Payroll compliance is a critical aspect of running a successful business in Kenya. Employers are required to adhere to strict legal frameworks governing employee compensation, statutory deductions, and tax remittances. Failure to comply can result in hefty penalties, legal issues, and damage to a company’s reputation.
This blog will guide employers through Kenya’s key payroll compliance requirements. We’ll also look at how outsourcing payroll management to experts like Bridge Talent Group can simplify the process and ensure full compliance.
What is Payroll Compliance?
Payroll compliance refers to the adherence to laws and regulations governing the payment of wages, salaries, and statutory deductions. For employers in Kenya, this includes ensuring that:
- All statutory contributions and taxes are correctly calculated and remitted.
- Payroll records are maintained and accurate.
- Employees receive fair compensation in line with labour laws.
Payroll compliance ensures that your employees are treated fairly while safeguarding your company from legal and financial repercussions.
Key Payroll Compliance Requirements for Employers in Kenya
Before you can process payroll in Kenya, you need to register with three institutions:
Kenya Revenue Authority (KRA)
Every business in Kenya must register for a KRA PIN. The Tax Procedure Act 2015 makes this PIN mandatory for nearly every business activity, including opening bank accounts and filing returns.
National Industrial Training Authority (NITA)
Section 5B of the Industrial Training Act outlines that every employer must register with NITA and contribute to the skills development levy.
Social Health Authority (SHA)
Under the Social Health Insurance Act No. 16 of 2023, employers must register their employees and dependents with the Social Health Authority through the SHA Employer Portal.
Now, let’s see what compliance looks like for each of these statutory deductions.
PAYE (Pay-As-You-Earn)
If there’s one area where payroll compliance gets tricky, it’s PAYE because you’re dealing with multiple income brackets, various reliefs, and a system that treats compensation differently.
As an employer, you’re responsible for deducting the correct amount from each paycheck and remitting it to KRA.
And while you’re at it, know that compensation isn’t treated equally under PAYE.
Your employee’s taxable income includes their basic salary, overtime pay, bonuses, commissions, and the value of non-cash benefits exceeding KSh 5,000 per month. Company cars, housing allowance, or club membership fees all factor into their taxable income calculation.
On the other end, meals up to KSh 5,000 monthly, medical cover provided by the employer, and night-out allowances of KSh 2,000 per day remain tax-free.
You’re also expected to deduct the Affordable Housing Levy, SHIF contributions, NSSF contributions, mortgage interest payments, and registered pension contributions.
2025 PAYE Rates in Kenya
Monthly Pay Bands (Ksh.) | Annual Pay Bands (Ksh.) | Rate of Tax (%) |
On the first KSh 24,000 | On the first KSh 288,000 | 10% |
On the next KSh 8,333 | On the next KSh 100,000 | 25% |
On the next KSh 467,667 | On the next KSh 5,612,000 | 30% |
On the next KSh 300,000 | On the next KSh 3,600,000 | 32.50% |
On all income above KSh 800,000 | On all income above KSh 9,600,000 | 35% |
Personal Tax Relief | ||
KShs. 2,400.00 | KSh 28,800 (Annually) |
Don’t forget to factor in tax reliefs before calculating PAYE. Every Kenyan employee benefits from personal relief of KSh 2,400 monthly.
Beyond this, employees can claim insurance relief at 15% of premiums paid (capped at KSh 60,000 annually), mortgage interest relief up to KSh 30,000 monthly for qualifying loans, and pension contributions up to KSh 30,000 monthly.
By the end of each tax year, you must provide every employee with a P9 form, which details their total earnings, deductions, and tax paid throughout the year.
NSSF Contributions
NSSF is a mandatory pension deduction where you and your employee contribute 6% of the employee’s gross monthly salary.
- Tier I: On the first KSh 8,000, each contributes KSh 480
- Tier II: On the salary between KSh 8,001 and KSh 72,000, each contributes KSh 3,840
That brings the maximum monthly contribution to KSh 4,320 from the employer and KSh 4,320 from the employee, amounting to KSh 8,640.
