Decoding Statutory Deductions in Kenya

NOTE: The blog puts into consideration only Primary Employees.

I am going to break down and simplify the complex or intricate information about statutory deductions into simpler and understandable language.

"Statutory Deductions" are mandatory deductions that individuals, usually ‘primary’ employees, are legally required to contribute from their income. These deductions are typically established by government laws and regulations. In the context of Kenya, these deductions can include income tax, contributions to social security funds like NSSF (National Social Security Fund), health insurance contributions (NHIF - National Health Insurance Fund), Affordable Housing Levy (AHL) remitted together with the income tax to KRA, and other statutory obligations.

If you're a working professional in Kenya, chances are you've looked at your pay slip and wondered about the various deductions listed. Understanding these statutory deductions is crucial for managing your finances effectively. Broken down are the key components of statutory deductions in Kenya.

Income Tax (PAYE)

One of the primary deductions on your pay slip is income tax. In Kenya, income tax is levied on a progressive scale, meaning that the more you earn, the higher the percentage of your income that goes towards taxes. Familiarizing yourself with the tax brackets to know exactly how much of your salary is allocated to income tax is important.

Below are the tax brackets:

First Kshs. 24,000: = 10%

Next Kshs. 8,333: = 25%

Next Kshs. 467,667: = 30%

Next Kshs. 300,000: = 32.5%

Pay amount above Kshs. 800,000: = 35%
 

Note that all primary employees are entitled to the following tax reliefs on Income tax to arrive at PAYE:

1. Personal Relief = Kes 2,400
2. Insurance relief = Kes [15% of (NHIF + Other insurance premium amounts)] and capped at a maximum of Kes 5,000.

NSSF (National Social Security Fund)

The NSSF deduction is designed to provide social security benefits to employees. It's a mandatory contribution that both employers and employees make towards a retirement savings fund. Understanding how NSSF works is essential, as it directly impacts your future financial security.

Note: This deduction is allowable before taxation.

Old rates as of February 2022 - January 2024

6% but capped at a maximum of Kes 1,080.

New NSSF rates w.e.f February 2024:

Employers have to deduct between the amounts Kes 420 and Kes 1,740 from their worker’s pay slips.

The breakdown of the new rates is as follows:

Lower limit: Kes 420 => employees paid at least Kes 7,000.

i.e. Kes 420 -Employee’s contribution

Kes 420 -Employer’s contribution

This implies a Tier 1 total contribution to be Kes 840.

Next Kes 2,9000. i.e. an upper limit of Kes 36,000

This will be subjected to 6% of 29,000

Note: This applies when your salary is greater than or equivalent to Kes 36,000.
 

Example: Given James’ Gross Pay if Kes 35,000, compute the NSSF contribution for both employer and employee.

Workings:

First Kes 7,000; NSSF = 6% of 7,000 = Kes 420

Next Kes (35,000 - 7,000) = 6% of (28,000) = Kes 1,680

=> Kes (420 + 1680) = Kes 2,100

=> Employee’s contribution = Kes 2,100 (deducted from employee’s salary)

=> Employer’s contribution = Kes 2,100

Total contribution = Kes 4,200

NHIF (National Health Insurance Fund)

NHIF is another compulsory deduction that ensures you have access to affordable healthcare. The contributions vary based on your income, and being aware of the benefits and coverage offered by NHIF can help you make informed decisions.

Old NHIF rates as of 2015 - January 2024

New NHIF / SHIF rates w.e.f July 2024:

All salaried workers will be subjected to a new rate of 2.75 percent (2.75%) of the Gross Salary.

AHL (Affordable Housing Levy)

The Affordable Housing Levy is a mandatory contribution introduced to fund the Affordable Housing Program. This initiative aims to facilitate the construction of affordable housing units for Kenyan citizens. Both employees and employers are required to make contributions towards this levy, with the goal of promoting homeownership and addressing the housing deficit in the country.

The Affordable Housing Levy applies to all salaried workers. Employers are responsible for deducting this levy from their employees' salaries and remitting it to the Kenya Revenue Authority (KRA) on a monthly basis.

As of July 2023, the Affordable Housing Levy was set at 1.5% of an employee's gross salary. This means that both employers and employees each contribute 1.5% of the employee's gross income towards the Affordable Housing Program.