The moment your business hires its first employee in Kenya, you take on a new legal obligation: Pay As You Earn, commonly known as PAYE. This is the income tax that you as the employer must deduct from your employees' salaries every month and remit to KRA by the 9th of the following month.

PAYE is one of the most common sources of tax penalties for small and medium businesses in Nairobi. Not because employers are dishonest, but because many simply do not know the rules - how to calculate it correctly, how to file it on iTax, and what deductions employees are entitled to.

This guide covers everything an employer in Kenya needs to know about PAYE - from the legal framework and tax rates to step-by-step filing instructions and how to avoid the most common penalties.

Related article: KRA Tax Compliance in Kenya: Complete Business Guide

What Is PAYE in Kenya?

Pay As You Earn (PAYE) is the system by which income tax on employment income is collected in Kenya. Under the Income Tax Act (Cap 470), every employer who pays salaries, wages, directors' fees, or any other employment income to employees or directors is legally required to:

-        Deduct the correct amount of PAYE from each employee's pay every month

-        Remit the deducted PAYE to KRA via iTax by the 9th of the following month

-        File a PAYE return on iTax every month - even in months where no PAYE is due

-        Provide each employee with a P9 form at the end of every financial year showing their total pay and PAYE deducted 

PAYE is the employer's legal responsibility, not the employee's. Even if you forget to deduct PAYE from your employee's salary, you - the employer - remain liable to KRA for the full amount that should have been deducted, plus penalties and interest. You cannot recover this from the employee after the fact. 

Who Must Register for PAYE in Kenya?

Any employer paying employment income in Kenya must register for PAYE on iTax. This includes:

-        Private limited companies with paid employees or directors drawing a salary

-        Sole proprietorships and partnerships with employees on payroll

-        NGOs and charitable organisations paying staff

-        Foreign companies with employees based in Kenya

-        Individuals employing domestic workers such as housekeepers or drivers 

If you have registered your company but do not yet have any employees, you do not need to register for PAYE immediately. However, the moment you put anyone on payroll - including yourself as a working director drawing a salary - you must register for PAYE on iTax before processing the first payroll.

PAYE Tax Rates in Kenya (2026)

PAYE in Kenya is calculated on a graduated tax band system under the Income Tax Act (Cap 470). Higher income is taxed at a higher rate. The current tax bands are:

Personal Relief

Every resident employee in Kenya is entitled to a personal relief of KSh 2,400 per month (KSh 28,800 per year). This is deducted from the calculated PAYE before remitting to KRA. Personal relief is automatic for resident employees - it does not need to be claimed separately.

For example: if the calculated PAYE for an employee is KSh 4,800 in a month, the actual PAYE remitted to KRA is KSh 4,800 minus KSh 2,400 personal relief, giving KSh 2,400.

Insurance Relief

Employees who pay premiums on qualifying life insurance, education, or health insurance policies are also entitled to insurance relief of 15% of the premiums paid, up to a maximum of KSh 5,000 per month. The employee must provide the relevant insurance certificates to the employer for this to be factored into the PAYE calculation. 

Other Mandatory Payroll Deductions Alongside PAYE

In addition to PAYE, Kenyan employers are required to make or facilitate several other statutory deductions from employee salaries every month:

NHIF - National Health Insurance Fund

NHIF contributions are mandatory for all employees earning a salary in Kenya. Effective 2024, NHIF was transitioned to the Social Health Authority (SHA) under the Social Health Insurance Act. Contributions are calculated as a percentage of gross salary. Employers deduct the employee's share from salary and remit it alongside the employer's matching contribution to SHA monthly.

NSSF - National Social Security Fund

NSSF contributions are mandatory under the NSSF Act. The employee contributes 6% of their gross monthly earnings and the employer matches this with a further 6%, giving a total contribution of 12% of gross salary per month. The maximum employee contribution is capped at KSh 2,160 per month under the current regulations.

Affordable Housing Levy

The Affordable Housing Levy (AHL) requires employers to deduct 1.5% of the employee's gross monthly salary and contribute a matching 1.5% as the employer's contribution. The total 3% is remitted to KRA by the 9th of the following month alongside PAYE. The AHL has been subject to legal challenges and employers should seek current legal advice on their obligations.

How to File PAYE Returns on iTax: Step-by-Step

PAYE returns are filed monthly on the iTax portal. The deadline is the 9th of the month following the payroll month. For example, PAYE for June salaries must be filed and paid by 9 July.

Step 1 - Prepare Your Payroll Data

Before logging in to iTax, have your payroll schedule ready. For each employee you need: their KRA PIN, gross pay for the month, allowable deductions (NSSF, SHA, AHL), taxable pay, calculated PAYE before relief, personal relief applied, and net PAYE payable.

Step 2 - Log In to iTax

Log in to itax.kra.go.ke using your company's KRA PIN and password.

Step 3 - Navigate to PAYE Returns

Click 'Returns' in the top menu and select 'File Return'. From the tax obligation dropdown, select 'PAYE'. Select the return period - the month you are filing for.

Step 4 - Download and Complete the PAYE Form

Download the PAYE return Excel form. Open it in Microsoft Excel - not Google Sheets. Complete the employee schedule showing each employee's PIN, gross pay, deductions, and net PAYE. The form will calculate totals automatically. Save the completed form.

Step 5 - Upload and Submit

Upload the completed form back to iTax and submit. Download your acknowledgement receipt as proof of filing.

