LEGAL CONSEQUENCES OF NON-REMITTANCE OF STATUTORY DEDUCTIONS IN KENYA
Introduction
In our previous article, we examined the key components of a standard payslip and how statutory deductions affect an employee’s final dues.
A more serious issue arises where statutory deductions are made but not remitted to the relevant authorities. At that point, the issue moves from being an administrative process and becomes a statutory breach with financial and, in some cases, criminal consequences.
As earlier discussed, in Kenya, six principal statutory deductions apply to employment income:
- Pay As You Earn (PAYE)
- National Social Security Fund (NSSF)
- Social Health Insurance Fund (SHIF)
- Affordable Housing Levy (AHL)
- National Industrial Training Authority (NITA) Levy
- Higher Education Loans Board (HELB)
Although they appear together on a payslip, each is governed by a different statute and regulatory framework. What they share is this: once deducted, the sums are held for the benefit of a statutory body and must be remitted within prescribed timelines, typically on or before the 9th day of the following month.
Failure to remit exposes employers to penalties, interest, enforcement action, and reputational risk.
- PAYE (Income Tax)
PAYE is governed by the Income Tax Act (Cap 470) and the Tax Procedures Act (Cap 469B) and is regulated by the Kenya Revenue Authority (KRA).
It applies to all employment income derived in Kenya by both residents and non-residents. Taxable income is broadly defined and includes salary, wages, leave pay, bonuses, commissions, gratuities, allowances, overtime, pension, and non-cash benefits exceeding Kshs. 5,000.
PAYE is computed using graduated tax bands ranging from 10% to 35%.
Importantly, PAYE is not matched by the employer. It is entirely borne by the employee. The employer’s obligation is to deduct the correct amount and remit it to KRA, together with filing a monthly PAYE return through iTax by the 9th of the following month.
Consequences of Non-Compliance
Where an employer fails to deduct, account for, or remit PAYE, the law imposes:
- A penalty of 25% of the tax due or Kshs. 10,000, whichever is higher;
- A late payment penalty of 5% of the tax due; and
- Interest at 1% per month (or part thereof) on the unpaid amount until it is settled in full.
Directors and officers of a corporate body that fails to remit deducted tax may also face personal liability, including fines ranging from Kshs. 10,000 to Kshs. 200,000, or imprisonment for up to two (2) years, or both.
For employers, persistent non-compliance affects their tax compliance status (preventing the issuance of a Tax Compliance Certificate) and may trigger enforcement measures by KRA. For employees, unremitted PAYE can compromise their tax records and potentially hinder their access to a Tax Clearance Certificate and financial services such as loans.
2. NSSF Contributions
NSSF is a mandatory retirement savings scheme governed by the NSSF Act, 2013. Contributions are calculated in accordance with the Third Schedule of the Act and are progressively implemented.
Unlike PAYE, NSSF contributions are matched by the employer. Both the employer and employee contribute based on statutory earning limits. From February 2026, each party will remit up to Kshs. 6,480 per month, bringing the total maximum contribution to Kshs. 12,960.
Contributions must be remitted on or before the 9th of the following month.
Consequences of Default
An employer who fails to remit contributions on time is liable to a penalty of 5% of the unpaid amount for each month of default until payment is made.
Where an employer deliberately evades remittance, this constitutes an offence and may attract additional liability, including payment of arrears plus interest at prevailing bank rates.
Non-remittance also prevents the employer from obtaining an NSSF Compliance Certificate, which is often required in government and private-sector tenders. It may also lead to enforcement action by NSSF Board of Trustees or the Retirement Benefits Authority.
For employees, failure to remit contributions undermines retirement savings leading to lower returns. It may also delay or restrict access to benefits, while also depriving them of accrued interest.
3. SHIF Contributions
SHIF, established under the Social Health Insurance Act, 2024, replaced NHIF and provides mandatory health insurance coverage.
Contributions are calculated at 2.75% of an employee’s gross salary, subject to a minimum of Kshs. 300 per month. Unlike the old NHIF which capped the maximum contribution at Kshs. 1,700, SHIF has no upper limit.
SHIF contributions are not matched by the employer. However, the employer is responsible for deducting and remitting the employee’s contribution to the Social Health Authority (SHA) by the 9th of the following month.
Consequences of Non-Remittance
Late payment attracts a penalty of 2% of the unpaid amount.
