PAYE — Pay As You Earn — is the income tax KRA requires every employer to deduct from employees' pay each month and remit on their behalf. It is graduated: different portions of an employee's pay are taxed at different rates. Getting it right matters, because the employer, not the employee, carries the remittance risk if the calculation is wrong.
This is a plain-English breakdown of the current bands, the reliefs that reduce the bill, and a worked example.
The current PAYE bands
Kenya's monthly PAYE structure has five bands. The higher 32.5% and 35% bands were introduced by the Finance Act 2023 and remain in force:
- Band 1: KES 0 – 24,000 at 10%
- Band 2: KES 24,001 – 32,333 at 25%
- Band 3: KES 32,334 – 500,000 at 30%
- Band 4: KES 500,001 – 800,000 at 32.5%
- Band 5: Above KES 800,000 at 35%
The rates are marginal. An employee earning KES 50,000 does not pay 30% on the whole amount — only the portion that falls inside the 30% band is taxed at 30%.
Personal and insurance relief
Two reliefs reduce the final tax:
- Personal relief: KES 2,400 per month (KES 28,800 per year). Every resident employee is entitled to it, and it is subtracted from the tax due, not from taxable pay.
- Insurance relief: 15% of qualifying premiums, including SHIF contributions and life or health insurance, capped at KES 5,000 per month.
How the calculation actually works
PAYE is charged on taxable pay — gross pay minus allowable deductions such as NSSF, SHIF, and the Housing Levy. Take an employee whose taxable pay for the month is KES 50,000:
- First 24,000 at 10% = 2,400.00
- Next 8,333 (24,001 – 32,333) at 25% = 2,083.25
- Remaining 17,667 (32,334 – 50,000) at 30% = 5,300.10
- Gross tax = 9,783.35
- Less personal relief = 2,400.00
- PAYE payable = KES 7,383.35
Stack the bands, sum the tax, then subtract personal relief. That is the whole mechanism.
Where employers go wrong
The most common error is under-deduction — applying the wrong band, forgetting personal relief, or running stale tax tables. The employee technically owes KRA the difference, but the employer, having remitted too little, faces a late remittance exposure on the shortfall. KRA's penalty for incorrect PAYE is 5% of the underpaid amount plus interest at 1% per month.
If you process payroll at the wrong rates and do not catch it until the annual reconciliation, you have months of compounding underpayment to unwind.
Why this is hard on spreadsheets
Spreadsheet payroll hardcodes the bands as formulas. When KRA does revise rates through a Finance Act, every one of those formulas has to be found and updated by hand, and any cell that is missed quietly produces wrong figures for every affected employee.
On AndikishaHR the bands live in the platform's compliance engine, not in your spreadsheet. When rates change, the engine is updated before the effective date and your next payroll simply runs correctly — no table edits, no formula hunting. The same live KRA rates power the calculator on our homepage, so you can sanity-check any figure yourself.
Verify your own output
Whatever system you run, cross-check it. Pick a mid-range salary, compute the PAYE by hand using the bands above, and compare it against your payroll output and KRA's PAYE calculator. If the numbers do not match, the time to find out is now — not at reconciliation.
Tired of tracking this manually?
AndikishaHR handles all Kenya statutory compliance automatically. When KRA updates the brackets, the platform updates. Your next payroll just runs correctly.