Step 6 - Pay the PAYE Due

Generate a payment slip on iTax and pay the total PAYE due via M-Pesa Paybill 572572 or through any KRA-approved bank. Payment must reach KRA by the 9th of the month. 

PAYE Nil Returns: What to File When You Have No Staff

If your business is registered for PAYE but had no employees on payroll in a given month - perhaps you are between hires or your business is seasonal - you must still file a nil PAYE return by the 9th of the following month.

Failing to file a nil PAYE return attracts the same penalty as failing to file a regular PAYE return: KSh 10,000 per month or 25% of the tax due, whichever is higher. For nil months, this defaults to KSh 10,000.

If your business will have no employees for an extended period and you do not intend to hire again in the near term, consider deregistering from PAYE on iTax. This removes the monthly filing obligation entirely until you hire again. Mutea Muthuri & Associates Advocates can advise you on whether deregistration is appropriate for your situation. 

Related article: How to File Nil Returns on KRA iTax in Kenya 

PAYE Penalties and Common Employer Mistakes

Penalties for Late Filing or Non-Remittance

Under the Tax Procedures Act 2015, the penalties for PAYE non-compliance are:

-        Late filing penalty: 25% of the PAYE due or KSh 10,000, whichever is higher, per month.

-        Late payment interest: 2% per month on unpaid PAYE, compounding from the due date.

-        Employer personal liability: where a company fails to deduct or remit PAYE, company directors can be held personally liable for the unpaid tax. 

Most Common PAYE Mistakes by Employers in Kenya

-        Not registering for PAYE when hiring the first employee - you must register before processing the first payroll, not after.

-        Incorrectly calculating taxable pay - forgetting to include taxable benefits such as car allowances, housing allowances, or medical allowances that exceed the exempt thresholds.

-        Applying personal relief to non-resident employees - personal relief of KSh 2,400 applies only to resident employees. Non-resident employees pay PAYE at a flat rate of 30% with no personal relief.

-        Missing the 9th deadline - the 9th falls on a weekend or public holiday in some months. When this happens, the deadline moves to the next business day - but many employers miss this and file late.

-        Not issuing P9 forms to employees - every employee must receive a P9 form by 28 February each year showing their total annual pay and PAYE deducted. Failure to issue P9 forms is a common compliance gap.

-        Not filing nil returns for months with no staff - a registered PAYE employer must file every month, whether or not there are employees on payroll. 

Related article: KRA Tax Penalties in Kenya: How to Avoid and Appeal Them 

Frequently Asked Questions

What is PAYE in Kenya?

PAYE (Pay As You Earn) is the system for collecting income tax on employment income in Kenya. Employers deduct PAYE from each employee's salary every month and remit it to KRA via iTax by the 9th of the following month. It is governed by the Income Tax Act (Cap 470) and is the employer's legal obligation, not the employee's.

What are the PAYE tax rates in Kenya in 2026?

PAYE in Kenya is charged on a graduated band system. Income up to KSh 24,000 per month is taxed at 10%. Income from KSh 24,001 to KSh 32,333 at 25%. Income from KSh 32,334 to KSh 500,000 at 30%. Income from KSh 500,001 to KSh 800,000 at 32.5%. Income above KSh 800,000 at 35%. Every resident employee is also entitled to a personal relief of KSh 2,400 per month.

When is PAYE due in Kenya?

PAYE returns must be filed and PAYE paid by the 9th of the month following the payroll month. For example, PAYE deducted from June salaries must be filed and remitted to KRA by 9 July. If the 9th falls on a weekend or public holiday, the deadline moves to the next business day.

What is the penalty for late PAYE filing in Kenya?

The penalty for late PAYE filing is 25% of the PAYE due or KSh 10,000, whichever is higher, per month of delay. Interest at 2% per month also accrues on any unpaid PAYE from the due date. Directors can be held personally liable for unpaid PAYE.

What is a P9 form in Kenya?

A P9 form is an annual pay and tax summary that employers must provide to every employee by 28 February each year. It shows the employee's total gross pay, taxable benefits, PAYE deducted, NHIF/SHA contributions, and NSSF contributions for the full year. Employees use their P9 form to file their individual income tax return on iTax by 30 June.

Do I need to file PAYE returns if I have no employees this month?

Yes. If your business is registered for PAYE but had no employees or made no salary payments in a given month, you must still file a nil PAYE return by the 9th of the following month. Failing to file attracts an automatic penalty of KSh 10,000.

Related article: How to File Nil Returns on KRA iTax in Kenya

Is the Affordable Housing Levy part of PAYE?

The Affordable Housing Levy (AHL) is a separate deduction from PAYE, but it is remitted to KRA on the same deadline - the 9th of the following month. Employers deduct 1.5% from the employee's salary and contribute a matching 1.5%, giving a total of 3% of gross salary per month. The AHL has been subject to legal challenges and employers should obtain current legal advice on their obligations. 

Need Help With PAYE or Payroll Compliance in Kenya?

Whether you need help setting up PAYE for the first time, filing outstanding returns, resolving a KRA payroll dispute, or understanding your full payroll obligations as an employer - Mutea Muthuri & Associates Advocates is here to help. Our tax team works with employers across Nairobi, Meru and Kenol.

Contact us today on +254 720 800 094 or visit our contact page to speak with a tax lawyer in Nairobi.