Payroll compliance is one of those things every business has to deal with, but no one really enjoys figuring out. In fact, when Alight Inc. surveyed companies across the globe in 2024, they discovered that more than half of the businesses surveyed had faced penalties for non-compliance in the last five years.
In Kenya, this non-compliance is usually a result of not meeting the deadlines and remittance for statutory deductions like NSSF, NHIF (now SHIF), PAYE, and AHL.
If you’re a founder, HR lead, or finance manager trying to maintain NSSF, SHIF, and PAYE compliance in Kenya, this guide breaks down everything you need to know in 2025 and beyond.
We’ll show you:
- What each statutory deduction means and who it applies to
- The latest rates, bands, and caps
- Filing deadlines you shouldn’t miss
- Penalties to watch out for
Mandatory Statutory Deductions in Kenya
When you’re hiring in Kenya, even if it’s just one employee, there are four statutory deductions you’re legally expected to handle each month. These include NSSF, Social Health Insurance Fund (formerly NHIF), PAYE, and the newly introduced Affordable Housing Levy (AHL).
Each of these statutory deductions has its own rates, deadlines, and registration process. They come out of your employee’s monthly pay, but in some cases, you’re expected to match that amount as the employer.
For example, NSSF and AHL both require a 1:1 contribution match. In each case, you contribute the same amount as the employee does. With PAYE and SHIF, you deduct the employee’s share and remit it to the government, but you don’t contribute anything extra.
These deductions are non-negotiable. They apply to all businesses with staff under a contract of service, regardless of industry or size.
In the next few sections, we’ll walk through each of these requirements, what they mean for your business, and how to stay compliant.
NSSF Contribution Rates in Kenya for 2025
The National Social Security Fund (NSSF) is a mandatory retirement savings scheme for all employees working in Kenya under a contract of service. It’s governed by the NSSF Act, 2013, and was updated following a 2024 Supreme Court ruling that upheld the Act’s legality.
If you’re paying salaries in 2025, here’s what full compliance with NSSF looks like.
The employer and the employee must each contribute 6% of the employee’s pensionable earnings.
NSSF contributions are split into two tiers.
Tier I
- This applies to earnings up to KSh 8,000
- Both the employer and the employee contribute 6% of this amount
- Contributions must be remitted directly to NSSF
Tier II
- It applies to earnings above KSh 8,000, up to the Upper Earnings Limit of KSh 72,000
- Employer and employee still contribute 6% to this portion
- Employers may choose to remit Tier II contributions to NSSF or to a registered private pension scheme
You must remit all NSSF contributions by the 9th of the following month, along with a monthly return.
What happens if you don’t?
Failing to deduct or remit NSSF contributions can result in:
- A penalty of 5% of the unpaid amount
- Accrued interest at a rate of 1% per month
- Possible legal action, as enforced by the NSSF Board of Trustees
SHIF Contributions and Compliance for Employers
In October 2024, NHIF was officially replaced by the Social Health Insurance Fund (SHIF).
SHIF contributions are a monthly legal requirement where you’re expected to deduct the employee’s share directly from their gross salary and remit it to the Social Health Authority. You’re not required to top it up, but you are fully responsible for deducting, filing, and paying on time.
The current SHIF rate is 2.75% of an employee’s gross monthly salary. This applies across the board, regardless of income level. However, there’s a minimum contribution of KSh 300, but there’s no upper limit on contributions.
All contributions must be submitted by the 9th of the following month. Failing to do so will incur penalties such as:
- A 2% penalty on the unpaid amount
- A requirement to clear the full annual contribution if you’re significantly behind
- Fines of up to KSh 2 million, or imprisonment for up to 3 years, or both, more so if you make deductions but fail to remit
PAYE Tax Bands in Kenya and Filing Rules in 2025
Pay As You Earn (PAYE) is a mandatory income tax that employers are required to deduct from employee salaries every month. It applies to all taxable income, including wages, overtime, bonuses, commissions, and non-cash benefits, and is governed by the Income Tax Act (Cap 470).
Employers must calculate the PAYE due for each employee, deduct it at source, and remit the amount to the Kenya Revenue Authority (KRA) by the 9th of the following month.
Alongside the payment, you must also file a PAYE return through iTax. Both the return and payment must be submitted on time to avoid penalties.
In 2025, PAYE is calculated using graduated tax bands based on monthly income as shown in the table below.
What are the PAYE penalties in Kenya?
If you fail to deduct, account for, or submit PAYE as required, the penalty is 25% of the tax involved or KSh 10,000, whichever is higher.
On the other end, delayed payments attract a 20% penalty on the unpaid amount, and failing to file annual returns on time leads to an additional tax of 5% or KSh 10,000 for non-individual taxpayers.
Affordable Housing Levy(AHL)
AHL is the newest mandatory state deduction introduced in March 2024 as part of the government’s housing development agenda.
