The Complete Payroll Checklist for Kenyan Employers

Managing payroll is a critical task for any employer, and in Kenya, it comes with its own set of rules, regulations, and best practices. Ensuring compliance with Kenyan laws is essential to avoid penalties and maintain a good relationship with your employees. Here’s a comprehensive payroll checklist to guide Kenyan employers through the process.

1. Employee Information Collection

Start by collecting all necessary information for your employees. This includes:

• Personal Details: Full names, date of birth, contact information, and physical address.
• National Identification Number: Ensure every employee has a valid Kenyan ID number.
• KRA PIN: Every employee must be registered with the Kenya Revenue Authority (KRA) and have a Personal Identification Number (PIN) for tax purposes.
• NSSF Number: Employees should be registered with the National Social Security Fund (NSSF) for pension contributions.
• NHIF Number: Employees must be registered with the National Hospital Insurance Fund (NHIF) for health insurance contributions.
• Bank Details: Collect bank account information for salary payments.’
   

2. Salary Structure and Deductions

Define the salary structure clearly, ensuring it aligns with Kenyan laws:

• Basic Salary: This is the fixed part of the salary before any bonuses or allowances.
• Allowances: Include housing, transport, medical, and other allowances, if applicable.
• Overtime Pay: Calculate overtime based on the Employment Act, which mandates a rate of 1.5 times the normal hourly wage for any hours worked beyond the standard 52 hours a week.
• Bonuses and Commissions: Add any performance-related bonuses or sales commissions.

Next, account for statutory deductions:

• PAYE (Pay As You Earn): Deduct income tax from employees’ salaries according to KRA tax bands. Ensure you stay updated on the current tax rates, which may change annually.
• NSSF Contributions: Deduct and remit contributions to the NSSF as per the new rates under the NSSF Act, 2013.
• NHIF Contributions: Deduct and remit NHIF contributions based on the employee's gross salary, adhering to the contribution rates set by the NHIF.
• Sacco Deductions: If applicable, deduct contributions for Savings and Credit Cooperative Organizations (Sacco).
• Other Deductions: Include deductions for pension schemes, loans, and advances if applicable.

3. Payroll Processing

Processing payroll involves several critical steps:

• Calculate Gross Pay: Combine basic salary, allowances, overtime, and bonuses.
• Apply Deductions: Deduct PAYE, NSSF, NHIF, and any other necessary contributions.
• Calculate Net Pay: The net pay is what remains after all deductions are applied. Ensure this amount is accurate and reflects all statutory requirements.
• Payroll Schedule: Establish a payroll schedule, typically monthly, and stick to it to ensure timely payments.
   

4. Compliance with Kenyan Labor Laws

Compliance is non-negotiable for Kenyan employers:

• Minimum Wage Compliance: Ensure that all employees are paid at least the minimum wage, as set by the government, which varies by industry and location.
• Leave Entitlements: Ensure compliance with the Employment Act regarding annual leave, sick leave, and maternity/paternity leave. Record and track leave balances accurately.
• Employment Contracts: All employees should have a written contract that clearly states their terms of employment, salary, allowances, and job responsibilities. These contracts should comply with the Employment Act, 2007.
   

5. Payroll Record-Keeping

Maintain accurate and secure payroll records:

• Payroll Registers: Keep detailed records of all payroll transactions, including gross pay, deductions, and net pay.
• Tax Records: Maintain records of all tax-related documents, including PAYE returns, tax deduction cards (P9 forms), and KRA acknowledgments.
• Contribution Records: Keep records of all NSSF and NHIF contributions, ensuring that all payments are up to date.

6. Submission of Payroll Taxes and Contributions

Submit all taxes and contributions on time to avoid penalties:

• PAYE: Submit PAYE deductions to KRA by the 9th of every month through iTax.
• NSSF and NHIF: Submit contributions to NSSF and NHIF by the 15th of the following month.
• P9 Forms: Issue P9 forms to employees at the end of the financial year for tax filing purposes.

7. Annual Payroll Tasks

At the end of the financial year, ensure you complete these tasks:

• Submit PAYE Annual Returns: Submit PAYE annual returns to KRA by 30th June.
• Prepare P9 Forms: Prepare and issue P9 forms to all employees for their personal tax returns.
• Audit Payroll: Conduct an internal audit to ensure all payroll processes comply with legal requirements and company policies.

8. Adapting to Changes in Legislation

Kenyan laws on payroll and taxation can change. Stay updated on:

• New Tax Bands: Ensure that your payroll system is updated with any changes in the tax bands announced during the national budget.
• Revised Contribution Rates: Monitor any changes in NSSF, NHIF, or any other statutory contribution rates.
• Labor Laws: Stay informed on any amendments to the Employment Act or other labor-related legislation.

9. Employee Communication and Support

Keep open lines of communication with your employees:

• Payslips: Provide detailed payslips that outline gross pay, deductions, and net pay. This transparency builds trust and minimizes disputes.
• Payroll Queries: Have a system in place to address any payroll-related questions or concerns from your employees.
• Training: Regularly train your HR and payroll staff on payroll processing and compliance to ensure they are well-equipped to handle the process efficiently.

10. Leveraging Technology

Use payroll software to streamline the process:

• Automated Calculations: Invest in payroll software that can automate tax calculations, deductions, and net pay computation.
• Compliance Tracking: Use software to keep track of compliance deadlines and automatically generate reports for KRA, NSSF, and NHIF submissions.
• Data Security: Ensure your payroll software has robust data security measures to protect sensitive employee information.

Streamline Your Payroll with ElevateHR

Managing payroll can be complex and time-consuming, but it doesn’t have to be. ElevateHR offers payroll automation and outsourcing services designed to simplify payroll management and ensure full compliance with Kenyan regulations. Let us handle the complexities so you can focus on growing your business.