Understanding PAYE in Kenya

Pay As You Earn (PAYE) is the tax employers deduct from employee salaries and remit to KRA every month. Getting it wrong — even slightly — creates penalties for the employer and disputes with staff.

This guide walks through how gross pay becomes net pay, where personal relief and statutory deductions fit in, and the most common mistakes we see in payroll reviews.

Key insights

• PAYE is calculated on taxable income after allowable deductions such as NSSF and mortgage interest relief, not on gross pay directly.
• Every resident employee is entitled to a monthly personal relief that reduces the final tax payable.
• Bands are graduated — different slices of income are taxed at different rates, not the whole salary at one rate.
• Benefits in kind (housing, car benefit, low-interest loans) are added to taxable pay and are a frequent source of under-deduction.

Illustrative computation

1. 1

   Start with gross pay for the month.

2. 2

   Deduct allowable reliefs (e.g. statutory pension contributions) to arrive at taxable income.

3. 3

   Apply the graduated tax bands to taxable income to get gross tax.

4. 4

   Subtract personal relief from gross tax to get PAYE payable.

5. 5

   Net pay = gross pay − PAYE − other statutory deductions (NSSF, SHIF, Housing Levy).

Compliance tips

• Reconcile your payroll system's PAYE output against a manual calculation at least once a quarter.
• Review benefit-in-kind values annually — these change more often than base salaries.
• File and pay by the statutory deadline every month to avoid penalties and interest.
• Keep signed payslips and computation schedules on file in case of a KRA payroll audit.