Kenya’s growth, marked by projects like the Standard Gauge Railway (SGR) and a booming tech sector, reflects its Vision 2030 drive for innovation. With a projected growth rate of 5.2% from 2024 to 2026 and a 5.0% economic expansion in Q1 2024, driven by sectors such as agriculture and financial services, Kenya is becoming a key investment hub. However, payroll management often receives insufficient focus despite its importance. Effective payroll systems are crucial for timely payments, tax compliance, and economic stability. In 2023, the formal employment sector contributed 19.8% to GDP, underscoring payroll management’s role in supporting Kenya’s economic growth and improving living standards.

How can employers in Kenya manage payroll, calculations, and legal compliance while contributing to the country’s economic growth? This article explores key aspects of payroll management in Kenya, including statutory requirements, calculations, payslips, and remittances.

What are the Components of Payroll in Kenya?

In Kenya, payroll has several key components to ensure accurate and compliant employee compensation.  Here are the main elements:

1. Basic Salary: The basic salary is the fixed amount an employee gets paid each month before any extras or deductions. It’s the main part of an employee’s pay, agreed upon when they’re hired. For example, if a job contract says an employee will earn Ksh 100,000 a month, that’s their basic salary.

2. Allowances: Allowances are additional payments given to employees to help with specific needs. In Kenya, common allowances include housing, transport, and medical. These are added to the basic salary. For instance, if an employee earns Ksh 50,000 and gets a housing allowance of Ksh 10,000 and a transport allowance of Ksh 5,000, their total monthly pay would be Ksh 65,000.

3. Overtime Pay: When employees work beyond the regular working hours in Kenya, they are qualified to receive overtime pay. This also includes work done on regular leave days and public holidays. However, it’s important to note that working overtime is not mandatory; employees must agree to work extra hours. Overtime pay is calculated at a higher rate than the regular hourly wage to compensate for the additional work. Generally, Kenyan employees should receive at least one and a half times their usual wage for overtime hours worked. If an employee works on a leave day or a public holiday, they are entitled to twice their normal hourly rate. This extra pay is meant to recognise the value of working outside regular hours and to ensure fair compensation for employees who contribute additional time to their jobs.

4. Deductions: Deductions are amounts taken from an employee’s salary for different purposes. While they reduce the total income employees receive, they also help in managing overall taxes for the employer. These deductions make sure that employees contribute to important services and social security. In Kenya, the most common types of deductions include:

• • PAYE (Pay As You Earn): This is a tax deducted from an employee’s gross salary. The rates are progressive, meaning higher earners pay a higher percentage. In 2024, the PAYE tax bands remain aligned with Kenya’s income tax brackets, which range from 10% to 30% depending on the income level/tax brackets.

• • NSSF (National Social Security Fund): Both the employer and employee contribute 6% each of the employee’s gross monthly salary, subject to a statutory ceiling. This contribution is for retirement benefits.

• • NHIF (National Hospital Insurance Fund): Contributions to the NHIF are mandatory and vary depending on the employee’s gross salary, with rates ranging from KSh 150 to KSh 1,700 per month.

• • Higher Education Loans Board (HELB): Graduates with HELB loans have a portion of their salary deducted to repay these loans. The amount deducted is based on loan balances and repayment plan. This deduction is essential for maintaining the fund, and it is the employer’s responsibility to ensure the correct amount is withheld.

• • National Industrial Training Authority (NITA) Levy: The NITA levy is a training fee of Ksh 50 per employee per month. This levy funds industrial training programs aimed at improving workforce skills and productivity. Employers must register their employees for the levy and deduct the fee from their salaries.

• • Housing Levy: Housing levy is designed to assist employees in affording housing across Kenya. Kenyan regulations mandate that both employees and employers contribute 1.5% of the employee’s gross salary each month, resulting in a total deduction of 3%.

5. Net Pay: Net pay is the amount of money an employee actually takes home after all adjustments are made. To calculate net pay, follow these steps:

• • Start with the Basic Salary: This is the core amount agreed upon for the employee’s work.

• • Add Allowances: Include any extra payments for housing, transport, or other benefits.

• • Subtract Deductions: Deduct all mandatory and voluntary withholdings such as income tax (PAYE), social security contributions (NSSF), health insurance (NHIF), and any other deductions.

The result after adding allowances to the basic salary and subtracting the deductions is the employee’s net pay. This is the final amount employees receive in their bank account after all necessary adjustments have been made.

How to Properly Process Payroll in Kenya?

Processing payroll in Kenya requires careful attention to several key steps to ensure timely and accurate payments while meeting statutory obligations. As an employer, it’s essential to follow this process:

1. Collection of Employee Information: The initial step in payroll management is to gather and keep precise employee information. This includes personal details, start dates, job titles, salary levels, and essential registration numbers like the KRA PIN, NSSF number, and NHIF number. Additionally, employers must record any voluntary deductions, such as pension contributions and Sacco memberships.

2. Calculation of Salary and Allowances: To start this, calculate each employee’s gross pay by adding their basic salary to any allowances. For employees who have worked overtime, ensure the extra hours are accurately calculated and included in the gross pay. Using a reliable payroll calculator can help prevent errors.

