What are Statutory Deductions?
When you receive your salary, the amount in your bank is less than your gross salary because the law requires certain deductions. These are called statutory deductions, which are mandatory contributions for tax, health, retirement, housing, and training.
This guide breaks down PAYE, NSSF, SHIF, AHL, NITA, HELB, and Tax Relief in simple terms so that so that you can clearly understand your pay slip.
What is PAYE?
PAYE is income tax.
Think of it like this: When you earn money, the government takes a small portion to fund public services and amenities like roads, hospitals, schools, and security.
Instead of waiting for you to pay tax at the end of the year, the government takes it monthly, directly from your salary.
Who pays PAYE?
Technically, PAYE applies to all employees earning taxable employment income. Employers are required to deduct PAYE from an employee’s taxable pay and remit it to the Kenya Revenue Authority (KRA). However, individual resident employees are entitled to a statutory personal relief of KSh 2,400 per month (KSh 28,800 per year). This relief is deducted from the gross tax calculated under the applicable graduated tax bands.
As a result, employees whose taxable monthly income falls within the lowest tax band may have their entire tax liability offset by the personal relief, meaning no PAYE would ultimately be payable at that income level.
- How PAYE is calculated (simple idea)
- Look at your taxable pay (salary + taxable allowances)
- Apply tax bands (higher pay = higher tax rate)
- Subtract personal relief
- What remains is PAYE
What is a Tax Relief?
Relief is a is a statutory deduction that reduces the amount of tax payable by a taxpayer. It does not reduce income — instead, it reduces the tax calculated on that income.
Think of it like this: The government says, “We won’t tax all your income. We will reduce your tax by a small amount to make life easier for you.” The current personal tax relief is Ksh 2,400 per month, which totals to Ksh 28,800 per year. In April 2020, the government increased personal relief from Ksh 1,408 to Ksh 2,400 per month as a primary component of the Tax Laws (Amendment) Act, 2020. The government implemented this measure specifically to cushion Kenyan citizens and businesses from the adverse economic effects of the COVID-19 pandemic.
Even though some of the “Covid-19 emergency” tax measures were reversed on January 1, 2021, the Ksh 2,400 monthly personal relief and the Ksh 24,000 tax-free threshold were retained to provide permanent support for low-income earners.
NSSF
In simple terms, think of the National Social Security Fund (NSSF) as a ”forced piggy bank” run by the Kenyan government to ensure you don’t retire into poverty.
What is it?
NSSF is a mandatory savings scheme for every worker in Kenya. Its main job is to collect a small portion of your salary every month, keep it safe, and grow it so that when you are too old to work, you have a “bag of money” waiting for you.
How does it work?
It’s a partnership between you and your boss:
- You contribute: A small percentage (currently 6%) is chopped from your gross salary.
- Your boss matches it: Your employer is legally required to add an equal amount from their own pocket.
- The “Double” Effect: If Ksh 1,000 is deducted from your pay, your employer adds another Ksh 1,000. That means Ksh 2,000 goes into your NSSF account every month.
- The Scheme also allows for Voluntary contribution from employees or anyone not employed.
Why do we have it?
Most people find it hard to save for 30 years into the future. The government makes it mandatory for the following reasons:
- Retirement: You have a pension or a lump sum to live on when you hit 60.
- Disability: If you get an injury and can no longer work, NSSF provides a “safety net” payment.
- Survivors: If a worker passes away, their family (spouse or children) can claim the saved money.
- Funeral Grant: It provides a small immediate payment to help families with burial costs.
4.Recent Changes (The “Tier” System) – Lower Earning Limit and Upper Earning Limit
Think of these limits as the “Floor” and the “Ceiling” of your retirement savings bucket. They decide which part of your salary is used to calculate that 6% deduction.
Here is the simplest way to look at it:
- Tier I- The Lower Earnings Limit (The Floor)
This is the minimum amount the government says every worker should be saving on.
- Effective February 2026 payroll, the Tier I limit increases from Ksh 8,000 to Ksh 9,000. This results in a Tier I monthly contribution of KSh 540 for the employee and KSh 540 for the employer (6% of KSh 9,000).
- The Math: 6% of Ksh 9,000 is Ksh 540.
- Even if you earn Ksh 100,000, that first “slice” of Ksh 9,000 is handled separately. Everyone (earning above 9k) pays this Ksh 540 into the main NSSF pot with employer matching the same contribution, bringing the total of Tier I NSSF contribution for both employer and employee to Ksh. 1,080.
2. Tier II- The Upper Earnings Limit (The Ceiling)
This is the maximum amount of your salary that the government is allowed to “touch” for pension.
- The Rule: Effective February 2026 payroll, the “Ceiling” will be Ksh 108,000 up from KSh 72,000 in 2025.
- This expands the pensionable earnings band subject to 6% employee and 6% employer contributions.
- The Math: If you earn Ksh 200,000, the government ignores anything above the ceiling. They only calculate the 6% deduction on the money between the floor (9k) and the ceiling (108k).
- It’s a cap. It prevents the deduction from becoming too huge for people with very high salaries.
Decoding the Math: The “Floor” and the “Ceiling”
Example;
- The Floor (Tier I): The Foundation
The government mandates that the first Ksh9,000 of every worker’s salary is treated as the base of their pension. Regardless of whether you earn Ksh 15,000 or Ksh 150,000, 6% of this first slice (Ksh 540) goes into your Tier I savings. - The Ceiling (Tier II): The Capped Top-Up
This is where the math changes for middle and high earners. For 2026, the government has set a “pensionable ceiling” of Ksh108,000. This means the NSSF only calculates deductions on the money between the 9,000 floor and the 108,000 ceiling.
The “Subtraction Rule”
To find your Tier II deduction, you simply subtract the 9,000 floor from your gross salary and multiply the remainder by 6%.
However, there is a catch for high earners: Tier II is strictly capped at Ksh 5,940.
Why the Cap Matters
For instance, if you earn a gross of Ksh 150,000, your NSSF deduction doesn’t keep growing with your salary. Since your pay exceeds the 108,000 ceiling, your Tier II bucket is considered “full.”
- Your Tier I: Ksh 540
- Your Tier II: Ksh 5,940 (The Absolute Maximum)
- Your Total Deduction: Ksh 6,480
Even if your salary doubles tomorrow, your Tier II contribution will remain locked at Ksh 5,940 until the next government review in 2027. This ensures that while you save more as you earn more, your take-home pay is protected once you hit the high-earner bracket.
While the NSSF is a mandatory “locked box” for almost every worker in Kenya, there are specific groups who are legally excused;
- Students and Interns: A person is exempt if they are under 18 years old, in full-time education or training (like an apprentice), and do not earn enough to fully support themselves under the NSSF Act 2013.
- Retirees: Once you reach the pensionable age (currently 60) or have already withdrawn your age/retirement benefits, you stop contributing to the fund.
- Persons with Permanent Disabilities: Individuals certified as permanently incapable of working due to physical or mental disability are exempt from further contributions and can instead apply for an “Invalidity Benefit’’.
- Diplomatic Staff: Employees of foreign missions and international organizations (like the UN) often have their own separate social security arrangements and do not pay into the Kenyan NSSF.
- Expatriates (Short-term Non-Residents): Foreign workers are exempt if they are in Kenya for less than three years, provided they are already contributing to a social security scheme in their home country that the Kenyan government has officially approved.
The Big Shift: From NHIF to SHIF
- For decades, Kenyans used the National Hospital Insurance Fund (NHIF). However, in late 2024, the government phased it out in favour of the Social Health Insurance Fund (SHIF).
- The Difference: NHIF used “brackets” (where you paid a fixed amount based on your salary range). SHIF is simpler but can be more expensive for middle and high earners.
- The Calculation: Every month, 2.75% of your gross salary is deducted and paid to SHIF.
- The Floor: There is a minimum contribution of Ksh 300, even for those with very low or no income.
- The Goal: Unlike NHIF, which often focused on hospital beds, SHIF is designed to cover everything from local clinic visits to emergency care and chronic illnesses like cancer.
Affordable Housing Levy: Building Your Future
Introduced to fund the government’s ambitious housing project, this levy is now a permanent fixture on Kenyan pay slips.
- The Rate: Both you and your employer contribute 1.5% of your gross salary.
- No Ceiling: Unlike NSSF, there is no upper limit for the Housing Levy. If you earn Ksh 1,000,000, you pay 1.5% of that entire million.
- Tax Benefit: Since December 2024, this deduction is tax-deductible, meaning it slightly lowers the amount of PAYE you owe.
NITA: The “Invisible” Deduction
You might not see this one on your side of the payslip, but your employer definitely does. The National Industrial Training Authority (NITA) levy is a small fee paid by the employer to ensure the Kenyan workforce stays skilled.
- The Cost: It is a flat rate of Ksh 50 per employee per month.
- Crucial Rule: By law, this money must NOT be deducted from the employee’s salary. Your employer pays this entirely from their own pocket.
- The Purpose: This fund is used to reimburse employers for training their staff and to fund technical colleges (TVETs) across the country.
HELB
What is HELB?
Think of it like this:
When you were in university or TVET and needed help paying tuition or upkeep, the government (through HELB) gave you a loan, and now that you are working, the law requires your employer to deduct your monthly repayment directly from your salary and remit it to HELB.
Why is HELB deducted from your salary?
- You benefited from a government student loan
- The loan must be repaid once you are employed
- Employers are legally required to deduct and remit it
What must employers do?
Employers have three legal obligations to HELB:
- Disclose – Inform HELB when they hire someone who has a HELB loan.
- Deduct – Subtract the correct monthly repayment from the employee’s salary.
- Discharge – Remit the deducted amount to HELB by the 15th of the following month.
If an employer fails to remit on time, a 5% penalty per month is charged on the unpaid amount.
If you have any questions or need guidance on payroll matters, don’t hesitate to contact our HRFLEEK team, and we will provide you with clear, step-by-step assistance to help you understand your payslip, statutory deductions, and all related processes.
Contact Person & Contributor: Mary Muthoni Mwangi – HR Associate
Email: mmwangi@hrfleek.com
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