Bonuses, gratuity and lump-sum PAYE spread
How a one-off payment is taxed without pushing the employee into a higher PAYE band by accident.
When you pay a bonus, gratuity, severance, leave allowance or back-pay in a single month, the cash hits the employee's payslip in that month — but the income was actually earned over a longer period. KRA practice is to spread the marginal PAYE over those earning months so the lump sum doesn't get over-taxed by jumping bands.
Example: an employee on KES 700,000/month (32.5% band) receives a 12-month bonus of KES 1.2m in December. Without spread, KES 700,000 of the bonus would be taxed at 35%. Spread over 12 months it stays at 32.5%, saving the employee tens of thousands.
How Vendly handles it
Record the lump sum against a DRAFT payroll run via the Bonuses & Gratuity dialog. The calculator allocates amount ÷ monthsEarnedOver to each earning month, recomputes that month's PAYE with the allocation added, and the sum of the per-month deltas is the marginal PAYE owed on the lump sum. That delta gets added on top of the employee's regular PAYE for the run; the cash still hits net pay in this month.
Adding a lump-sum payment
Open the payroll run
Only DRAFT runs accept lump-sum entries — once a run is approved its PAYE figures are locked.
Payroll RunsUse the row's Bonuses & Gratuity menu item
Each DRAFT row has a 'Bonuses & Gratuity' action that opens a dialog with the existing lump sums for that run plus a form to add a new one.
Fill in the dialog
Pick the employee, enter the amount, set months earned over (12 for an annual bonus, the contract length for end-of-contract gratuity), pick the reason. Save.
Process the run
When you click Process, Vendly reads every lump sum on the run and threads it into calculateAllStatutory's lumpSumPayment option. The resulting PayrollRecord snapshots the lump amount, months earned over, computed PAYE delta and reason for audit.
Reasons
| Reason | Typical months | Notes |
|---|---|---|
| Bonus | 12 | Annual performance bonus |
| Gratuity | 12-60 | End-of-contract gratuity; use the contract length |
| Severance | Typically months worked | Terminal payment on retrenchment |
| Leave allowance | 12 | Annual leave allowance paid in lump |
| Back-pay | Number of months | Salary increase backdated |
Edge cases
- monthsEarnedOver = 1 — no spread benefit; the lump is taxed entirely in the current month at its full marginal rate.
- PAYE-exempt employees — lump-sum PAYE delta is 0 regardless of band (the employee owes no income tax).
- Multiple lump sums for one employee in one run — combine them into a single entry with the dominant reason. Each employee can have at most one lump-sum row per payroll run.
Kenya law that applies
- Income Tax Act, Cap 470
Primary statute for PAYE, allowable deductions, reliefs and benefit-in-kind valuation.
- KRA Employer's Guide to PAYE
KRA's operational PAYE manual; Appendix 7C carries the car-benefit rate table.