What Are Payroll Deductions?

Payroll deductions refer to amounts subtracted from an employee's gross salary to cover taxes, benefits, and mandatory contributions. These deductions are essential for complying with government regulations and ensuring access to services such as healthcare and pensions.

While deductions reduce take-home pay, they contribute to long-term benefits like retirement savings and healthcare.

Key Types of Deductions in Kenya

• NSSF (National Social Security Fund): Secures retirement benefits. Contribution rates:
  • Tier I: 6% of the first KES 7,000 (shared equally by employer and employee).
  • Tier II: 6% of pensionable income between KES 7,001 and KES 36,000 (also shared equally).
• SHIF (The Social Health Insurance Fund): Provides healthcare access at 2.75% of gross salary.
• PAYE (Pay As You Earn): Progressive income tax with rates:
  • 10% on income up to KES 24,000.
  • 25% on income between KES 24,001 and KES 32,333.
  • 30% on income above KES 32,333.
  Note: Personal relief of KES 2,400 applies to reduce the taxable amount.
• Housing Levy: A deduction of 1.5% of gross salary to support affordable housing programs.

How Deductions Impact Net Salary

Deductions reduce an employee's gross salary to calculate net pay. The formula is:

Net Pay = Gross Salary - (NSSF + SHIF + PAYE + Housing Levy)

For example: If your gross salary is KES 30,000:

• NSSF: KES 1,800
• SHIF: KES 825
• PAYE: KES 2,500
• Housing Levy: KES 450

The Benefits of Deductions

Although deductions reduce take-home pay, they offer significant benefits, including:

• NSSF: Financial stability in retirement.
• SHIF: Access to affordable healthcare services.
• PAYE: Funds essential public services such as education and infrastructure.
• Housing Levy: Supports affordable housing initiatives.

How to Monitor Deductions

To ensure accurate deductions, follow these steps:

• Regularly review your payslip for accuracy.
• Use online tools like tax calculators to verify deductions.
• Contact your HR or payroll department for any discrepancies.

Staying Updated

Tax rates and deduction policies change periodically. Stay informed by:

• Checking official government websites like the Kenya Revenue Authority (KRA).
• Using updated tools like our tax calculator for accurate estimates.