Employers in Kenya are required by law to withhold income tax and social security contributions from their employees’ salaries as part of the payroll process. These contributions are collected via the Pay As You Earn (PAYE) system, and then submitted to the Kenya Revenue Authority on a monthly basis.
Employers may provide online payslips to their employees, and must keep payroll reports for 7 – 10 years, depending on the type.
The regulations and guidelines surrounding payroll in Kenya come under the Income Tax Act (ITA), Social security and statutory Levies imposed by the following authorities:
- Kenya Revenue Authority (‘KRA’)
- National Social Security Fund (‘NSSF’)
- National Hospital Insurance Fund (‘NHIF’)
- Directorate of Industrial Training (‘NITA’)
The Tax Year in Kenya runs from January 01 to December 31. Income tax rates in Kenya vary by residency status i.e., non-residents pay tax only on income earned within Kenya, while residents pay on income earned worldwide.
The method of collecting tax at source from individuals in formal employment is called Pay As You Earn (PAYE). The employer deducts a certain amount of tax from the employee’s salary or wages on each payday and then remits the deductions to the KRA. It is the responsibility of the employer to ensure that taxes are deducted at the source and deposited with the KRA authorities monthly. Also, the employer needs to file a PAYE return (Form P10) by the ninth of the following month.
Social Security Contribution
Social security in Kenya is regulated and provided for under the NSSF Act and the NHIF Act, amongst others.
For NSSF, employees are required to contribute 5% of their salary up to a maximum of KES 200 per month while the employer contributes an equivalent amount for each employee.
The employer is obliged to deposit both employer and employee monthly contributions with the NSSF authorities and submit NSSF Return by the fifteenth of the following month.
Employees are also required to contribute to universal health coverage through the National Hospital Insurance Fund (NHIF) Individuals are required to contribute to NHIF on a rate between KES 150 per month to KES 1700 per month depending on the Gross pay. There is no employer contribution for NHIF. This is to be paid by the 9th of each month.
Late payment of any contribution attracts a penalty equal to five times the unpaid contribution.
Some of the key challenges that employers could face around payroll may include:
- Keeping track of regulatory changes to avoid hefty fines and reputational risk.
- Ensuring accuracy and confidentiality of employee information
- Scope for human error
- Irregular salary payment
- Inability to maintain necessary employee records
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