How to Process Payroll in Kenya: A Step-by-Step Guide for Employers

What processing payroll actually involves

Processing payroll is not one task but a short chain of them, and each link feeds the next. Gross pay has to be right before the deductions mean anything, and the deductions have to be right before the payslips and returns mean anything.

The chain is the same whether you employ three people or three hundred. What changes is how long it takes and how likely a manual step is to be missed.

• ✓Collect the period changes: new hires, exits, overtime, leave, loans and salary reviews.
• ✓Calculate gross pay for every employee.
• ✓Apply the statutory deductions in the order Kenyan law allows.
• ✓Deal with the remaining adjustments: leave, loans, advances and other agreed deductions.
• ✓Produce payslips and release the net pay.
• ✓Remit the deductions and file the returns on time.

Before the first payroll: the registrations and records you need

Payroll quality is decided before the first run. If the registrations are incomplete or the employee records are patchy, every later step inherits the gap, and corrections at year end are far more painful than collection at the start.

• ✓A KRA PIN for the business, with the employer registered for PAYE.
• ✓An NSSF employer registration and employer code.
• ✓Registration with the Social Health Authority for SHIF contributions.
• ✓For each employee: full name, KRA PIN, NSSF number, SHA number, identification, bank account, contract terms and salary structure.
• ✓A filing system for contracts, payslips and statutory returns that will still make sense to an auditor in three years.

Step 1: Collect the changes for the pay period

Most of the month is unchanged, which is exactly why this step gets skipped. Gather the exceptions in one place before you touch the numbers: who joined, who left, who was promoted, who took unpaid leave, who worked overtime, who is repaying a loan.

• ✓New hires: start date, salary structure, bank details and statutory numbers.
• ✓Exits: final pay, accrued leave, notice and any terminal dues.
• ✓Attendance and overtime: days worked, overtime hours and allowances triggered.
• ✓Leave taken, especially unpaid leave, which reduces gross pay.
• ✓Loans, advances and agreed deductions such as SACCO or welfare contributions.

Step 2: Work out gross pay for each employee

Gross pay is everything the employee earned for the period before any deduction: basic salary, house and transport allowances, overtime, commission, acting allowance and any taxable benefit. Some allowances are capped for tax purposes, so treat the salary structure as part of the calculation rather than a note on the contract.

Step 3: Apply the statutory deductions in the correct order

Order matters in Kenya because some deductions reduce taxable pay and others do not. NSSF, SHIF, the employee Housing Levy, registered pension contributions and deductible mortgage interest come off gross pay first to arrive at chargeable pay. PAYE is then calculated on that figure using the KRA bands, reduced by the reliefs the employee qualifies for.

• ✓PAYE: five progressive monthly bands (10%, 25%, 30%, 32.5%, 35%) with personal relief of KES 2,400 a month.
• ✓NSSF Tier I: 6% of the first KES 9,000, matched by the employer.
• ✓NSSF Tier II: 6% of earnings between KES 9,001 and KES 108,000, matched by the employer.
• ✓SHIF/SHA: 2.75% of gross salary.
• ✓Affordable Housing Levy: 1.5% from the employee, matched by 1.5% from the employer.
• ✓Confirm the current bands, limits and rates on the KRA, NSSF and SHA portals before finalising any run.

Step 4: Handle leave, loans and the remaining adjustments

The statutory work is mandatory; the rest is contractual. Leave taken beyond an entitlement, a loan instalment, a salary advance, a staff welfare contribution or a court order all change net pay without changing the tax calculation.

This is where records and arithmetic diverge most often. A loan balance tracked in a notebook will eventually disagree with the payslip, and the employee will notice before you do.

Step 5: Produce payslips and release the net pay

Every employee should be able to see how their net pay was reached, so the payslip needs to show gross pay, each statutory deduction separately, any other deduction, the employer contributions and the net figure. Once the numbers are agreed and reviewed, release the salaries in one batch through the bank rather than one transfer at a time.

Step 6: Remit the deductions and file the returns

The money you deducted was never yours, and the clock starts as soon as you pay it out. PAYE and the other monthly statutory remittances normally fall due in the first days of the following month, so a payroll run that drifts into the next month carries a penalty with it. Confirm the current deadlines on the official KRA, NSSF and SHA portals, because they are enforced.

• ✓Monthly PAYE return, with the P10A schedule of employee and deduction details.
• ✓NSSF contributions, employee and employer shares together.
• ✓SHIF/SHA contributions.
• ✓Affordable Housing Levy for both employee and employer.
• ✓At year end, a P9 tax deduction card for every employee.

A monthly payroll checklist for Kenyan employers

• ✓Every period change captured and signed off by a manager, not just remembered.
• ✓Gross pay reconciled against contracts and approved overtime.
• ✓Statutory rates checked against the official portals, not last year’s spreadsheet.
• ✓Payslips produced for everyone, including employees who left mid-month.
• ✓Bank file checked for missing, duplicate or wrong account numbers before release.
• ✓Returns filed and remittances paid before the deadline, with receipts kept.
• ✓A second person reviews the run and the payment file before money moves.

Doing this in Excel vs payroll software

A spreadsheet can hold the formulas, but it cannot hold the law. When a KRA band, an NSSF limit, the SHIF rate or the Housing Levy changes, someone has to remember to edit every affected formula, and the penalty for missing it lands on the employer rather than on whoever forgot.

Payroll software inverts that. The statutory rules live in the system, so every employee is calculated the same way, the payslips, P9 and P10 reports come out of the same run, and a rate change is applied once instead of in a dozen places.

Next steps

If you would rather run this process by hand for one more month, start with the checklist above. If you would rather not hand-calculate PAYE, NSSF, SHIF and the Housing Levy at all, saloPoint does it for Kenyan employers as a one-time licence from KES 20,000 with no monthly fee — load your own employees into the free trial and check the figures yourself, or work through any single salary in the free PAYE calculator first.