What is PAYE in Kenya and how is it calculated?

PAYE stands for Pay As You Earn. It is the income tax your employees pay on their salaries — deducted from their pay before they receive it, and remitted to KRA by you, the employer.

The name tells you exactly what it is: the employee pays their tax as they earn, rather than in a lump sum at year end.

Who pays PAYE?

Any employee earning above KES 24,001 per month pays PAYE. Below that threshold, the personal relief of KES 2,400 wipes out the tax entirely.

Practically: anyone on your payroll earning more than KES 24,000 gross per month has a PAYE liability.

Who is responsible for deducting and remitting it?

You are — the employer. KRA holds you responsible for deducting PAYE from your employees’ salaries and remitting it by the 9th of the following month.

Your employees don’t file PAYE themselves. They trust you to get it right. KRA trusts you to remit it. If you don’t, the penalties land on your business, not your employees.

How is PAYE calculated?

PAYE is calculated on a graduated scale — higher earners pay a higher percentage on each additional slice of income. This is called a progressive tax system.

The current tax bands (2024/2025):

Monthly gross income (KES)	Rate on that band
0 – 24,000	10%
24,001 – 32,333	25%
32,334 – 500,000	30%
500,001 – 800,000	32.5%
Above 800,000	35%

Personal relief: Every employee gets a personal relief of KES 2,400 per month, which is deducted from the calculated tax. This means someone earning exactly KES 24,000 pays zero PAYE (their tax at 10% is KES 2,400, which equals their personal relief).

Worked example — employee earning KES 80,000 gross:

Band	Income in this band	Tax
0–24,000	KES 24,000	KES 2,400 (10%)
24,001–32,333	KES 8,333	KES 2,083 (25%)
32,334–80,000	KES 47,667	KES 14,300 (30%)
Total tax before relief		KES 18,783
Minus personal relief		KES 2,400
PAYE payable		KES 16,383

The employee’s take-home is KES 80,000 minus PAYE (KES 16,383) minus NSSF, SHIF, and Housing Levy deductions.

What allowances reduce PAYE?

Some benefits reduce an employee’s taxable income:

• NSSF contributions are partially tax-deductible (up to KES 20,000 per year)
• Pension contributions to registered schemes are deductible up to KES 30,000 per month
• Mortgage interest relief is available for employees with housing loans from approved institutions
• Owner-occupied interest deduction for employees purchasing their primary residence

In practice, for most small business employees, only NSSF contributions meaningfully reduce taxable income.

The P9 form

At the end of each tax year (January), every employee you’ve paid must receive a P9A form. This shows their total gross income, total PAYE deducted, and all other relevant figures for the year. Employees use the P9 to file their personal income tax return on iTax.

It is your legal obligation to produce and distribute P9 forms. A proper payroll system generates these automatically — no manual calculation required.

Filing PAYE on iTax

PAYE is filed and paid via KRA’s iTax portal. The process:

1. Log into iTax with your company PIN
2. Go to Returns > File Return > PAYE
3. Upload the payroll data (most payroll systems generate this file automatically)
4. Pay by the 9th of the following month via Mpesa, bank, or RTGs

Late filing attracts a penalty of KES 10,000 or 25% of the tax due, whichever is higher. Late payment attracts 5% of the outstanding amount plus 1% per month interest.

The simplest way to handle this

The math above is not hard — but it’s error-prone when done manually for multiple employees every month. One wrong formula in Excel, copied across 12 months, creates a mess that takes days to untangle.

A payroll system calculates all of this automatically. You enter the gross salary, it produces the deductions, generates the payment file for iTax, and archives everything so the year-end P9 process takes minutes not days.

If you want to see how payroll works inside a full business system — alongside invoicing, stock, and M-Pesa — see what’s on our platform. Or book a call and we’ll show you the live system.