If your employee earns less than KSh 8,000, only Tier I applies. If they earn above KSh 72,000, you’re both capped at the full KSh 4,320 each.
2025 NSSF Rates
Category | Amount (Ksh) |
Lower Limit (Tier 1) | Ksh 8,000 |
Total Contribution by Employee (Tier 1) | Ksh 480 |
Total Contribution by Employer (Tier 1) | Ksh 480 |
Total Tier 1 NSSF Contributions | Ksh 960 |
Upper Limit (Tier 2) | Ksh 72,000 |
Contribution on Upper Limit (6% of Upper Limit less Lower Limit) | Ksh 3,840 |
Total Contribution by Employee (Tier 2) | Ksh 3,840 |
Total Contribution by Employer (Tier 2) | Ksh 3,840 |
Total Tier 2 NSSF Contributions | Ksh 7,680 |
Total NSSF Contributions | Ksh 8,640 |
SHIF Contributions
In 2024, the Social Health Insurance Fund (SHIF) under the new Social Health Insurance Act (SHIFA replaced NHIF.
Under this framework, employers are obligated to deduct 2.75% of their employees’ gross salary every month. The minimum contribution allowed is KSh 300.
Affordable Housing Levy (AHL)
AHL is a compulsory monthly deduction introduced under the Affordable Housing Act, 2024. Employers are required to deduct 1.5% of your employee’s gross monthly salary and match it with an equal 1.5% from your end.
Other Applicable Deductions and Levies
- HELB repayments: If an employee has an active student loan, you’re required to deduct the agreed monthly amount and remit it to HELB.
- Union dues: These apply only to employees who are registered union members. Deductions should follow the terms of the applicable collective agreement.
- NITA levy: Every employer contributes KSh 50 per employee per month to the National Industrial Training Authority (NITA).
Payroll Compliance Basics You Shouldn’t Miss
When calculating salaries, there are a few non-negotiables to keep in mind:
- Total deductions should not exceed two-thirds of an employee’s salary according to Kenyan labour laws.
- Minimum wage: While rates vary by sector and region, the general minimum wage in Kenya is KSh 15,120 per month. Paying anything below this puts you at risk of violating labour laws, even if the employee agrees to it.
- Working hours: Standard working hours are 44 per week, typically 8 am to 5 pm, Monday to Friday, with a one-hour lunch break. Any extra hours should be compensated at 1.5x the normal hourly rate.
- Leave: Employees are entitled to at least 21 annual leave days and around 12 public holidays each year. Both should be paid and must be reflected in your payroll, just like regular working days.
- Salary payments: Wages must be paid by the 5th of the following month, usually on a monthly cycle, and always in Kenyan currency, either by cash, cheque, or bank transfer. Payments in goods or credit are not allowed.
Payroll Compliance Deadlines to Track
Missing a remittance deadline is one of the fastest ways to land in payroll non-compliance territory. Each statutory deduction has its own due date, and it’s your responsibility to track and meet each one.
Pro tip: If you contract a payroll provider in Kenya, you’d never have to worry about meeting these deadlines again!
Deduction | Remittance Deadline |
PAYE | On or before the 9th of the following month |
NSSF | By the 9th of the following month |
SHIF | By the 9th of the following month |
Housing Levy | By the 9th working day of the following month |
HELB | By the 15th of the following month |
Penalties for Payroll Non-Compliance in Kenya
Payroll non-compliance exposes your business to fines, interest, and legal action.
These are the legal penalties that you risk when you fall behind.
Deduction | Penalties |
PAYE | Late filing: the higher of 25% of the tax due or KSh 10,000 |
Late payment: 5% penalty + 1% monthly interest until paid | |
Failure to deduct/account for tax: the higher of 25% of the tax due or KSh 10,000 | |
SHIF | 3% monthly penalty on late contributions |
Affordable Housing Levy | 3% monthly penalty if remitted after the 9th working day |
HELB | 5% monthly penalty on delayed loan deductions |
NSSF | 5% penalty per month on unpaid contributions Plus a fine of up to KSh 50,000 for each offence |
In addition to the financial penalties tied to statutory deductions, employers can also face legal consequences for wage-related violations.