Failure to remit contributions constitutes an offence and may result in a fine of up to Kshs. 2 million, imprisonment for up to three (3) years, or both.
For employees, the impact is immediate and practical; access to healthcare services is suspended until all outstanding contributions and penalties are cleared.
4. Affordable Housing Levy (AHL)
AHL was introduced under the Affordable Housing Act, 2024 as part of the government’s housing development agenda.
Both employer and employee are required to contribute 1.5% of the employee’s gross monthly salary, bringing the total contribution to 3%.
The levy is declared in the monthly PAYE return (Form P10) and remitted to KRA through iTax by the 9th of the following month.
Failure to remit by the due date attracts a penalty of 3% per month on the unpaid amount.
5. National Industrial Training Authority (NITA)
The NITA levy is an industrial training tax governed by the Industrial Training Act and administered through KRA.
All employers are required to register and pay the levy at a rate of Kshs. 50 per employee per month, including casual workers. Employers with fewer than 100 employees are exempt during their first year of operation.
The levy is paid solely by the employer and must not be deducted from an employee’s salary. It is remitted via iTax under agency revenue and declared in the monthly PAYE return, on or before the 9th day of the following month.
Failure to pay the levy attracts a penalty of 5% of the amount due, and continued non-compliance is an offence which can lead to a fine of up to Kshs. 100,000.
6. Higher Education Loans Board (HELB)
HELB is a statutory body established under the Higher Education Loans Board Act, 1995, which manages a Fund used for granting loans to assist Kenyan students to obtain higher education at recognized institutions within and outside Kenya.
Every employer is required to:
- Notify HELB in writing within three (3) months of hiring a loan recipient. Failure to notify is an offence attracting a fine of up to Kshs. 3,000 for each month of default;
- Deduct the prescribed loan repayment amount from the employee’s salary and remit the amount to HELB by the 15th day of the following month.
If an employer fails to deduct a loan repayment, or deducts it but does not remit it to HELB on time, a penalty of 5% of the total repayment amount is charged for every month (or part of a month) that the amount remains unpaid.
In a memo issued in December 2025, HELB instructed employers to actively implement deductions from loan defaulters in line with the Act. The memo also attached a repayment plan for the deductions, which vary depending on the employee’s salary.
In pursuing loan recovery, HELB cannot require an employer to deduct more than one quarter of the employee’s basic monthly salary.
Can Employees Recover Unremitted Deductions?
A recurring question is whether an employee can claim a refund where statutory deductions were made but not remitted.
The consistent position of the Employment and Labour Relations Court (ELRC) is that statutory deductions are payable to the relevant statutory body, not to the employee.
In Sammy Gitau Ndiiro & 2 others v Golden Cara Investment Limited [2020] eKLR, and Ronald Nyambu Daudi v Tornado Carriers Limited [2019] [2019] KEELRC 2150 (KLR), the ELRC held that unremitted NSSF dues are payable to the statutory body, not the employee.
In Hassanath Wanjiku v Vanela House of Coffee [2018] eKLR, the ELRC held that if an employer fails to remit statutory deductions, the employee would still not be entitled to any refund as statutory bodies have administrative structures to enforce compliance by defaulting employers.
In Fernandes v Lordship Africa Group of Companies & 12 others [2025] KEELRC 3649 (KLR), the Court reiterated that claims relating to tax penalties must be pursued in accordance with the applicable tax legislation.
The only exception is Service Pay which is a statutory benefit provided under Section 35(5) & (6) of the Employment Act where the employee was not a member of NSSF.
Conclusion
Non-remittance of statutory deductions is not a minor payroll oversight. Once deducted, these sums do not become the employer’s funds but are statutory trust monies payable to designated public bodies.
Failing to remit exposes employers to significant risk, including escalating penalties and interest, enforcement and recovery actions, and in some cases, criminal prosecution. Employees are also not insulated from the consequences as non-compliance may lead to disruption in access to healthcare, compromised retirement savings, and complications in tax compliance which can occasion serious hardship to them.
It is therefore critical that payroll compliance be treated as a core legal obligation as its breach carries direct financial, operational, and reputational consequences that extend well beyond the payroll function.
Contact Person & Contributor: Isabel Gakuo – Employment Law Associate
Email: igakuo@hrfleek.com
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