More than half (52%) of HR departments say managing payroll and compensation is one of their most common challenges.
A growing number are sinking hours into preparing and running payroll each pay period (28%) and chasing down employees for timesheets and managers for approvals (25%). At the same time, 24% report that employees have a negative experience when they need to log into multiple systems just to make simple pay-related changes.
For many SMEs in Kenya, the solution to these problems is outsourced payroll.
Outsourced Payroll in Kenya Explained
Outsourced payroll involves bringing in a 3rd party company to handle all matters, or at least a few activities related to payroll processing.
There are two faces of outsourced payroll:
- Recurring payroll outsourcing
- Project-based payroll outsourcing
1. Recurring payroll support
The recurring model delivers ongoing monthly support from a dedicated payroll provider. This is the more cost-effective route for most SMEs in Kenya.
Rather than hiring a full-time payroll professional or overloading your HR team (which in many Kenyan businesses is just one or two people), you get access to a team of specialists who manage all payroll operations every month.
2. Project-based payroll support
This type is ideal for short-term or one-off needs. For instance, a startup may need expert help setting up payroll software correctly from day one. On the other hand, a scaling company may want support conducting a one-time compensation benchmarking project. In such cases, you contract a provider for a defined period or deliverable.
Regardless of the format, outsourcing payroll is one of the most affordable strategies for staying compliant.
Benefits of Outsourced Payroll in Kenya for SMEs
We could write a whole book about the benefits of outsourced payroll in Kenya. However, if we were to narrow it down, these four benefits would top the list.
Reduced administrative burden
Payroll is an admin-heavy HR function. There’s setting up the software, inputting employee names, calculating salaries, applying benefits, deductions, and taxes, and matching all that with attendance or working hours.
Because most Kenyan businesses don’t have the budget for a dedicated payroll team, this work usually falls on the HR team, which in many SMEs is just one or two people. Now, instead of focusing on people-related tasks, like finding and retaining the right talent, your HR team ends up buried in spreadsheets.
When you outsource, a third-party provider who specializes in payroll takes over all that admin work, and your internal team can focus on value-adding activities.
Improved payroll accuracy and punctuality
In a recent article on scaling with payroll outsourcing, we cited a study showing that nearly 70% of small businesses say payroll taxes are a moderate to significant burden. Worse still, payroll mistakes happen twice as often when done in-house.
These errors not only cost your business money but can damage employee trust and affect morale, and over time, derail your revenue.
Bringing in a payroll provider can help you avoid all the above. They’ll have the technology, the processes, and the expertise to reduce mistakes and keep you on schedule.
Data from a global survey shows that payroll accuracy averages just 78%. And when a mistake happens, it can take two or more pay cycles to fix. There’s too much at stake to afford such a risk!
Tax and statutory compliance
Kenya has over eight different laws and regulations that directly impact payroll. If you miss a deadline associated with these regulations, you could end up paying penalties ranging from Ksh 100,000 to Ksh 500,000. In some cases, non-compliance can even lead to imprisonment.
However, if you bring in an outsourced payroll provider, they can take over your compliance needs and help you avoid such penalties.
This is even more important when you learn that 53% of companies have faced payroll penalties in the last five years.
What’s Included in an End-to-End Payroll Service Package?
End-to-end in this case means pretty much hands off, especially after the initial setup. But let’s look at that in greater detail:
Salary processing
The payroll provider uses employee attendance data to calculate how much to pay each employee. They then disburse salaries via bank transfers, mobile money, or other platforms and are responsible for ensuring payments are accurate and on time.
Some providers, like Bridge Talent Management, even offer access to short-term loans to help you top up payroll when needed.
Payslip generation
Providers also ensure every employee receives a payslip after each salary cycle, either delivered directly or accessed through a secure employee self-service portal. Some providers go the extra mile and handle any queries related to discrepancies in pay.
Tax filing and NSSF, NHIF, PAYE Compliance
Your payroll processing service should also ensure all statutory deductions, including PAYE, NHIF, NSSF, and HELB, are accurately calculated, filed, and remitted on time. They should also prepare the documentation you’ll need for annual tax filings with KRA in July. With outsourced payroll services, you’d never have to second-guess whether you applied the right deductions or met the correct deadlines because the provider protects you from payroll compliance risks.
Payroll reports and audits
You can choose between monthly or quarterly reporting, depending on your internal processes. These reports give you visibility into payroll costs, statutory deductions, and trends like overtime or absenteeism. Some providers will even flag compliance gaps proactively and ensure you’re prepared for audits by KRA, NITA, or the Labor Office at any time.
Integration with employee leave and attendance
Payroll providers in Kenya will usually offer integrations with existing HR tools or even bring their own systems to ensure that sick leave, off days, public holidays, and late reporting are factored into salary calculations automatically.