Every month, employers are required to deduct 1.5% of an employee’s gross monthly salary and match it with an equal 1.5%. That makes it a total contribution of 3% per employee, submitted to the Kenya Revenue Authority (KRA) under the housing levy tax head.
Just like other statutory deductions, AHL must be paid by the 9th of the following month.
Should you fail to remit AHL, a 3% penalty is applied every month the amount remains unpaid. These penalties apply even if the employee’s share was deducted, but the full amount was not submitted to KRA.
How to Register with NSSF and SHIF in Kenya
Before you can begin payroll processing or remit statutory deductions, you need to be registered with both NSSF and SHIF. Below are the steps you need to follow to register.
NSSF registration process in Kenya
You can register in person or online via selfservice.nssf.or.ke.
If you go with in-person registration, fill out the employer registration form and submit it to your nearest NSSF office alongside the following documents:
- Business Registration Certificate or Certificate of Incorporation
- KRA PIN
- Valid business permit or trading license
When your account is active, you can now enroll employees and submit contributions monthly. NSSF doesn’t allow selective registration since all employees, including casuals and interns under a contract of service, must be included.
SHIF Employer Registration
Registration for SHIF (formerly NHIF) also requires:
- Your KRA PIN
- Business Registration Certificate or Act of Parliament (for public entities)
Once SHA verifies your identity, you can log in to the SHIF portal to add employees, assign rates, and begin monthly remittances.
What about AHL?
There’s no separate registration required for the Affordable Housing Levy.
You declare AHL directly in your monthly PAYE return under Sheet M on iTax. After generating a payment slip under the Agency Revenue > Housing Levy category, you can pay through any KRA agent bank, or via mobile money using eCitizen Paybill 222222, or by dialing *222#.
How to Maintain NSSF, SHIF, and PAYE Compliance and Avoid Penalties
The study we referenced earlier also discovered that 70% of businesses still rely on spreadsheets or outdated tools to run payroll, and it’s costing them. Many of these employers, as a result, have already faced penalties due to avoidable compliance errors. In most cases, the issue isn’t a lack of effort, but the systems in place.
You can avoid such penalties by switching to payroll software built for statutory compliance. A proper payroll processing tool should calculate deductions, generate monthly returns, and help you stay compliant with Kenya labor law and tax requirements.
When you’re choosing a system, make sure it can:
- Automatically apply PAYE, SHIF, NSSF, and AHL rates
- Generate returns that match the formats required by KRA, NSSF, and SHIF
- Integrate with platforms like iTax and eCitizen
- And handle bulk employee uploads and record-keeping from a single system
Still, an automated tool is not the safest way to ensure compliance. If your team doesn’t have the capacity or up-to-date expertise, the more reliable route is to work with an HR consultancy that offers payroll processing services.
Contact us to start working with a registered payroll and tax compliance consultant who will take the pressure off your internal team and ensure every statutory deduction is filed accurately and on time, every time.
FAQs
What are the updated NSSF contribution rates in Kenya for 2025?
The new NSSF contribution rates in 2025 are 6%, split across Tier I and Tier II. The Lower Earnings Limit is KSh 8,000, and the Upper Earnings Limit is KSh 72,000.
How have NHIF contribution rates changed in Kenya for 2025?
SHIF replaced NHIF in October 2024. Contributions are now 2.75% of gross salary, with a minimum of KSh 300 and no upper limit.
What are the current PAYE tax bands applicable in Kenya for 2025?
PAYE is calculated using graduated rates: 10% on the first KSh 24,000, 25% on the next KSh 8,333, 30% up to KSh 500,000, 32.5% up to KSh 800,000, and 35% on anything above that.
What are the mandatory statutory deductions for employees in Kenya?
Mandatory deductions include PAYE, SHIF, NSSF, AHL, and NITA.
How can employers register with NSSF in Kenya?
You can register your business online at selfservice.nssf.or.ke or visit a local NSSF office with your Certificate of Incorporation, KRA PIN, and trading license.
What is the deadline for filing PAYE returns in Kenya?
Both the PAYE return and payment are due by the 9th of the month following payroll. Filing is done through KRA’s iTax portal.
What penalties apply for late NSSF contributions in Kenya?
Late NSSF contributions attract a 5% penalty on the unpaid amount, plus 1% monthly interest. Continued non-compliance may result in legal action.
What are the consequences of SHIF non-compliance for employers in Kenya?
Failure to remit SHIF contributions can lead to a 2% penalty, forced payment of the full annual amount, and fines of up to KSh 2 million or three years in prison, or both.
What are the penalties for late or non-payment of PAYE in Kenya?
The penalty is 25% of the tax due or KSh 10,000, whichever is higher. Late payment attracts a 20% penalty, and failing to file returns can result in an additional 5% charge or a KSh 10,000 fine.
