Payroll in Kenya: A Comprehensive Guide for 2026

Introduction

Payroll in Kenya requires monthly deductions for Pay As You Earn (PAYE) income tax, National Social Security Fund (NSSF) pension contributions, Social Health Insurance Fund (SHIF) health insurance, and the Affordable Housing Levy (AHL), all filed through separate portals by the 9th of the following month. A foreign company without a registered Kenyan entity cannot hold the Kenya Revenue Authority (KRA) employer PIN needed to file returns or remit contributions.

Kenya's statutory framework has changed more in the past two years than in the previous decade. NSSF is still rolling out in phases, with Tier I and Tier II earnings limits rising again in February 2026. SHIF replaced the National Hospital Insurance Fund in October 2024, shifting health contributions from fixed bands to a percentage of gross salary. The Affordable Housing Levy was challenged in court, struck down, reintroduced, and upheld. Applying last quarter's rates or filing through the wrong portal produces errors that compound with 25% penalties and 2% monthly interest before anyone flags them.

This guide covers the payroll process, statutory contributions and tax treatment, paid leave entitlements, and the compliance risks worth planning for, along with how to run payroll in Kenya without a local entity.

How can you run payroll in Kenya?

A company paying people in Kenya has two routes, and the choice comes down to headcount, time horizon, and whether it wants to build the registration and filing infrastructure that Kenyan payroll requires across multiple regulatory bodies.

Option 1: Set up a Kenyan entity

You incorporate a private limited company through the Business Registration Service (BRS) under the Companies Act, 2015, or register a branch of a foreign company within 30 days of establishing a place of business in Kenya. A private limited company is the more common route for longer-term operations and requires at least one director, a registered office in Kenya, and a minimum share capital (no prescribed minimum for private companies).

Before the first salary is paid, you register with the KRA for a PIN and employer PAYE obligations, enroll with the NSSF for pension contributions, register employees with the SHA for SHIF health insurance, obtain Work Injury Benefits Act (WIBA) cover from a licensed insurer, and register with the NITA for the training levy.

After that, you carry out monthly remittances to KRA, NSSF, and SHA by the 9th of each following month, annual PAYE reconciliation filings, and WIBA policy renewals for as long as the entity exists. This route generally suits larger teams and a longer time horizon.

Option 2: Pay through a provider

Another way to run payroll in Kenya is to work with a payroll service provider that already holds a registered Kenyan entity and the statutory registrations with KRA, NSSF, SHA, and NITA.

An employer of record goes a step further and acts as the legal employer, so the employment contract, social insurance enrollment, and tax withholding obligations sit with them. This route generally suits smaller or exploratory teams, since payroll starts on an entity that already exists.

Skuad is one such provider, supporting payroll, statutory contributions, and payslip delivery across supported markets from a single platform, so your finance team can work from a single pay cycle instead of several country-specific processes.

Here is what Skuad helps with:

• Supports payroll processing in 70+ currencies from a single platform
• Facilitates tax withholding and statutory deductions across supported markets on every pay run
• Supports payslip generation and downloadable payment history for each employee
• Helps consolidate payroll reporting across 160+ countries in one dashboard

Either way, gross salary is only part of what a Kenyan hire costs. NSSF contributions, SHIF health insurance, the Affordable Housing Levy, PAYE income tax, WIBA insurance, and the NITA training levy stack on top of it.

What does the payroll process in Kenya involve?

Payroll in Kenya applies to employees only. Independent contractors are engaged under a separate arrangement and fall outside the payroll process entirely. Employees go through a monthly payroll run with statutory deductions and a payslip, while contractors invoice you and handle their own tax obligations. The components below cover the employee payroll workflow.

1. Employee information

This should include full name, national ID or passport number, KRA PIN (Personal Identification Number, required for PAYE processing), NSSF membership number, SHIF registration status, bank account details, and employment contract terms.

The KRA PIN has to be recorded before you can file PAYE returns through the iTax portal. The NSSF number is needed to remit pension contributions. Every employee must also be registered with SHA for SHIF deductions. Written employment contracts are required under the Employment Act, 2007 for any engagement exceeding two months.

2. Salaries and wages

This should include whether the employee receives an hourly wage or a fixed monthly salary, gross pay before tax and deductions, hours worked including overtime, the overtime rate, allowances (housing, transport, medical), additional income such as bonuses or commissions, and net pay after tax and deductions.

The Regulation of Wages (General) Order sets normal working hours at 52 per week for day workers and 60 for night workers, though most employment contracts specify 45 hours across a five-day week. Work beyond the contractual or statutory hours is overtime, compensated at 1.5 times the regular hourly rate on weekdays and 2 times the rate on Sundays and public holidays. The total of regular and overtime hours cannot exceed 116 hours in any period of two consecutive weeks.

