Four statutory deductions apply to almost every employee in Kenya, and one of them changed in February 2026 in a way most payroll spreadsheets have not caught up with. If you are still running payroll on a spreadsheet built before last year, the number most likely to be wrong is your NSSF line.
This is what each deduction is, what it costs, when it is due, and a worked example on a KSh 50,000 salary — the band most Kenyan SMEs actually hire into.
The four deductions, in the order they are applied
Order matters more than people expect. Some deductions come off gross pay before income tax is worked out, which lowers the tax. One does not. Getting the sequence wrong is the commonest reason a payslip and a KRA return disagree.
1. NSSF — 6% from the employee, matched by the employer
The National Social Security Fund is a pension contribution, split into two tiers. From 1 February 2026 the earnings limits rose. The lower earnings limit went from KSh 8,000 to KSh 9,000, and the upper limit from KSh 72,000 to KSh 108,000. The rate itself did not change — it is still 6% each side — but because it now applies to a much wider band of pay, the maximum an employee contributes rose from KSh 4,320 to KSh 6,480 a month, matched by the employer for a combined KSh 12,960.
- Tier I — 6% of pay up to KSh 9,000. Maximum KSh 540 per side.
- Tier II — 6% of pay between KSh 9,000 and KSh 108,000. Maximum KSh 5,940 per side.
- Nothing is contributed on earnings above KSh 108,000.
This is Phase 4 of a schedule that began in February 2023 under the NSSF Act 2013, and a further phase is expected. NSSF is an allowable deduction: it comes off before PAYE is calculated, so a higher NSSF contribution slightly reduces income tax.
2. SHIF — 2.75% of gross, no ceiling
The Social Health Insurance Fund replaced NHIF in October 2024. It is a flat 2.75% of gross pay, with a minimum of KSh 300 a month and no upper cap. The old NHIF table of graduated bands, from KSh 150 up to a maximum of KSh 1,700, is gone.
For most employees this is simpler to calculate but more expensive, and for higher earners considerably so — there is no longer a ceiling to hit. SHIF is also an allowable deduction before PAYE, which many spreadsheets miss and consequently overstate the tax.
3. PAYE — five bands, not three
Income tax is charged on taxable pay, which is gross pay less the allowable deductions above. The bands have been five since July 2023:
| Monthly taxable pay | Rate |
|---|---|
| On the first KSh 24,000 | 10% |
| On the next KSh 8,333 (to KSh 32,333) | 25% |
| On the next portion up to KSh 500,000 | 30% |
| On the portion from KSh 500,001 to KSh 800,000 | 32.5% |
| On anything above KSh 800,000 | 35% |
Then subtract the personal relief of KSh 2,400 a month, which every resident employee gets. That is why an employee on KSh 24,000 or less pays no PAYE: 10% of 24,000 is exactly 2,400, and the relief cancels it.
If your payroll still stops at a 30% top rate, it understates PAYE for anyone above KSh 500,000 a month. That is a liability sitting quietly on your books.
4. Affordable Housing Levy — 1.5%, and it does not reduce your tax
The AHL is 1.5% of gross pay from the employee, matched by 1.5% from the employer, under the Affordable Housing Act 2024. The important detail: the relief that once made it deductible was repealed in December 2024, so it comes out of net pay and does not reduce taxable income. Treating it like NSSF or SHIF will give you the wrong PAYE figure.
A worked example: KSh 50,000 a month
Using the February 2026 limits, for an employee with no pension or insurance reliefs:
| Line | Amount |
|---|---|
| Gross pay | 50,000 |
| NSSF — 6% of 50,000, both tiers, under the 108,000 cap | 3,000 |
| SHIF — 2.75% of 50,000 | 1,375 |
| Taxable pay — gross less NSSF and SHIF | 45,625 |
| Tax at 10% on the first 24,000 | 2,400 |
| Tax at 25% on the next 8,333 | 2,083 |
| Tax at 30% on the remaining 13,292 | 3,988 |
| Gross tax | 8,471 |
| Less personal relief | −2,400 |
| PAYE | 6,071 |
| Housing Levy — 1.5% of gross, from net | 750 |
| Net pay | 38,804 |
The employer also pays, on top of the salary: KSh 3,000 NSSF and KSh 750 housing levy, plus the NITA training levy. A KSh 50,000 hire costs the business closer to KSh 53,800 a month before anything else.
Figures are rounded to the shilling. Your own numbers will differ if the employee has a pension scheme, insurance relief, or a mortgage.
The deadline that carries the penalty
PAYE, SHIF, NSSF and the Housing Levy are all due by the 9th of the month following the payroll month. PAYE, AHL and the NITA levy are filed through iTax on the P10 return; SHIF goes through the Social Health Authority employer portal; NSSF through the NSSF e-portal.
Late remittance is where this gets expensive. Penalties compound monthly, and they compound on a base that is already growing — miss two cycles and the arithmetic gets unpleasant quickly.
What usually goes wrong
- The NSSF ceiling is stale. The February 2026 change from KSh 72,000 to KSh 108,000 nearly doubled the maximum deduction for mid and upper earners. A spreadsheet built last year is under-deducting them.
- SHIF is treated as if it were NHIF. The banded table is gone; it is a flat percentage with no cap.
- The Housing Levy is deducted before tax. It should not be — that relief was repealed.
- The PAYE table stops at 30%. The 32.5% and 35% bands have been law since July 2023.
- Rates are applied to the wrong period. January 2026 payroll uses the old NSSF limits; February onward uses the new ones. A payroll system should route each period to the rules that governed it, not apply today's rates to last year's reconciliation.
Doing this by hand does not scale
With four deductions, two of which change the tax base and one of which does not, plus five tax bands and a relief, a spreadsheet holds up until roughly the point where you have enough staff for a mistake to matter. Then it stops being a spreadsheet problem and becomes a penalties problem.
We build payroll that keeps up with this. KaziWare Payroll & HR calculates PAYE, NSSF and SHIF inside the system rather than in a side spreadsheet, and the statutory returns come out of the same data that paid the staff. We supply it, set it up and train your team. See payroll and software licences, or tell us how many staff you run and we will quote it →