PAYE (Pay As You Earn) is income tax deducted by an employer and remitted to KRA every month. Most confusion comes from one detail: PAYE is not charged directly on gross salary. It is charged on taxable pay, which is gross salary after allowable deductions such as NSSF employee contribution.
Step 1: Start with gross salary
Gross salary is the contractual salary before statutory deductions. It may include basic salary and taxable allowances.
Step 2: Compute taxable pay
For most payroll setups, taxable pay is gross salary less NSSF employee contribution. SHIF and Housing Levy do not reduce PAYE taxable pay in the same way NSSF does.
Step 3: Apply PAYE bands progressively
Kenya applies a progressive rate system. You do not pay one rate on all income. Each portion is taxed at its own band.
| Taxable Income Portion | Rate |
|---|---|
| First KES 24,000 | 10% |
| KES 24,001 to KES 32,333 | 25% |
| KES 32,334 to KES 500,000 | 30% |
| KES 500,001 to KES 800,000 | 32.5% |
| Above KES 800,000 | 35% |
Step 4: Subtract reliefs
After gross PAYE is computed from the bands, monthly personal relief (currently KES 2,400) is subtracted to get final PAYE payable.
Worked example (gross KES 80,000)
If NSSF is KES 4,320, taxable pay is KES 75,680. Apply each band progressively, total the band tax, then subtract KES 2,400 personal relief. The result is the PAYE deduction for that month.
Why this matters for accuracy
Even a small PAYE error compounds over many employees and payroll periods. Accurate PAYE protects employees from unexpected arrears and protects employers from compliance penalties. If your payslip line items do not match this flow, review your payroll rules immediately.