Setting Up Payroll in Kenya: PAYE, NSSF, SHIF, and Housing Levy for Employers

The Four Statutory Deductions Every Employer Must Run

Every employee on a Kenya payroll is subject to four mandatory deductions. Three of them also carry a matching employer contribution — money that leaves your business in addition to whatever you agreed to pay the employee. This is the part most first-time employers underestimate.

Here is what each one is and how it works.

1. PAYE — Pay As You Earn

PAYE is income tax on employment income, deducted at source by the employer and remitted directly to KRA. The employee never sees the money — you deduct it before paying their net salary. The tax is calculated on a progressive scale using monthly gross earnings after subtracting the employee's NSSF contribution (but not SHIF or Housing Levy — those don't reduce the PAYE base).

The current tax bands for 2026 are:

• First KES 24,000: 10%
• KES 24,001 to KES 32,333: 25%
• KES 32,334 to KES 500,000: 30%
• KES 500,001 to KES 800,000: 32.5%
• Above KES 800,000: 35%

After applying the bands, every employee gets a personal relief of KES 2,400 per month credited against their gross tax. This is automatic — you apply it when you calculate their PAYE, not something they claim separately. There is also insurance relief of 15% of qualifying insurance premiums (capped at KES 5,000 per month) for employees paying life or health insurance premiums, but this requires documentation from the employee.

2. NSSF — National Social Security Fund

NSSF contributions follow a two-tier structure under the NSSF Act 2013. Both the employee and the employer contribute the same amount:

• Tier I: 6% of the lower earnings limit (LEL = KES 7,000). Employee pays KES 420; employer matches KES 420.
• Tier II: 6% of gross pay between the LEL and the upper earnings limit (UEL = KES 36,000). For any salary of KES 36,000 or above, Tier II = 6% × KES 29,000 = KES 1,740 each side.

For an employee earning KES 50,000 or more, the employee's total NSSF deduction is KES 2,160 (KES 420 + KES 1,740), and the employer contributes a matching KES 2,160 on top of the gross salary. The employee's NSSF contribution is subtracted from gross salary before PAYE is calculated — it reduces the taxable income.

3. SHIF — Social Health Insurance Fund

SHIF replaced NHIF and applies at 2.75% of gross salary. Both sides pay: the employee has 2.75% deducted from their gross pay, and the employer contributes an additional 2.75% of gross salary as a separate employer obligation. Unlike NSSF, the SHIF deduction does not reduce the employee's taxable income for PAYE purposes.

4. Affordable Housing Levy

The Housing Levy under the Finance Act 2023 is 1.5% of gross salary, with the employer matching the employee's 1.5%. Like SHIF, it does not reduce the PAYE taxable base. The Housing Levy is remitted through iTax alongside PAYE, using the same P10 filing process.

Worked Example: KES 50,000 Gross Salary

Let's run the full payroll calculation for an employee earning KES 50,000 per month. This is where most guides stop short — the numbers below check out to the last shilling.

Step 1 — Employee statutory deductions

Step 2 — PAYE on the taxable income

Taxable income for PAYE = gross salary minus NSSF only: KES 50,000 − KES 2,160 = KES 47,840.

Step 3 — Employee's net pay

Step 4 — What the employer actually pays

The KES 50,000 gross salary is not the end of the employer's cost. Three of the four statutory obligations carry a matching employer contribution that you pay out of your own pocket, on top of the salary:

A KES 50,000 salary costs you KES 54,285 per month — roughly 8.6% more than the headline figure. Across five employees at the same salary, that's an extra KES 21,425 per month that doesn't appear anywhere on the payslips but absolutely needs to be in your cash-flow budget.

How to Register as an Employer

You need to register separately for each obligation. None of them are automatic, and you cannot remit without first getting your employer codes.

1. PAYE and Housing Levy on iTax: Log in to itax.kra.go.ke with your business KRA PIN. Go to Returns → Add Obligation and select PAYE. This also gives you access to the Housing Levy remittance through the P10 return.
2. NSSF: Register at nssf.or.ke as an employer to get your NSSF employer code. You'll use this when filing monthly NSSF returns and making payments through the NSSF online portal or designated bank channels.
3. SHIF: Register at sha.go.ke (Social Health Authority) as an employer. SHIF contributions are remitted through the SHA portal using your employer registration number.

If you're registering a new business, get these set up before your first pay cycle — not on the 8th of the following month when you're chasing deadlines.

Remittance Deadlines and What Happens If You Miss Them

Every obligation has a monthly deadline. Most of them fall on the 9th:

The penalties for missing these deadlines are not symbolic:

• PAYE: 25% of the unpaid tax as an immediate penalty, plus 1% interest per month on the outstanding balance. This is the one that causes the most damage — a business with five staff missing a single month can face a penalty notice in the tens of thousands.
• NSSF: 5% of the outstanding contributions per month.
• SHIF: Penalties apply for late remittance as specified in the Social Health Insurance Act.

One practical note: if cash is tight and you know you'll miss a payment, file the return on time anyway. Filing late while paying late compounds the penalty. Filing on time while paying late only attracts the interest component, not the full 25% PAYE penalty.

Payroll Records You Must Keep

The employer — not the employee — is responsible for maintaining payroll records. KRA and NSSF can request them during audits, which can happen years after the fact. At a minimum, keep:

• Monthly payslips for every employee showing gross pay, all deductions, and net pay
• Copies of filed P10 returns (PAYE) and payment receipts
• NSSF contribution schedules and remittance confirmations
• Employee records: signed employment contract, national ID, KRA PIN, NSSF number, SHIF number, and bank account details
• P9 certificates issued annually to each employee by 28 February, covering the prior calendar year

The P9 in particular is easy to overlook. Employees who don't receive theirs by the February deadline often can't file their own annual KRA returns, and the obligation to produce it falls squarely on you.

Payroll Software and Outsourcing Options

For a business with one or two employees, a spreadsheet with the calculation template above works fine. Beyond that, the manual workload grows quickly — especially once you're tracking different salary levels, mid-month joiners, and staff with varying NSSF and SHIF tier calculations.

Options that work for Kenyan payroll:

• QuickBooks Payroll and Zoho Payroll both have Kenya-specific modules that handle PAYE bands, NSSF tiers, SHIF, and Housing Levy automatically. Good for businesses running payroll themselves.
• Sage Payroll and BrightPay are better suited for medium-sized teams or HR departments with more complex setups — multiple payroll groups, benefit-in-kind calculations, and bulk P9 generation.
• Outsourcing to an accountant is the most common route for small businesses in Kenya. Monthly payroll management typically runs between KES 3,000 and KES 10,000 depending on headcount, and transfers the compliance responsibility to someone who files this every day. Worth considering seriously if payroll compliance is not something you want to own personally.

The Short Version

Setting up payroll in Kenya comes down to four obligations — PAYE, NSSF, SHIF, and Housing Levy — filed and paid monthly, mostly by the 9th. Three of those four require a matching employer contribution that is separate from the employee's deductions and comes straight out of your business budget. For a KES 50,000 salary, that adds KES 4,285 per month to your true employment cost.

Register on iTax for PAYE and Housing Levy before your first pay cycle. Get your NSSF employer code from nssf.or.ke and your SHIF registration from sha.go.ke. Then set a standing reminder for the 7th of each month: file and pay before the 9th, every month, without exception. The 25% PAYE penalty for a single missed deadline is the kind of bill that reframes how seriously you take payroll compliance going forward.