2. Statutory Deductions Calculation: Once the calculation of salary and allowances is done, deduct mandatory statutory contributions from the gross pay. This includes all required statutory deductions, and be sure to stay updated on any new rates or changes, such as the upcoming shift from NHIF to SHIF.

4. Voluntary Deductions Calculation: For employees with voluntary deductions, calculate these separately. This could include pension, personal loan repayments, and insurance premiums, depending on individual agreements.

5. Payslip Generation: Finally, generate payslips for each employee. These should detail the breakdown of their salary, including gross pay, all deductions, and net pay. SeamlessHR payroll software in Kenya streamlines this process and ensures accurate administration. Visit our support platform to learn how to generate payslips for one employee and large number of employees on SeamlessHR payroll software.

6. Monthly Statutory Remittances and Filing: The final step in the payroll process in Kenya involves ensuring that all deducted amounts are submitted to the relevant statutory bodies [including the government] within their specified deadlines. This step is crucial for maintaining compliance with Kenyan labour laws and avoiding penalties. Here’s a detailed breakdown:

• • PAYE (Pay As You Earn): Employers must remit PAYE to the Kenya Revenue Authority (KRA) by the 9th day of the month following the end of the payroll period. This tax is deducted from employees’ salaries based on their income levels and must be submitted promptly to avoid fines and interest.

• • NSSF (National Social Security Fund): Contributions to NSSF, which provide social security benefits for employees, must be submitted by the 9th of the month following the payroll period.

• • NHIF (National Hospital Insurance Fund): Contributions to NHIF, which support healthcare coverage for employees, are also due by the 9th of the following month. Timely remittance ensures that employees are covered by health insurance and helps avoid any disruptions in their healthcare services.

• • HELB (Higher Education Loans Board): Loan repayments for employees who have taken loans from HELB are due by the 15th of the following month. It is essential to meet this deadline to prevent any issues with employees’ loan accounts and to comply with HELB regulations.

• • Housing Levy: Contributions to the Housing Levy, which fund the affordable housing program, must be remitted to KRA by the 9th working day of the month following the payroll period. This levy is critical for supporting housing development and ensuring that contributions are made on time.

7. Annual Reporting: Employers must submit annual PAYE returns to the KRA by June 30 each year. This submission includes detailed information on the total PAYE deducted and remitted throughout the year. Annual reporting is crucial for reconciling payroll records and ensuring compliance with tax requirements.

Common Kenya Payroll issues and How SeamlessHR Solves Them. 

Businesses in Kenya often face several common payroll issues, which can impact both operations and compliance.  These challenges include:

1. Statutory deduction Errors: In the absence of an efficient payroll management system, businesses struggle to correctly input required deductions. Errors in payroll calculations can lead to underpayment or overpayment, causing issues with employees and the government.

SeamlessHR payroll software solves this challenge by streamlining the calculation of complex statutory deductions such as PAYE, NSSF, and NHIF. It does this by automating these processes, reducing the risk of errors and ensuring that all deductions are correctly applied according to the most current rules.

2. Compliance with employment laws: Ensuring compliance with Kenyan employment laws, such as the Employment Act, can be challenging. This includes correctly calculating overtime, leave days, and severance pay, which can be difficult without a deep understanding of the law.

SeamlessHR Payroll management software in Kenya helps businesses comply with Kenyan employment laws by accurately managing calculations for overtime, leave days, and severance pay. The software is designed to handle the intricacies of the Employment Act, making it easier for businesses to meet their legal obligations.

3. Managing multiple payroll schedules: Businesses that operate across different sectors or have diverse employee groups may need to manage multiple payroll schedules. This complexity can increase the risk of errors and complicate payroll administration.

SeamlessHR payroll software in Kenya solves for this with the flexibility to manage different payroll schedules within the same platform. This capability simplifies administration and reduces the risk of errors.

4. Cybersecurity threats: With the increasing use of digital payroll systems, businesses face cybersecurity risks. Protecting sensitive employee data from breaches is a critical concern, especially with Kenya’s data protection laws. 

Understanding the importance of data security, SeamlessHR employs robust cybersecurity measures to protect sensitive payroll information. This is crucial for ensuring compliance with Kenya’s data protection regulations and safeguarding employee data from breaches.

Ensuring Compliance and Efficiency with SeamlessHR – Top Kenya Payroll Software

Ensuring compliance and efficiency with SeamlessHR – top payroll software, is crucial for businesses navigating complex payroll regulations.  SeamlessHR payroll software simplifies this process by offering a comprehensive solution tailored to Kenyan legal requirements. 

The software automates calculations, tax deductions, and compliance with the latest regulations, and reducing the risk of errors. It also streamlines payroll management, enabling businesses to handle employee records, payslips, and statutory reports effortlessly. 

SeamlessHR payroll software is the top payroll software in Kenya, best software that offers payroll services for one employee and multiple employees. We have enabled businesses in Kenya like Juhudi Kilimo and Turaco to easily manage their payroll. 

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