Statutory Deductions in Kenya

Statutory deductions in Kenya refer to mandatory contributions that employers are legally required to withhold from their employees’ salaries and remit to various government agencies. These deductions are established under Kenyan law and are designed to fund essential public programs such as social security, health insurance, taxation, and retirement benefits.

Every salaried employee in Kenya is subject to statutory deductions, which are calculated based on gross earnings. These deductions reduce an employee’s salary from the gross amount to the net pay they receive. Common statutory deductions in Kenya include PAYE (Pay As You Earn), NHIF (National Hospital Insurance Fund), NSSF (National Social Security Fund), and Housing Levy, among others.

The primary purpose of statutory deductions is to support national welfare systems, including healthcare, pension schemes, and unemployment safety nets. While these contributions may slightly vary depending on an employee’s income level or job category, they are a legal obligation and must be accurately processed by every employer.

At Junyan and Associates, we assist businesses across Kenya in correctly calculating, processing, and remitting statutory deductions—ensuring compliance with all relevant employment and tax regulations.

Common Statutory Deductions in Kenya

Mandatory deductions are legal requirements, and failure to register, deduct, and remit those to the relevant authorities attracts penalties and interest, resulting in additional costs for businesses or individuals and affecting compliance status. Employees have the option to opt out of any voluntary deductions at any time, but they must adhere to the deadlines and conditions specified in the arbitration agreement, court order, or law agreement. Among the fundamental statutory deductions are:

Here are the key statutory deductions that employers must deduct from employees’ salaries and remit to the relevant authorities:

1. PAYE (Pay As You Earn)
   • Income tax deducted from an employee’s gross salary.
   • Remitted to the Kenya Revenue Authority (KRA).
2. NSSF (National Social Security Fund)
   • A pension scheme contribution aimed at providing social security to workers.
   • Both employee and employer contribute.
3. NHIF (National Hospital Insurance Fund)
   • Health insurance contribution.
   • Deducted from the employee’s gross salary.
4. NITA (National Industrial Training Authority)
5. Other sector-specific deductions
   • E.g., HELB loan recovery, union dues, SACCO contributions, etc.

How are statutory salary deductions in Kenya calculated?

While every country requires certain statutory deductions to be made from an employee’s salary, the regulations vary widely. Income tax withholding is a key component of statutory salary deductions and is calculated based on an employee’s earnings and tax status. That said, there is usually some form of income tax every employee is required to pay as well as a contribution to social security. The following are how the statutory deduction are executed from employee’s salary.

 PAYE (Pay As You Earn)

• Applied to taxable income after allowable deductions (e.g. pension, SHIF, housing levy). Progressive monthly tax bands:

Portion of Taxable Income	Tax Rate
First Ksh 24,000	10%
Next Ksh 8,333	25%
Next Ksh 467,667	30%
Next Ksh 300,000	32.5%
Above Ksh 800,000	35%

National Hospital Insurance Fund (NHIF)

 The Kenyan law provides for the creation of a National Hospital Insurance Fund; to provide for contributions to and the payment of benefits out of the fund.

Any person deriving his/her income in Kenya from salaried employment is liable to a standard contribution or a person who derives income from self.

Employers deduct from the employee’s income and remit to NHIF. This contribution is usually graduated with a minimum of Kes 500 and a maximum of Kes 1,700 per employee earning Kes 100,000 every month. However, we should take note of a 15% Insurance relief that was introduced by the Finance Act 2021 and took effect on 1st of January, 2023. Insurance relief is calculated as follows:

Insurance Relief = 15% (Insurance Premiums + NHIF Contributions) 

But this relief shall not exceed Kshs. 5,000.00 per month or Kshs. 60,000.00 per year.

The NHIF Cover acts as a medical insurance cover that enables you and your family to enjoy an unparalleled benefit package.

By enrolling in an NHIF accredited facility, upgrading in your NHIF cover, taking advantage of NHIF discounts and maintaining a healthy lifestyle, maximize your NHIF benefits and ensure you have access to quality healthcare services.

National Social Security Fund (NSSF)

The NSSF is Kenya’s statutory pension and provident fund, established under the NSSF Act of 2013. It’s designed to provide retirement savings and related benefits to both formal and informal sector workers. Membership is mandatory for employers and employees, though self-employed individuals can opt in

Kenya’s NSSF operates on a two-tier system, based on pensionable income limits:

Tier	Earnings Covered	Employee Rate	Employer Match	Total per Tier
I	First KSh 8,000	6% = KSh 480	6% = KSh 480	KSh 960
II	KSh 8,001 – KSh 72,000	6% of range	6% of range	KSh 7,680
Total Max	Up to KSh 72,000	KSh 4,320	KSh 4,320	KSh 8,640

• Tier I: 6% of the first KSh 8,000 → KSh 480 each for employee and employer.
• Tier II: 6% of the balance up to KSh 72,000 (i.e., max KSh 64,000) → KSh 3,840 each Max deductions: KSh 4,320 per person per month, totaling KSh 8,640 between employee and employer.

Since the enactment of the NSSF Act No. 45 of 2013 in December 2013, there have been legal challenges regarding the new NSSF rates.

However, in February 2023, the Court of Appeal determined that the Employment and Labor Relations Court (ELRC) erred in declaring the Act illegal, as only the High Court has the authority to make such a ruling.

Consequently, the Act is now legal and enforceable. Under the Act, employees earning less than Ksh 6,000 have a lower earnings limit (LEL), while those earning Ksh 18,000 or more have an upper earnings limit (UEL).

Monthly matching contributions from both employees and employers have increased from the current Ksh 400 to 12% of an employee’s monthly pensionable income (6% each from the employee and the employer).

With a maximum contribution of Ksh 2,160 for workers earning more than Ksh 18,000 per month.

Employee contributions are deducted directly from their salaries, and employer contributions are made directly by the employer.

National Industrial Training Authority (NITA)

NITA is the Kenyan state corporation overseeing industrial and vocational training, created under the Industrial Training (Amendment) Act of 2011. Its mission is to promote high standards in industrial training and ensure a skilled workforce across sectors.

Changes under the Industrial Training (Amendment) Act, 2022 .The Act was passed on 4th April 2022 with an effective date of 22nd April 2022. It notably introduced the following changes to the principal Act:

Revenue Collection: The Commissioner-General of the Kenya Revenue Authority will be responsible for the assessment and collection of training levies from employers and shall exercise all the powers conferred under the Kenya Revenue Authority Act and Income Tax Act. 

Payment deadline for Training Levy: An employer shall pay the training levy to the Commissioner-General at the time when an employee’s salary is payable and shall be remitted to the Commissioner-General not later than the 5^th day of the month following the month in which the levy becomes due. Training levy shall not be deducted from the emoluments of the employee.

Compliance and Powers of enforcement: The Income Tax Act and the Kenya Revenue Authority Act shall apply in collection and enforcement of training levies. This includes payment and recovery of the levies and penalties, assessment of levy payable, filing of returns, furnishing of information and production of documents; and keeping of records. 

Housing Levy

The proposed housing levy under the Finance Bill seeks to deduct 3% from salaried employees. The bill proposes to introduce the contribution to the National Housing Development Fund by both the employer and the employee.

FAQs on Statutory Deductions in Kenya

Also Read:

• Tax Arbitration Services in Kenya