PAYE (Pay As You Earn)
Income tax deducted from employment earnings. Understanding your obligations and calculating your tax liability with Kenya's most comprehensive PAYE guide.
What is PAYE?
Understanding Pay As You Earn Tax
PAYE (Pay As You Earn) is a method of collecting income tax from employees' salaries and wages. It's deducted by employers monthly and remitted to KRA by the 9th of the following month. This system ensures continuous tax collection and reduces the burden of annual lump-sum payments.
Who Pays PAYE?
All employees earning more than KSh 24,000 annually are subject to PAYE. This includes permanent employees, casual workers, and contract staff receiving regular payments.
When is it Paid?
PAYE is deducted monthly from your salary and must be remitted to KRA by your employer by the 9th of the following month via the iTax portal.
Progressive Tax Rates
Progressive rates from 10% to 35% based on income bands. Higher earners pay higher rates on income above each threshold, ensuring fairness.
Available Reliefs
Personal relief of KSh 2,400 per month (KSh 28,800 annually) plus deductions for pension contributions, insurance premiums, and other allowable items.
PAYE Tax Rates 2024
Progressive tax bands and current rates
| Annual Income Band (KSh) | Monthly Income Band (KSh) | Tax Rate | Max Annual Tax (KSh) |
|---|---|---|---|
| Up to 288,000 | Up to 24,000 | 10% | 28,800 |
| 288,001 - 388,000 | 24,001 - 32,333 | 25% | 53,800 |
| 388,001 - 6,000,000 | 32,334 - 500,000 | 30% | 1,737,400 |
| 6,000,001 - 9,600,000 | 500,001 - 800,000 | 32.5% | 2,907,400 |
| Above 9,600,000 | Above 800,000 | 35% | Above 2,907,400 |
Important Notes on Tax Calculation
- Personal Relief: KSh 2,400 per month reduces your final tax liability
- Cumulative System: Tax is calculated on a cumulative basis throughout the year
- Additional Reliefs: Pension contributions, insurance premiums, and HOSP qualify for relief
- Rate Updates: Tax rates are reviewed annually during budget presentations
PAYE Compliance Guide
Step-by-step process for employers and employees
For Employers
Register for PAYE
Register your business for PAYE with KRA and obtain a PAYE number. This is mandatory before hiring your first employee earning above the threshold.
Calculate Monthly PAYE
Calculate PAYE for each employee using progressive tax rates, considering gross salary, benefits, and allowable deductions.
Deduct from Salaries
Deduct the calculated PAYE amount from each employee's monthly salary before making payment and provide detailed payslips.
File Monthly Returns
Submit P9A returns and remit collected PAYE to KRA by the 9th of the following month via iTax portal.
Issue Annual P9 Forms
Provide employees with P9 forms showing annual earnings and tax deducted by 31st January of the following year.
For Employees
Obtain KRA PIN
Register for a KRA PIN if you don't have one. Provide this to your employer for proper tax compliance and reporting.
Monitor Deductions
Check your payslip monthly to ensure correct PAYE deductions. Report any discrepancies to your employer or directly to KRA.
Keep Proper Records
Maintain records of P9 forms, payslips, and any additional income sources for annual tax filing requirements.
File Annual Returns
If you have additional income sources beyond employment, file annual income tax returns by 30th June of the following year.
Common PAYE Issues & Solutions
Avoid these common mistakes and penalties
Late Filing
Filing P9A returns after the 9th of the month attracts penalties of 25% of the tax due or KSh 10,000, whichever is higher, plus interest.
Solution: Set up automatic calendar reminders and file by the 5th to allow processing time.
Incorrect Calculations
Using wrong tax bands, forgetting personal relief, or miscalculating allowable deductions leads to compliance issues and employee dissatisfaction.
Solution: Use our verified calculator or KRA's official PAYE calculator for accuracy.
Missing P9 Forms
Not issuing P9 forms to employees by 31st January affects their ability to file annual returns and may result in penalties for employers.
Solution: Generate and distribute P9 forms automatically through payroll systems by mid-January.
Unregistered Employees
Deducting PAYE for employees without valid KRA PINs creates compliance issues and may result in rejected returns.
Solution: Verify all employee KRA PINs before processing first payroll and assist with registration.
Frequently Asked Questions
Common PAYE questions answered by experts
What is the minimum income threshold for PAYE in Kenya?
PAYE applies to all employees earning more than KSh 24,000 annually (KSh 2,000 monthly). Below this threshold, no tax is payable, but the employee should still be registered for tax purposes and issued with payslips.
Can I claim additional reliefs beyond the standard personal relief?
Yes, you can claim reliefs for pension contributions (up to KSh 240,000 annually), life insurance premiums (up to KSh 60,000 annually), HOSP contributions, and mortgage interest on owner-occupied residential houses, subject to specific conditions outlined in the Income Tax Act.
What should I do if my employer doesn't deduct PAYE correctly?
You remain personally liable for the correct tax amount. Report the issue to your employer immediately and to KRA if necessary. You may need to pay the shortfall directly and file annual returns to regularize your position. Keep all documentation for evidence.
How is PAYE calculated for employees with variable income?
For employees with variable income (commissions, bonuses), PAYE is calculated on cumulative earnings using the appropriate tax bands. The employer should average the income over the year or use KRA's guidelines for handling irregular payments to ensure accurate tax deduction.
Can I get a refund if excess PAYE was deducted from my salary?
Yes, if excess tax was deducted, you can claim a refund by filing annual income tax returns with supporting documents (P9 form, payslips). KRA will process the refund after verification, which typically takes 30-90 days depending on the complexity of your case.
Are benefits in kind subject to PAYE, and how are they taxed?
Yes, most benefits in kind are subject to PAYE. These include housing benefits, car benefits, medical insurance (above exempt limits), school fees, and other perquisites. The taxable value is determined using KRA's prescribed methods and rates, which are added to your cash salary for PAYE calculation.