For example, if an employer fails to issue itemized payslips, maintain proper payroll records, or pay employees on time, they can receive fines of up to KSh 100,000 or imprisonment for up to two years.
Common Payroll Compliance Challenges for Employers
These are the four most common pitfalls to keep an eye on:
- Tight deadlines
Most remittances are due by the 9th or 15th of the following month and leave little room for delays in processing or approvals. For example, if you miss a PAYE deadline, it won’t only result in a 5% penalty. It also adds monthly interest and can interrupt tax compliance status for the entire business.
- Calculation errors
Mistakes in tax reliefs, benefit valuations, or contribution caps may seem small, but they can quickly snowball into penalties, arrears, and audit flags.
- Employee classification issues
Misclassifying workers as independent contractors instead of employees can lead to skipped statutory deductions and backdated liabilities. If you control the work schedule, tools, and output, chances are the person should be on payroll and fully compliant with all deduction requirements.
- Regulatory changes
Tax laws and contribution rates in Kenya are regularly updated with little to no notice. If your team is overwhelmed with other HR functions, then it’s better to bring in a payroll processing service in Kenya to take over.
4 Benefits of Outsourcing Payroll Management
Outsourcing payroll management to professionals like Bridge Talent Management offers several benefits:
- Ensures compliance: We keep our finger on the pulse of every change that affects your payroll so you won’t have to worry about missing a deadline or misinterpreting a regulation.
- Minimizes errors: Payroll mistakes can take two or more cycles to fully resolve, and in the meantime, employees are left frustrated because they’re over-deducted or given unclear payslips. We reduce that risk by using accurate processes, up-to-date technology, and experienced oversight to ensure issues are caught early or avoided altogether.
- Saves time and resources: Payroll cuts across HR, finance, and admin. When you let us handle it, your internal teams can focus on strategy and scaling the business instead of chasing submission deadlines.
- Reduces penalties: A 2024 global survey found that one in two businesses had been penalized for payroll issues. With Bridge Talent Group, you lower that risk through consistent, accurate, and timely payroll support.
Bridge Talent Management gives you confidence that every payslip, deduction, and deadline is handled with accuracy.
Get a Personalized Payroll Audit from Payroll Experts
Kenyan payroll regulations and rules don’t stay the same for long. A missed deadline or minor miscalculation can easily trigger penalties that cost more than fixing the issue would have in the first place.
Our payroll audit is built to help you catch those gaps early.
We look at your PAYE calculations, statutory deductions, and employee classifications to confirm everything aligns with current regulations. We also review your remittance timelines, assess registration status with statutory bodies, and highlight areas that might expose you to penalty risks down the line.
You’ll walk away with relevant recommendations so you can run payroll with more confidence and fewer surprises.
If you’re ready to take the first step toward hassle-free payroll compliance. Contact Bridge Talent Management now or call us at 0717731451 to learn more about our tailored payroll solutions.
FAQs
What are the payroll tax rates in Kenya?
PAYE rates range from 10% to 35% based on income brackets. The first KSh 24,000 monthly is taxed at 10%, with higher rates applying to higher income levels. All employees also receive KSh 2,400 monthly personal relief.
When should PAYE be remitted?
PAYE must be remitted to KRA by the 9th of the following month. Late payments attract a 5% penalty plus 1% monthly interest until fully paid.
What happens if I don’t register with NSSF?
Operating without NSSF registration violates statutory requirements and exposes you to penalties of up to KSh 50,000 per offence. You’re also liable for backdated contributions for all employees.
Can I outsource payroll as a small business?
Small businesses can outsource payroll regardless of size. Many find it more cost-effective than handling compliance internally, especially given the complexity of statutory requirements and penalty risks.
What is the payroll structure in Kenya?
Kenyan payroll includes gross salary minus statutory deductions (PAYE, NSSF, SHIF, Housing Levy, NITA levy) and other deductions like HELB or union dues. Total deductions cannot exceed two-thirds of an employee’s salary.
What happens if you miss multiple remittance deadlines?
Each late payment attracts separate penalties, and repeated non-compliance can cause business registration suspension or legal action.
