Running payroll in Kenya is not just about paying people on time. Get the statutory side wrong and you face KRA penalties, unhappy staff and a mess at year-end. This guide breaks the monthly cycle into clear steps any small business can follow.
Step 1: Set gross pay
Start with each employee's gross pay for the month — basic salary plus any taxable allowances (house, transport, acting, commissions). Overtime, bonuses and other additions belong here too. Gross pay is the base for every deduction that follows.
Step 2: Calculate the pre-tax statutory deductions
Three deductions come off gross pay before tax:
- NSSF — 6% of pensionable pay, Tier I and Tier II (max KES 6,480 employee in 2026)
- SHIF — 2.75% of gross (minimum KES 300)
- Affordable Housing Levy — 1.5% of gross
Subtract these from gross to get taxable pay.
Step 3: Calculate PAYE
Run taxable pay through the five 2026 PAYE bands (10% to 35%), then subtract the KES 2,400 personal relief. The result is the PAYE you withhold. (See our full PAYE guide for a worked example.)
Step 4: Apply any other deductions
Then handle non-statutory items: salary advances, loans, SACCO contributions, HELB, and the employer-matched portions you owe (NSSF and Housing Levy). What remains is the employee's net pay.
Step 5: Produce payslips
Every employee is entitled to a payslip showing gross pay, each deduction, and net pay. Clear payslips prevent the single most common payroll dispute: staff who don't understand why their take-home changed.
Step 6: Pay staff and remit statutory deductions
Pay salaries, then remit the statutory deductions to the right bodies — PAYE and the Housing Levy to KRA via iTax, NSSF to the Fund, SHIF to the SHA. The deadline for all of them is the 9th of the following month. Missing it triggers penalties and interest.
Step 7: Keep records
Retain payroll records, payslips and remittance confirmations. You will need them for the annual PAYE return and for generating P9 forms so employees can file their own tax returns.
The case for automating it
Done by hand in a spreadsheet, this cycle is slow and error-prone — and every rate change (like the February 2026 NSSF increase) means re-checking your formulas. A payroll system applies the current rates automatically, produces payslips and statutory files, and keeps the records for you.
Force HRM runs this entire cycle for Kenyan businesses — statutory calculations, payslips, employee self-service and compliance output — and you can run it yourself or hand it to our managed payroll team. See how Force HRM works.
Statutory rates in this guide are current for 2026 and change through Finance Acts and gazette notices. Confirm against current KRA, NSSF and SHA guidance before filing.