Money Management
April 4, 2025
When you receive your paycheck, you’ll quickly discover that the salary you agreed to isn’t what you are bringing home. That is because much was taken out in the form of taxes, mandatory insurance, and other deductions.
Your payslip typically contains three main parts; how much you are being paid, the taxes you are paying, and any other deductions that are being made. Understanding these deductions is crucial for financial awareness and planning as it:
With that in mind, let’s look at all the payroll deductions on a Kenyan payslip.
Read Also: The Cost of Starting a Business in Kenya: All The Taxes and Fees You Pay
Payslip deductions can be categorized into two groups.
These are mandatory payments that your employers deduct from your salary and remit to relevant government agencies.
Here are the four main mandatory deductions:
PAYE is a method of collecting tax from individuals in gainful or formal employment. PAYE is an income tax deducted from employees' salaries based on their earnings. It applies to individuals earning above Ksh24,000 per month and is remitted to the Kenya Revenue Authority (KRA) by the employer.
PAYE Statutory Rates for 2023 (New Finance Act 2023)
NSSF is a mandatory retirement savings scheme that helps employees build a pension for their future. Contributions are deducted from employees' salaries and matched by employers.
NSSF rates are based on a tiered system, with the contribution depending on your monthly salary.
Since the third phase of implementing the NSSF Act 2013 took effect in February 2025, the pensionable income lower limit increased from Ksh7,000 to Ksh8,000, while the upper limit rose to Ksh72,000.
As a result, the NSSF Tier I deduction increased from Ksh420 to Ksh480, and the Tier II limit rose from Ksh1,740 to Ksh3,840.
The overall NSSF deduction limit also increased from Ksh2,160 to Ksh4,320, with employers required to match the same amount.
Read Also: How Your Net Salary Will Reduce in New NSSF Rates for February 2025
The Social Health Insurance Fund (SHIF) replaced the former National Hospital Insurance Fund (NHIF) under the Social Health Insurance Act, 2024. It aims to provide universal healthcare coverage for all Kenyan residents.
Mandatory registration and contributions apply to all Kenyan residents.
Salaried employees contribute 2.75% of their gross monthly salary towards SHIF. For instance, if you earn Ksh100,000, your SHIF contribution will be Ksh2,750, while if you earn Ksh50,000, you will contribute Ksh1,375 per month.
The Affordable Housing Levy (AHL) was introduced to fund the government's affordable housing programs. Effective March 2024, all employers and employees must contribute 1.5% of the employee’s gross monthly salary.
Unlike statutory deductions, which are mandatory, personal deductions are voluntary and vary based on individual financial commitments. These deductions often include contributions toward savings, insurance, and loan repayments.
Personal deductions maximize tax reliefs where applicable. This is because some of these voluntary deductions attract tax relief, reducing your taxable income and lowering the amount of PAYE you owe.
Additionally, personal deductions can also help automate savings and loan repayments.
Employees can make voluntary contributions to registered pension schemes in addition to NSSF to enhance their retirement savings.
These contributions can qualify for a tax deduction, reducing the taxable income. The tax relief is capped at the lowest of the following:
As a resident individual, you are entitled to insurance relief at a rate of 15% of the insurance premiums paid, up to a maximum of Ksh5,000 per month (or Ksh60,000 per year). To qualify for this relief, you must be able to prove that:
Under Section 15(3) of the Income Tax Act (ITA), homeowners can deduct mortgage interest payments from their taxable income.
As of December 2024, the Tax Laws (Amendment) Act (TLAA) increased the annual mortgage interest deduction from Ksh300,000 (Ksh25,000 per month) to Ksh360,000 (Ksh30,000 per month).
Saccos offer an easy way to save and invest by automatically deducting a fixed amount from your salary. This money is then invested in Sacco shares or savings accounts, helping you build your financial security over time.
Many employers in Kenya make this process even more convenient by facilitating direct payroll deductions for Sacco contributions.
However, Sacco contributions do not attract tax relief. This means that the money you contribute is deducted from your net salary (after tax has already been applied).
Some lenders offer a check-off system, where your employer deducts loan repayments directly from your salary before paying you. This automatic repayment method is made possible through an agreement between your employer and the lender. It is commonly used for Sacco loans, employer-backed loans, salary advances, HELB loan repayments, mortgages, and personal loans from certain banks.
Loan deductions do not attract tax relief. Even in the case of mortgages, only the Mortgage interest payments qualify for tax relief.
Between taxes, statutory deductions, and personal savings plans, your salary goes through multiple cuts before you can spend a single shilling. Let’s unpack each deduction so you can understand exactly what you’re left with at the end of the month.
Here is what your payslip could look like with only the mandatory deductions:
From the example above, your total deductions (SHIF, PAYE, Housing levy, and NSS) is Ksh28,382 and net pay is Ksh71,618.
But what if you had a life insurance paying a premium of Ksh3,000 per month, you have an Individual Pension Plans where you save Ksh3,000, you save Ksh8,000 in a Sacco and making monthly loan repayments of Ksh5,000 to bank? How much will be your deductions?
In that case, tax-deductible personal deductions include:
Because Ksh6,000 of your personal deductions are tax-deductible, your taxable pay will reduce from Ksh91,430.00 to Ksh85,430. This will effectively lower your PAYE tax budden from KsH19,812 to Ksh18,012.
However, the added deductibles will significantly lower your Take-Home Salary (net pay) from Ksh71,618 to Ksh54,118.
Here is an updated payslip with mandatory and personal deductions:
Read Also: How to Pay Less Taxes Legally in Kenya
While the mandatory payroll deductions are unavoidable, they have significantly increased in recent years, putting more strain on employees' payslips. The implementation of the third phase of the NSSF Act 2013, the 2.75% Social Health Insurance Fund (SHIF) contribution, and the 1.5% Affordable Housing Levy have all added to the list of compulsory deductions.
The two-thirds rule, outlined in the Employment Act 2007, is meant to protect employees from excessive deductions by ensuring that statutory and voluntary deductions do not exceed two-thirds of their salary. Therefore, with the rising cost of mandatory contributions, you need to be mindful of additional deductions such as Sacco contributions, pension plans, and loan repayments—otherwise, you could end up with too little disposable income.
While saving and investing are essential, it’s important to strike a balance and avoid overcommitting. If your deductions go beyond the two-thirds threshold, you may find it difficult to cover daily expenses and could even struggle to qualify for a loan. Lenders assess your take-home pay before approving financing, so keeping your deductions in check ensures financial stability and keeps your future borrowing options open.
.png){kind=small}
Join 1.5M Kenyans using Money254 to find better loans, savings accounts, and money tips today.
Money 254 is a new platform focused on helping you make more out of the money you have. We've created a simple, fast and secure way to find and compare financial products that best match your needs. All of the information shown is from products available at established financial institutions that our team of experts has tirelessly collected.
.jpg)
.jpg)
