insurance Fund (SHIF) to provide health insurance coverage in Kenya. Employers are responsible for deducting the applicable SHIF contribution from employees’ salaries and remitting it within the prescribed deadline. 

Affordable Housing Act

The Affordable Housing Act, 2024 provides for the Affordable Housing Levy (AHL) in Kenya.

Core Components of Payroll Processing in Kenya

In Kenya, payroll is generally processed monthly, on the last day of each month.

Payroll Components in Kenya

Termination Pay and Final Payroll in Kenya

Severance and Termination Benefits

Employees may be entitled to certain payments when their employment ends under the Employment Act, 2007. The applicable payments depend on the circumstances of termination and the employee’s terms of employment.

Statutory Payroll Deductions and Contributions in Kenya

PAYE Tax

Pay As You Earn (PAYE) is the system employers use to deduct income tax from employees’ taxable income and remit it to the Kenya Revenue Authority (KRA) within the prescribed deadline. Payroll calculations should account for taxable salary, applicable benefits, tax bands, and eligible tax reliefs when determining the employee’s PAYE liability. 

Employers must also complete the required monthly PAYE filing and provide employees with the relevant annual tax certificate (P9). 

PAYE Rate in Kenya

Kenya uses progressive PAYE tax rates, which means different portions of an employee’s monthly taxable income are taxed at different rates. Applicable tax reliefs are then considered when determining the final PAYE amount. 

Personal relief: KES 2,400 per month. 

NSSF Contributions

Under the NSSF Act, 2013, contribution rates have been introduced in phases since February 2023. From 1 February 2026, the employee’s NSSF contribution is capped at KES 6,480 per month, with the employer contributing an equal amount. NSSF contributions must be remitted by the 9th day of the following month.

SHIF Contributions

Under SHIF, employees contribute 2.75% of their gross salary each month, which is deducted from their salary and remitted to the fund.

Affordable Housing Levy

Both the employer and employee contribute 1.5% of the employee’s gross monthly salary, with the employer matching the employee’s contribution. 

Leave, Overtime and Other Payroll Calculations

Step-by-Step: How to Process Payroll in Kenya

1. Collect Payroll Data
Gather employee, salary, leave, attendance, and overtime details.

2. Calculate Payroll
Calculate gross pay, statutory deductions, employer contributions, and net salary.

3. Review Payroll
Check payroll calculations and approve the final payroll.

4. Generate Payslips
Generate payslips and process employee salary payments.

5. Remit Statutory Deductions
Submit PAYE, NSSF, SHIF, Housing Levy, and other applicable payments.

6. Complete Payroll Reporting
File required payroll reports and maintain payroll records.

How HR and Payroll Software Helps with Payroll Processing

Accurate payroll processing in Kenya is essential for paying employees correctly and on time while meeting statutory requirements, including PAYE, NSSF, SHIF contributions, and payroll reporting obligations. 

A reliable payroll software solution such as Empxtrack payroll management software simplifies the process by automating calculations, validating payroll data, and generating required reports. Thus, it helps businesses process payroll more efficiently and accurately. 

• Automate employee salary calculation: Calculate basic salary, allowances, overtime, bonuses, and deductions.
• Support payroll automation: Automate recurring payroll tasks and reduce manual processing.
• Calculate statutory deductions: Automate PAYE, NSSF, SHIF, and Housing Levy calculations based on applicable payroll rules.
• Generate payslips: Create itemized employee payslips with earnings and deductions.
• Integrate leave and attendance with payroll: Bring approved leave, attendance, overtime, and other payroll inputs into salary calculations.
• Payroll reporting: Generate payroll reports and statutory payroll information.
• Maintain payroll records: Keep employee salary, deduction, and payroll history organized.

Conclusion

Payroll processing in Kenya requires employers to manage accurate salary calculations alongside taxes, social insurance, and other statutory requirements.

An integrated HR and payroll system can help automate salary calculations, deductions, payslip generation, payroll reporting, and payroll workflows.

Frequently Asked Questions