Payment must be made in Kenyan shillings (KES) under Section 41 of the Employment Act. Monthly bank transfer is standard practice, and all statutory deductions must be remitted to the relevant authorities by the 9th of the following month.

3. Deductions

This should include the employee's share of social insurance contributions, health insurance, the housing levy, and income tax.

PAYE is calculated using five progressive monthly bands: 10% on the first KES 24,000, 25% on KES 24,001 to 32,333, 30% on KES 32,334 to 500,000, 32.5% on KES 500,001 to 800,000, and 35% on income above KES 800,000. A personal relief of KES 2,400 per month is then deducted from the calculated tax for resident employees.

NSSF, SHIF, and the Affordable Housing Levy are allowable deductions that reduce taxable income before PAYE is computed. The computation order matters: deduct NSSF, SHIF, and AHL from gross pay first, then calculate PAYE on the remaining taxable income.

All statutory contributions are filed and remitted through separate portals: PAYE and AHL through KRA iTax, NSSF through the NSSF e-portal, and SHIF through the SHA employer portal. The shared deadline is the 9th of the month following the payroll period. Late PAYE remittance attracts a penalty of 25% of the tax due or KES 10,000 (whichever is higher), plus 2% monthly interest.

A business must pay its employees in Kenya in Kenyan shillings (KES). Payroll records must be maintained for at least five years, and employers are required to issue itemized payslips showing gross pay, every statutory deduction, and the final net amount.

What are the key statutory requirements for payroll in Kenya?

Before hiring in Kenya, it is crucial to note down some key statutory requirements underlying the payroll process. Below are the key requirements that every company needs to fulfill to complete the payroll process without any hindrance.

Income tax

Kenya taxes employment income through PAYE, a progressive system administered by the KRA under the Income Tax Act (Cap 470). The employer withholds PAYE from every payroll run and remits it through the iTax portal by the 9th of the following month.

The 2026 PAYE bands apply to monthly taxable income (gross salary minus allowable deductions for NSSF, SHIF, and AHL):

Resident employees receive a personal relief of KES 2,400 per month (KES 28,800 per year), deducted from the calculated tax. Non-residents do not qualify for personal relief and are taxed at a flat rate of 30%.

The following components of employee income are subject to PAYE and statutory contributions:

• Base salary
• Bonuses and commissions
• Overtime pay
• Taxable allowances (housing, transport, leave allowances above exempt thresholds)
• Benefits in kind, including company car private use, subsidized meals, and employer-provided housing

Housing allowances up to KES 15,000 per month remain non-taxable when provided as actual accommodation or a reasonable allowance. Reimbursement of genuine business expenses under a company policy is generally not treated as taxable income, provided the employer maintains supporting documentation.

Late PAYE remittance attracts a penalty of 25% of the tax due or KES 10,000, whichever is higher, plus 2% interest per month on the outstanding amount. Annual PAYE returns must be filed by 30 June each year, and employers must issue P9 tax deduction cards to every employee for their individual filing.

Minimum wage

Kenya does not have a single national minimum wage. Rates are set by the government through the Regulation of Wages (General) Order under the Labour Institutions Act, 2007, and they vary by location and job category.

These rates reflect the 6% increase effective 1 November 2024 and remain in force through 2026, as no new gazette notice has been published. Separate wage orders apply to agricultural workers, domestic workers, and security guards, each with different rate schedules.

Paying below the applicable rate risks back-pay claims and penalties of up to 200% of the arrears owed. Employers hiring across Nairobi, smaller cities, and rural areas should confirm the correct wage order for each location and job classification before extending offers.

The layering across PAYE, NSSF, SHIF, the Affordable Housing Levy, NITA, WIBA, and location-based minimum wages means that an employer hiring across two or three Kenyan cities is running distinct cost models for each location.

Skuad acts as the legal employer of record in Kenya, so your company can hire, onboard, and pay employees without setting up a local entity, local legal counsel, or in-house Kenyan payroll infrastructure.

Here is what Skuad helps with:

• Acts as the legal employer across 160+ countries, including Kenya
• Facilitates statutory contribution workflows covering applicable social insurance and pension obligations
• Supports payroll processing in 70+ currencies with accurate withholding and statutory deductions
• Helps with work permit and visa coordination for foreign hires
• Supports employment contract generation aligned with local labour laws across supported markets

Book a demo to see how Skuad supports payroll for a Kenya hire without entity setup.

What are the paid leave rules in Kenya?

Kenya guarantees a minimum of 21 working days of paid annual leave by federal law, with sick leave, maternity leave, and paternity leave each governed by separate provisions of the Employment Act, 2007. Employers need to track all of these separately because underpayment of leave is treated as a wage violation. A crisp version of the paid leave entitlements is below:

Paid leave

Section 28 of the Employment Act sets these as statutory minimums. Many employment contracts and collective bargaining agreements provide more generous entitlements. Accrued but untaken leave must be paid out upon termination of employment.

