What reduces taxable pay for Kenyan employees

Which contributions come off a Kenyan employee's pay before PAYE is worked out, how reliefs differ from deductions, and how to check a payslip in order.

By Achekam · 11 October 2026 · 4 min read · For Running a business businesses in Kenya

An employee brings you her payslip and asks why her PAYE changed at the start of 2025 when her salary did not. The honest answer is that the law changed underneath her: some of the contributions already coming off her pay began to reduce the pay that PAYE is charged on.

For anyone who runs or checks a Kenyan payroll, the order of the calculation matters as much as the rates. Some items come off before tax is worked out and reduce taxable pay. Others come off the tax itself. Mix them up and the payslip is wrong even when every rate is right. This article walks through what reduces taxable pay at the time of writing, how reliefs fit in afterwards, and how to check a payslip in the right order.

Deductions and reliefs do different jobs

Think of PAYE as a four-step sum:

1. Start with the employee's gross taxable pay for the month.
2. Take off the allowable deductions, to reach taxable pay.
3. Apply the PAYE bands to taxable pay.
4. Take the reliefs off the tax that results.

A deduction of a given amount saves tax at the employee's top rate. A relief of the same amount saves exactly that amount of tax. That is why the distinction matters, and why a payroll that treats a deduction as a relief, or the reverse, produces the wrong figure.

SHIF and the Housing Levy since December 2024

Since 27 December 2024, an employee's contributions to SHIF and to the Affordable Housing Levy are deductible from taxable pay. Both are already deducted from pay:

• SHIF at 2.75% of gross pay, at least KES 300 a month, with no upper limit;
• the Housing Levy at 1.5% of gross monthly pay from the employee (the employer pays a matching 1.5% on top, which is not the employee's deduction).

Before that date they did not reduce taxable pay. Since then, they also reduce the pay that PAYE is charged on. That is the change behind the January question above. KRA's public notice on amendments to the PAYE computation sets out the changes from December 2024: the housing levy, SHIF, post-retirement medical fund, mortgage interest and pension contributions as deductions, the reliefs that ended, and the updated P10 return.

Pension contributions up to the monthly limit

Pension contributions are deductible up to KES 30,000 a month. An employee who contributes less than that deducts what they contribute; one who contributes more deducts only up to the limit, and the excess stays in taxable pay.

Post-retirement medical funds and mortgage interest

Two further items reduce taxable pay under the same 2024 amendments: contributions to a post-retirement medical fund, up to KES 15,000, and mortgage interest, up to KES 30,000 a month. These are less common on a small business's payroll, and they need evidence: the fund's statement, or the lender's certificate of interest. Ask the employee for it before you change their payroll, and keep it on file.

Reliefs come after the bands

Once taxable pay is known, the monthly bands apply: 10% on the first KES 24,000, 25% on the next KES 8,333, 30% up to KES 500,000, 32.5% up to KES 800,000 and 35% above that. These have been in force since 1 July 2023 and were unchanged by the Finance Acts 2025 and 2026.

Then two reliefs reduce the tax:

• personal relief of KES 2,400 a month;
• insurance relief of 15% of qualifying premiums, up to KES 60,000 a year.

You may have heard of a KES 30,000 monthly tax-free threshold. It has been consulted on, but it is not law at the time of writing, so it has no place in this month's calculation. Where that proposal stands is covered in the KES 30,000 tax-free threshold.

What Achekam's Kenyan payroll calculates

Achekam's Kenyan payroll calculates PAYE with personal and insurance relief, NSSF Tier I and II, SHIF, the Affordable Housing Levy and the NITA levy, and it prepares the P10, SHIF, NSSF and NITA schedules and each employee's P9A.

Two points to keep in mind:

• The tax table must be confirmed first. Achekam ships its Kenya 2026 payroll table pre-loaded but unconfirmed, and no pay run uses it until a named person at your business confirms your own copy. Read it before you confirm it.
• Not every deduction is listed. The description of the Kenyan payroll names the items above. It does not mention post-retirement medical fund contributions or mortgage interest. If one of your employees has either, check how the payroll handles that employee before you rely on the figure, and agree a treatment with your accountant.

For who collects each payroll deduction once it has been taken, see Kenyan payroll deductions and who collects them.

Checking a payslip line by line

Work down the payslip in the same order as the calculation:

1. Gross pay. Does it match the contract, plus any overtime or allowances for the month?
2. SHIF. Is it 2.75% of gross pay, and at least KES 300?
3. Housing Levy. Is the employee's share 1.5% of gross pay?
4. Pension. Does the amount match the scheme, and is no more than KES 30,000 treated as deductible?
5. Other deductions. Is there evidence on file for any medical fund or mortgage interest deduction?
6. Taxable pay. Does gross pay less the allowable deductions give the taxable pay shown?
7. Tax before relief. Do the bands applied to taxable pay give this figure?
8. Reliefs. Is personal relief applied, and insurance relief only where premiums are on file?
9. PAYE. Does tax before relief, less reliefs, give the PAYE on the slip?

If every line checks, the payslip is right in the way that matters: in the right order. When the next Finance Act changes a figure, the order will usually stay the same.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.