PAYE explained
How Pay As You Earn is calculated on every payslip — the bands, the personal relief, and the four PAYE reliefs that reduce the bill.
PAYE is the income tax withheld from an employee's pay each month and remitted to KRA. Vendly computes it in four steps for every employee, every period.
Step 1 — Taxable income
Start from the gross of taxable earnings (basic + taxable allowances + overtime + any benefits in kind). Subtract the allowable pre-PAYE deductions:
- NSSF Tier I + Tier II employee contribution
- SHIF contribution (post-Dec 2024 — see citation)
- Affordable Housing Levy (employee share)
- Registered pension contribution (capped at 30% of pensionable pay or KES 30,000, whichever is lower)
- Owner-occupied mortgage interest (capped at KES 30,000)
SHIF was added to the list of pre-PAYE deductions by the Tax Laws (Amendment) Act 2024 from 27 December 2024. The old 15% 'SHIF insurance relief' was repealed in the same Act — applying it on top is double-counting.
Step 2 — Apply the 2026 PAYE bands
| Monthly taxable income (KES) | Rate |
|---|---|
| 0 — 24,000 | 10% |
| 24,001 — 32,333 | 25% |
| 32,334 — 500,000 | 30% |
| 500,001 — 800,000 | 32.5% |
| Above 800,000 | 35% |
The 32.5% and 35% bands above KES 500k and KES 800k were introduced by the Finance Act 2023 and remain in force.
Step 3 — Apply reliefs
- Personal relief: KES 2,400 per month — applied to every resident employee automatically.
- Insurance relief: 15% of PRIVATE medical or life insurance premiums paid by the employee, capped at KES 5,000/month. Excludes SHIF (see callout above).
Step 4 — Net PAYE
Tax charged minus personal relief and insurance relief, floored at zero. That's the PAYE line on the payslip and the figure carried to the P10.
Special cases
- Lump-sum payments (bonus, gratuity, severance, leave allowance, back-pay) are spread across the months they were earned so they don't push the employee into a higher band by accident.
- Persons with Disability (PWD) holding a KRA exemption certificate: the first KES 150,000 of taxable income is exempt from PAYE.
- Wholly PAYE-exempt employees (SEZ workers, diplomatic staff, KRA income-tax exemption certificate holders): PAYE = 0 regardless of band. NSSF / SHIF / AHL still apply.
Where to see this in Vendly
Per-employee PAYE history
From any employee, open the Payroll History page to see every month's gross, deductions, taxable income and final PAYE broken down line by line.
Open Employee SalariesKenya law that applies
- Income Tax Act, Cap 470
Primary statute for PAYE, allowable deductions, reliefs and benefit-in-kind valuation.
- Finance Act 2023
Introduced the 32.5% and 35% PAYE bands (above KES 500k and KES 800k respectively).
- Finance Act 2024
Raised the pension contribution relief cap from KES 20,000 to KES 30,000 per month.
- Tax Laws (Amendment) Act 2024
Made SHIF and AHL allowable pre-PAYE deductions; repealed the 15% SHIF insurance relief from 27 December 2024.