Cost of Outsourced Payroll in Kenya
Most SMEs can expect to pay between Ksh 2,500 and Ksh 10,000 for initial statutory setup, and anywhere from Ksh 5,000 to Ksh 18,000+ per month for ongoing payroll services. In addition, there’s usually an extra processing fee of Ksh 150 to Ksh 750 per employee, depending on the provider and scope of services.
How much you pay will come down to the size of your company, pay frequency, and service complexity.
For example, if your payroll includes variable pay, multi-currency payments, cross-border teams, or industry-specific compliance requirements, you’ll likely pay a premium for the added expertise and customization.
Many SMEs save significantly over time through:
- Reduced need for full-time staff dedicated to payroll
- Eliminating recurring costs associated with software licenses or updates
- Lower risk of fines due to improved compliance
- Fewer audit or correction cycles
That said, be vigilant about hidden costs. Always ask for quotes that include common extras like:
- Year-end tax forms (e.g., P9, P10, etc.)
- Emergency support during off-cycle processing
- Custom payroll reports
- Onboarding fees or data migration charges
Where possible, negotiate for a fixed monthly rate since it gives you consistency in budgeting and shields you from unexpected charges.
Contact Bridge Talent Management for a free consultation with a payroll expert and a customized quote for your business.
Choosing the Right Payroll Partner in Kenya
When evaluating potential payroll partners, don’t decide based on cost alone.
Look for vendors who bring value by streamlining your payroll cycle or even helping boost employee satisfaction through better payslip transparency and support.
The provider should be able to answer how they would handle specific pain points in your current process. Ask scenario-based questions, such as what happens if payroll data is submitted late? If so, how do they support salary advances? What if there’s a compliance change mid-cycle?
Those questions aside, here are four other matters to consider:
1. Customer support
Ask if the payroll provider is willing to create a customized support plan that caters to your organization’s needs.
2. Their tech stack
If you’re using tools like Zoho, QuickBooks, BambooHR, or even a local attendance system, ask if they provide API integrations or plug-ins that make your setup more efficient.
3. Data ownership and control
It’s better to have control over all data related to payroll processing, and not only that, but you should also be able to access it even if you were to cut ties with the provider. Be wary of vendors who make it difficult to retrieve your data or who tie access to ongoing payment.
4. Compliance knowledge
Your provider must have a good understanding of Kenyan labor laws and payroll regulations.
At a minimum, they should have certified payroll professionals with HR training on their team. Ask about how they stay updated with legal changes, and request examples of how they’ve helped clients avoid or resolve compliance risks.
Make Payroll One Less Thing to Worry About
Over half of businesses have already faced payroll penalties, and most are still wrestling with manual processes that eat up valuable time and resources. Meanwhile, companies that have made the switch to outsourced payroll see improvements in accuracy, compliance, and employee productivity.
If you’re ready to explore how outsourced payroll could work for your team, connect with Bridge Talent Management for a free consultation and see how we can streamline your payroll process.
FAQs
What is outsourced payroll in Kenya?
Outsourced payroll is all about contracting a third-party company to handle your payroll processing activities. You can choose between recurring monthly support or project-based assistance.
What are the benefits of using outsourced payroll services in Kenya?
The main benefits of outsourced payroll are reduced administrative burden for your HR team, improved payroll accuracy and punctuality, and guaranteed tax and statutory compliance. You’ll also avoid the mistakes that happen twice as often with in-house payroll processing.
Is payroll outsourcing suitable for SMEs in Kenya?
Since most Kenyan SMEs have HR teams of just one or two people, outsourcing prevents your team from getting buried in payroll admin work. It’s the most affordable way to access payroll expertise without hiring full-time specialists.
How much does outsourced payroll cost in Kenya?
SMEs can pay between Ksh 2,500 and Ksh 10,000 for initial setup, plus Ksh 5,000 to Ksh 18,000+ monthly for ongoing services. There’s usually an additional processing fee of Ksh 150 to Ksh 750 per employee.
What should be included in a payroll outsourcing package?
A comprehensive end-to-end payroll service should include salary processing, payslip generation, tax filing for PAYE, NHIF, NSSF, and HELB compliance, plus regular payroll reports and audits.
How does outsourced payroll ensure tax and legal compliance?
Payroll providers in Kenya stay current with the country’s eight different laws and regulations that impact payroll. They handle all statutory deductions, ensure timely filings, and prepare documentation for annual KRA tax submissions, which protects you from penalties.
Can payroll outsourcing reduce business overheads in Kenya?
With outsourcing, you’ll avoid hiring dedicated payroll staff, eliminate software licensing fees, and reduce the risk of expensive compliance penalties. While there’s an upfront cost, most businesses save money long-term through improved efficiency and fewer costly mistakes.
If you’re ready to receive guaranteed payroll compliance and relieve your team of payroll admin burden, contact Bridge Talent Management today!