Sick leave

Kenya has two overlapping standards for sick leave. The Employment Act, Section 30, sets a statutory floor of 7 days at full pay and 7 days at half pay per 12-month period, after two consecutive months of service. The Regulation of Wages (General) Order, which applies to most formal-sector employees, provides up to 30 days at full pay and 15 days at half pay per 12-month period.

Sick leave requires a medical certificate from a registered medical practitioner. The entitlement resets each year and does not carry forward. Most employers follow the Wages Order standard in practice.

Public holidays

Kenya has approximately 12 gazetted public holidays per year under the Public Holidays Act (Cap 110). The standing list includes:

• New Year's Day
• Good Friday
• Easter Monday
• Labour Day (1 May)
• Madaraka Day (1 June)
• Mazingira Day (10 October)
• Mashujaa Day (20 October)
• Jamhuri Day (12 December)
• Christmas Day
• Boxing Day

Eid al-Fitr and Eid al-Adha, which are gazetted by the Cabinet Secretary for Interior based on moon sighting and can shift by a day or two from any printed calendar.

When a public holiday falls on a Sunday, the following Monday is observed as the public holiday. The Cabinet Secretary can also gazette additional one-off holidays during the year.

Maternity leave

Maternity leave is taken as 90 consecutive calendar days and does not reduce the employee's annual leave entitlement. Section 29 of the Employment Act governs maternity leave for all female employees in formal employment.

Paternity leave

Paternity leave applies to all male employees upon the birth of a child, with no minimum service requirement. Since 2021, an adoption leave entitlement of one month with full pay also applies to adoptive parents under the Employment (Amendment) Act.

Unlike Switzerland, where maternity and paternity pay are funded through a central insurance scheme, Kenya places the full cost of parental leave on the employer. Combined with the fact that sick leave standards differ between the Employment Act floor and the Wages Order, an employer hiring across Kenya needs to confirm which standard applies to each role and budget accordingly.

Skuad supports leave administration across supported markets as part of the employment relationship, so your team does not need to track Kenyan leave rules independently.

Here is what Skuad helps with:

• Supports statutory leave entitlement tracking aligned with local employment law across supported markets
• Facilitates maternity and paternity leave workflows through the registered entity
• Helps maintain leave records and payslip accuracy across 160+ countries from a single dashboard
• Assists with public holiday calendar management for each employee on the platform

What are the main payroll challenges in Kenya?

Kenya's payroll framework sits across five separate regulatory bodies, each with its own portal and filing rules, and the statutory rates feeding into those filings have been changing on an almost annual cycle since 2023. Three areas trip up most foreign employers:

Payroll compliance

Kenya splits payroll filings across the KRA iTax portal (for PAYE, AHL, and NITA), the NSSF e-portal (for pension contributions), and the SHA employer portal (for SHIF health insurance). All three share the same deadline: the 9th of the month following the payroll period. A separate WIBA insurance policy must also be maintained with a licensed insurer.

Three compliance failures account for most of the risk:

• NSSF rate lag: The NSSF Act is rolling out in five phases. Phase 4 took effect in February 2026, raising the upper earnings limit from KES 72,000 to KES 108,000 and the maximum employee contribution from KES 4,320 to KES 6,480 per month. Any payroll system still running on Phase 3 ceilings is under-deducting from every employee earning above the old limit, and the shortfall compounds across the year.
• SHIF misconfiguration: SHIF replaced the National Hospital Insurance Fund (NHIF) in October 2024, moving from a fixed-band schedule to 2.75% of gross salary with no cap. Payroll systems that still carry NHIF logic or apply SHIF to net salary instead of gross will produce incorrect deductions on every pay run.
• AHL omissions: The Affordable Housing Levy requires a matched 1.5% contribution from both employer and employee. Late payment attracts a penalty of 3% per month on the outstanding amount. Employers that configured PAYE and NSSF but skipped the AHL line item typically discover the omission during a KRA audit.

Skuad's Shield compliance module flags regulatory and contract risks across supported markets, so changes in Kenyan statutory rates surface before they create filing errors.

Misclassification

Misclassification in Kenya carries consequences that extend well beyond a tax adjustment. Kenyan courts apply a substance-over-form test: if the working arrangement involves fixed hours, employer-provided tools, single-client dependency, and no genuine entrepreneurial risk, the relationship is treated as employment regardless of the contract label.

If the KRA or the Employment and Labour Relations Court reclassifies a contractor, the hiring company owes backdated PAYE, NSSF employer contributions, SHIF deductions, Affordable Housing Levy, and any statutory leave or severance entitlements the worker should have received. Penalties for misclassification can reach KES 100,000 to KES 500,000, plus interest on every unpaid statutory contribution.

