If you have ever looked at your payslip and wondered why your take-home pay is so much less than your gross salary — this guide explains everything.
What is PAYE?
PAYE stands for Pay As You Earn. It is a system where your employer deducts income tax from your salary every month before paying you. The employer then sends that tax directly to the Kenya Revenue Authority (KRA) on your behalf.
You never touch the tax money — it is deducted at source. This is why your gross salary (what your contract says) is always higher than your net salary (what arrives in your bank account).
The Four Deductions on Every Kenyan Payslip
In 2026, every formal employee in Kenya has four mandatory deductions:
| Deduction | Rate | Who gets it |
|---|---|---|
| PAYE Tax | Progressive (10%–35%) | Kenya Revenue Authority |
| SHIF | 2.75% of gross salary | Social Health Authority |
| NSSF | 6% (Phase 4 rates) | National Social Security Fund |
| Housing Levy | 1.5% of gross salary | Affordable Housing Programme |
What is SHIF? (It Replaced NHIF)
Many Kenyans still look for NHIF on their payslips. NHIF no longer exists. It was replaced by the Social Health Insurance Fund (SHIF) in October 2024, administered by the Social Health Authority (SHA).
The biggest change: NHIF used fixed bands (e.g. KES 1,700/month for high earners). SHIF is a flat 2.75% of your gross salary with no upper cap and a minimum of KES 300/month.
Example: If you earn KES 52,500/month:
- Old NHIF: KES 1,200 (fixed band)
- New SHIF: 52,500 × 2.75% = KES 1,444
NSSF Phase 4 — What Changed in February 2026
The NSSF Act 2013 introduced a phased increase in pension contributions. From February 2026, the rates are:
- Tier I: 6% of the first KES 9,000 = KES 540
- Tier II: 6% of earnings between KES 9,001 and KES 108,000
Example: For a KES 52,500 salary:
- Tier I: 6% × 9,000 = KES 540
- Tier II: 6% × (52,500 − 9,000) = 6% × 43,500 = KES 2,610
- Total NSSF: KES 3,150
This is significantly higher than the old rates (which were as low as KES 200/month). Many employees were surprised by this increase in early 2026.
How PAYE Tax is Calculated — Step by Step
PAYE is calculated on your taxable income, not your gross salary. Taxable income is your gross salary after deducting NSSF, SHIF, and Housing Levy.
Step 1 — Calculate pre-tax deductions
For a gross salary of KES 52,500:
- NSSF: KES 3,150
- SHIF: KES 1,444
- Housing Levy: KES 788
- Total pre-tax deductions: KES 5,382
Step 2 — Calculate taxable income
KES 52,500 − KES 5,382 = KES 47,118
Step 3 — Apply KRA tax bands
| Band | Income range | Rate | Tax |
|---|---|---|---|
| 1 | KES 0 – 24,000 | 10% | KES 2,400 |
| 2 | KES 24,001 – 32,333 | 25% | KES 2,083 |
| 3 | KES 32,334 – 47,118 | 30% | KES 4,435 |
| Total | KES 8,918 |
Step 4 — Subtract personal relief
Every Kenyan employee gets a personal relief of KES 2,400/month (KES 28,800/year). This is a fixed reduction in your PAYE tax.
KES 8,918 − KES 2,400 = KES 6,518 PAYE tax
Step 5 — Calculate net salary
| Item | Amount |
|---|---|
| Gross Salary | KES 52,500 |
| Less: NSSF | − KES 3,150 |
| Less: SHIF | − KES 1,444 |
| Less: Housing Levy | − KES 788 |
| Less: PAYE Tax | − KES 6,518 |
| Net Salary | KES 40,600 |
Use Our Free PAYE Calculator
Rather than doing these calculations manually every month, use our free PAYE calculator. It applies all 2026 rates automatically and gives you an instant breakdown.
→ Try the Kenya PAYE Calculator
Why Does My Payslip Show a Different Amount?
If your payslip shows a different net salary, it is likely because of additional deductions your employer makes that our calculator does not include:
- HELB loan repayments — if you have a government student loan
- Salary advances — if you borrowed from your employer
- Company SACCO contributions — voluntary pension top-ups
- Medical cover — if your employer deducts medical insurance premiums
These are personal deductions that vary per employee and are not part of the statutory calculation.
Summary
Understanding your payslip is not complicated once you know the four deductions. In 2026:
- SHIF replaced NHIF at 2.75% of gross — higher for most earners
- NSSF Phase 4 increased pension contributions significantly
- Housing Levy at 1.5% is relatively new, introduced in 2023
- PAYE is calculated after all three of the above are deducted
Use our free PAYE calculator to see your exact numbers instantly.