Payroll Compliance Checklist for Employers (Kenya)
When preparing payroll, employers must ensure the following deductions and reliefs are correctly applied before arriving at the final PAYE (Pay As You Earn) liability.
Step 1: Apply All Allowable Deductions
These reduce the employee’s taxable income:
1. Affordable Housing Levy (AHL) – deduct as per the Affordable Housing Act, 2024.
2. Post-Retirement Medical Fund Contributions – allow deduction up to Ksh. 15,000 per month.
3. Social Health Insurance Fund (SHIF) – mandatory deduction.
4. Mortgage Interest – allow deduction up to Ksh. 30,000 per month (loan must be from eligible institutions and for residential use).
5. Retirement Contributions -pension/provident/individual retirement fund contributions deductible up to Ksh. 30,000 per month.
Step 2: Compute Gross Tax on Taxable Income
After allowable deductions, compute PAYE using the prevailing tax bands and rates.
Step 3: Apply Tax Reliefs
These reduce the PAYE payable:
1. Personal Relief – Ksh. 2,400 per month (Ksh. 28,800 per year) for all resident individuals.
2. Insurance Relief – 15% of premiums paid, capped at Ksh. 60,000 per year. Covers life, health, and qualifying education policies (education policies must have at least 10-year maturity).
Step 4: Arrive at Final PAYE
Final PAYE = Gross Tax – Applicable Reliefs.
Remit the PAYE and other deductions as per the statutory timelines .
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