What is PAYE (Pay As You Earn)?

PAYE is a process of collecting tax from salaried individuals in Kenya. Pay As You Earn (PAYE) is the mandatory tax levied on all employees’ income. In Kenya, the government manages the PAYE tax through the Kenya Revenue Authority (KRA), which collects the statutory contributions from the employer, before salary and wages are paid to the employee. This income tax applies to all employees, permanent, temporary, full time and part time except for the employment that is not longer than 1 month. The income in reference to estimate the tax includes wages, casual wages, salary, leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, gratuity, or subsistence, travelling, entertainment or other allowance received in respect of employment or services rendered. Casual employment may be referred to as that which is not longer than one month with any one employer and is not regular in nature. It is the employer’s statutory duty to deduct income tax from the pay of his employees whether or not he has been specifically told to do so by the Department. The normal PAYE year runs from 1st January to 31st December, it is filed and remitted monthly by the employer.

Download Kenyan Payroll Software for PAYE calculation!

Download

PAYE Calculation Slab

PAYE income tax calculation is based on the tax slab split income wise. It’s a progressive slab system. Employees with higher wages are obliged to pay more than the employees who earn less. The total taxable income of employee is split in brackets as defined in the slab (0-12,298 | 12,298-23,885 etc). Amount applicable in each tax bracket attracts the corresponding percentage of tax and the total is summed at last the tax liable. The current tax slab applicable for PAYE caculation is provided below:

Calculation of PAYE

Gross Income = Basic Salary + Allowances + Commissions + Other Emoluments
Taxable Income = Gross Income – all deductions/exemptions allowed by law e.g. NSSF, private pension
Taxable income obtained after step 2 must be applied to the tax slab.
Total PAYE tax = Sum of the marginal taxes from step 3
Tax Payable = Total PAYE – Total Relief e.g. Personal Relief, Insurance Relief

Tax Relief

In Kenya, tax relief is granted on a monthly basis. There are basically two types of tax relief: personal relief and insurance relief.

Peronal Relief

Every resident individual is entitled to a personal relief of Ksh. 16,896 per annum (Kshs.1,408 per month). Personal relief represents the amount which can be deducted by an eligible person from tax payable by him. When an employee has multiple employers, he is entitled to a relief from only one employer (Income Tax Act, section 30).

Insurance Relief

Premiums paid for education policy, health policy or life insurance can be deducted from tax payable, provided that the employee has proof of the payment to the policy. If the policy is surrendered before its maturity all the relief granted to the policy holder is repayable to KRA. The deduction for the insurance relief is at a 15% of premiums paid subject to a maximum KES 5,000 per month and/or KES 60,000 per annum (Income Tax Act, section 31).

Insurance relief applies to the following policies: