Running payroll in Kenya: the complete guide for SMEs

Kenyan payroll involves more than paying salaries. Every month, employers must calculate and remit six statutory deductions to three different government bodies, generate payslips, and maintain records that satisfy KRA during audit. For a business running this on spreadsheets, month-end becomes genuinely stressful. This guide covers everything a Kenyan SME needs to run payroll correctly in 2026.

The six statutory deductions

Every Kenyan employer must calculate and remit the following each month:

1. PAYE (Pay As You Earn)

Income tax deducted from employee salaries and remitted to KRA by the 9th of the following month. Calculated using progressive tax bands with a personal relief of Ksh 2,400 per month.

2. NSSF (National Social Security Fund)

Both employer and employee contribute. Under the 2013 NSSF Act — now in force following court rulings — contributions are split into Tier I (on the lower earnings limit) and Tier II (on pensionable pay above that). Total employee contribution is currently Ksh 6,480 per month for most employees.

3. SHIF (Social Health Insurance Fund)

Replaced NHIF on 1 October 2024. Employee contribution is 2.75% of gross salary, with no cap. Employer contributions are separate. Remitted to the Social Health Authority (SHA).

4. Affordable Housing Levy (AHL)

Introduced in March 2024. Both employer and employee each contribute 1.5% of gross salary. Remitted to KRA alongside PAYE.

5. NITA (National Industrial Training Authority)

Ksh 50 per employee per month, remitted quarterly by the employer. Often overlooked by small businesses.

6. HELB (Higher Education Loans Board)

Only applies to employees who have active student loan repayment agreements with HELB. The employer deducts and remits the stated monthly amount.

The monthly payroll cycle

A well-run Kenyan payroll follows this sequence every month:

1. 01Capture any changes — new starters, leavers, salary adjustments, commissions, bonuses.
2. 02Calculate gross pay for all employees.
3. 03Apply statutory deductions to arrive at taxable pay.
4. 04Compute PAYE using the current tax bands.
5. 05Compute NSSF, SHIF, AHL, NITA and HELB contributions.
6. 06Calculate net pay.
7. 07Generate and distribute payslips.
8. 08Transfer net pay to employee bank accounts or M-Pesa.
9. 09File and remit PAYE to KRA iTax by the 9th.
10. 10Remit NSSF, SHIF, AHL, NITA and HELB to their respective bodies.

Filing deadlines

Spreadsheets vs payroll software

Most Kenyan SMEs start payroll on Excel. It works for five employees. At fifteen, it becomes risky. At thirty, it is a compliance liability.

The core problems with spreadsheet payroll:

• Tax bands and rates must be manually updated every time KRA or NSSF changes rates.
• Formula errors don’t announce themselves.
• No audit trail.
• Payslip generation is a separate, manual step.
• Filing requires re-keying data into iTax.

Cloud payroll software handles all of this automatically. Calculations update when rates change, payslips are generated and emailed in one step, and iTax export files are ready to upload. The time saving for a 20-person payroll is typically 6–10 hours per month.

What records must you keep?

KRA requires employers to retain payroll records for five years. This includes payslips, statutory computation worksheets, bank payment confirmations, and iTax filing acknowledgements.

P9 forms

At the end of each tax year (January), employers must issue every employee a P9 form showing their annual gross pay, total PAYE deducted, and any benefits in kind. Employees use the P9 to file their individual income tax returns. Cloud payroll platforms generate P9s automatically.