How to Understand PAYE Deductions on Your Payslip in Kenya

By Emmanuel Kyengo;

Many Kenyan employees receive their monthly salaries without fully understanding how their gross pay is converted into the amount deposited into their bank accounts. Deductions for income tax, pension contributions, health insurance and the Affordable Housing Levy can make a significant difference to take-home pay.

Understanding these deductions helps employees check whether their payslips are accurate, plan their monthly budgets and raise questions with their employers when figures do not appear correct.

Pay As You Earn (PAYE) is the system through which employers deduct income tax from employees’ earnings and remit it to the Kenya Revenue Authority (KRA). The amount deducted depends on an employee’s taxable income, applicable tax bands, allowable deductions and tax reliefs.

Here is a step-by-step guide to understanding PAYE and other common statutory deductions on a Kenyan payslip, using the tax rates and contribution rules available as of October 2026.

1. Understand the Difference Between Gross Salary and Net Salary

Your payslip generally shows several figures that serve different purposes.

• Gross salary: Your earnings before deductions, including basic pay and applicable taxable allowances.
• Taxable employment income: The income used to calculate PAYE after applying allowable deductions and adjustments.
• PAYE: The income tax deducted by your employer and remitted to KRA.
• Other deductions: Amounts such as National Social Security Fund (NSSF) contributions, Social Health Authority (SHA) contributions and the Affordable Housing Levy.
• Net salary: The amount remaining after all applicable deductions.

Gross salary and taxable income are not necessarily the same. Certain deductions are allowed when calculating taxable employment income, while others may be taken from your salary without reducing the income used for tax purposes.

KRA also treats some employment benefits, including taxable non-cash benefits, as part of employment income.

2. Know the Current PAYE Tax Bands in Kenya

KRA’s published individual income tax rates, effective from 1 July 2023, use progressive tax bands. This means different portions of your taxable income are taxed at different rates rather than applying one rate to your entire salary.

The monthly tax bands for resident individuals are:

Resident individuals are entitled to personal relief of KSh 2,400 per month, equivalent to KSh 28,800 annually. This relief is deducted from the calculated income tax, subject to the applicable rules.

For example, an employee earning KSh 100,000 in taxable income does not pay 30% on the entire amount. The first KSh 24,000 is taxed at 10%, the next KSh 8,333 at 25%, and the remaining portion falls within the 30% band.

The progressive system means that the applicable tax rate increases as income rises.

3. Understand the Main Statutory Deductions

PAYE is only one of the deductions that may appear on a payslip. Employees should also understand the following contributions.

National Social Security Fund (NSSF)

NSSF contributions support retirement savings under Kenya’s social security system.

Under the Year 4 contribution rates introduced in February 2026, the employee contribution is 6% of pensionable earnings, subject to the applicable earnings limits. The lower earnings limit is KSh 9,000 and the upper earnings limit is KSh 108,000 per month.

This means the maximum employee contribution is KSh 6,480 per month, comprising up to KSh 540 under Tier I and KSh 5,940 under Tier II. The employer contributes a matching amount separately.

Employees should check their NSSF deductions against their pensionable earnings and the applicable contribution limits.

Official source: https://www.nssf.or.ke/notice-to-employers-year-4-2026-nssf-contribution-rates

Social Health Authority (SHA) contribution

The Social Health Insurance Fund (SHIF) contribution is administered through the Social Health Authority.

For salaried households, the contribution rate is generally 2.75% of gross monthly salary, subject to the applicable statutory rules. Employers deduct the employee contribution and remit it to the authority.

For example, an employee earning KSh 100,000 in gross monthly salary would have a contribution of KSh 2,750 at the 2.75% rate.

Official source: https://sha.go.ke/

Affordable Housing Levy

The Affordable Housing Levy is another statutory deduction. The employee contributes 1.5% of gross monthly salary, and the employer pays a separate contribution of 1.5% of the employee’s gross monthly salary. The employer’s contribution is not an additional deduction from the employee’s take-home pay.

For an employee earning KSh 100,000 per month, the employee levy is KSh 1,500.

Official source: https://www.kra.go.ke/individual/filing-paying/types-of-taxes/paye

4. Understand Allowable Deductions and Tax Reliefs

Certain deductions can reduce the amount of employment income subject to PAYE. These may include qualifying Affordable Housing Levy payments, SHIF contributions, eligible pension contributions, qualifying mortgage interest and contributions to an approved post-retirement medical fund, subject to statutory conditions and limits.

Tax relief is different from an allowable deduction. A deduction reduces the income used to calculate tax, while a relief reduces the tax calculated.

For example:

• Personal relief: KSh 2,400 per month for eligible resident individuals.
• Insurance relief: Generally 15% of qualifying premiums paid for eligible life, health or education policies, up to KSh 60,000 annually, subject to the relevant conditions.
• Qualifying pension contributions: Subject to the applicable statutory limits and scheme requirements.

Employees who believe they qualify for additional reliefs should provide the necessary documentation to their payroll departments.

5. Illustrative Calculation: What Happens to a KSh 100,000 Salary?

Consider an employee earning a gross monthly salary of KSh 100,000, with no additional allowances, insurance relief, voluntary pension contributions or other personal deductions.

The following example uses the 2026 NSSF contribution rates and the statutory deductions discussed above. It assumes the employee qualifies for the standard monthly personal relief of KSh 2,400.

Illustrative calculation only. Actual payroll figures may vary depending on the employee’s circumstances and applicable payroll rules.

The taxable pay is calculated by subtracting the three qualifying deductions from the gross salary.

Calculating the PAYE

The KSh 89,750 taxable pay falls across three tax bands:

| Tax calculation | Tax (KSh) |