Skuad helps reduce that exposure. As the legal employer of record, Skuad holds the employment relationship, contracts, and statutory filings through a registered local entity. For legitimately independent engagements, Skuad's contractor management platform supports compliant agreements with built-in classification checks.

Here is what Skuad helps with:

• Assists with worker classification checks before onboarding, so the engagement model is set correctly at the start
• Supports locally compliant employment agreements and contractor agreements across 160+ countries
• Facilitates statutory registrations and filings through owned and partner entities in supported markets
• Helps track regulatory changes across supported markets so your contracts and filings stay current

Location-based cost variation

Two employees doing the same job at the same gross salary can produce different total employer costs depending on which minimum wage group their location falls under and how the statutory contributions stack. The minimum wage for general workers in Nairobi (Group A) is KES 16,113.75 per month, while the rate in rural areas (Group C) drops to around KES 7,997. Separate wage orders apply to domestic workers, security guards, and agricultural roles, each with different schedules.

On top of the base salary, the employer's mandatory costs include NSSF at 6% (capped at KES 6,480), AHL at 1.5%, WIBA insurance (which varies by risk class), and the NITA levy at KES 50 per employee. For an employee on KES 100,000 gross, the total employer cost typically runs to around KES 107,500 to KES 108,500 per month before any private benefits.

Total employment cost should be modelled per location and role before extending offers, not after. Skuad's employee cost calculator supports this by showing the employer-side breakdown for a Kenya hire before onboarding begins.

How to run payroll in Kenya without building a local entity?

Incorporating a private limited company in Kenya through the Business Registration Service takes one to four weeks for the registration itself, but the wider setup, including KRA PIN, employer PAYE registration, NSSF enrollment, SHA registration, WIBA cover, NITA registration, and bank account opening, typically stretches to four to eight weeks. Once operational, the filing calendar never stops: monthly PAYE, AHL, and NITA remittances through iTax, monthly NSSF contributions through the NSSF e-portal, monthly SHIF through the SHA portal, annual P9 certificates for every employee, and WIBA policy renewals.

Skuad supports that operational load in Kenya, covering employment contracts, statutory contributions, payroll in 70+ currencies, statutory benefits, and payroll record-keeping, so your team can spend their time on the hires themselves.

Companies across technology, logistics, fintech, and professional services use Skuad to build Kenya teams, stay aligned with KRA, NSSF, and SHA requirements as rates change, and pay people accurately each cycle without local payroll infrastructure.

Book a demo to see how Skuad supports payroll for a Kenya hire without entity setup.

FAQs

1. How often is payroll run in Kenya?

Payroll in Kenya follows a monthly cycle, with salaries typically paid on the last working day of the month. Employers must remit PAYE to the Kenya Revenue Authority (KRA) via the iTax portal by the 9th of the following month. NSSF and SHIF contributions are also remitted monthly.

2. What are the mandatory payroll contributions in Kenya?

Employers in Kenya contribute to the National Social Security Fund (NSSF) by matching employee contributions, the Affordable Housing Levy (AHL) at 1.5 percent of gross salary, and the National Industrial Training Authority (NITA) levy. Employees also contribute to PAYE income tax, NSSF, the Social Health Insurance Fund (SHIF), and AHL.

3. What is PAYE and how does it work in Kenya?

Pay As You Earn (PAYE) is Kenya's employer-withheld income tax, applied monthly to salaries, wages, bonuses, and most cash and non-cash benefits. The KRA sets five progressive brackets from 10 to 35 percent, with personal relief of KES 2,400 per month. Employers file via the iTax portal by the 9th.

4. What is the SHIF and how did it replace NHIF?

The Social Health Insurance Fund (SHIF) replaced Kenya's National Hospital Insurance Fund (NHIF) as the mandatory health contribution. SHIF is calculated at 2.75 percent of gross salary for salaried employees, replacing NHIF's fixed-band system. Both employer and employee contributions apply, remitted through the Social Health Authority (SHA) portal.

5. Can a foreign company run payroll in Kenya without a local entity?

Foreign companies can typically hire in Kenya through an employer of record (EOR) without registering a local entity, since the EOR holds the legal employment relationship and manages PAYE, NSSF, SHIF, and AHL filings. Registering an entity requires KRA PIN registration, NSSF, and SHIF enrolment before the first payroll run.

6. What must a Kenyan payslip include?

Kenyan employers must issue payslips showing gross salary, all PAYE deductions, NSSF contributions (employer and employee shares), SHIF contributions, Affordable Housing Levy deductions, any contractual allowances or benefits, and the final net amount paid. Employers must also issue annual P9 tax deduction cards and file returns through the iTax system.