Kenya PAYE Guide 2026: SHIF, NSSF, and Housing Levy Explained

The Kenyan payroll regulatory landscape has transformed dramatically over the last few years. For business owners, HR managers, and startup founders, staying compliant requires an intimate understanding of several statutory deductions. This guide breaks down the three primary deductions—NSSF, SHIF, and the Affordable Housing Levy—and explains exactly how they impact PAYE calculations in 2026.

1. National Social Security Fund (NSSF)

The National Social Security Fund (NSSF) operates under the NSSF Act No. 45 of 2013, which introduced tiered contributions. In 2026, the contribution rates remain split into two categories based on pensionable earnings:

• Tier I: 6% of the lower limit (capped at KES 7,000, representing a maximum contribution of KES 420).
• Tier II: 6% of pensionable earnings between KES 7,001 and KES 36,000 (representing a maximum contribution of KES 1,740).

For any employee earning a gross salary of KES 36,000 or above, the total monthly NSSF deduction is capped at KES 2,160. This amount must be matched by a KES 2,160 contribution from the employer, resulting in a total remittance of KES 4,320 per month to NSSF. Crucially, employee NSSF contributions are tax-deductible, meaning they are subtracted from gross pay before calculating PAYE.

2. Social Health Insurance Fund (SHIF)

SHIF has fully replaced the former National Hospital Insurance Fund (NHIF). The transition represents a major structural shift:

• No Contribution Cap: While NHIF capped contributions at KES 1,700 per month for high earners, SHIF is a flat rate of 2.75% of gross monthly salary with no maximum limit.
• Broad Base: The 2.75% applies to the entire gross salary, including cash benefits and allowances.
• Insurance Relief: Employees are entitled to a 15% insurance relief on their monthly SHIF contribution, which acts as a direct rebate against their calculated PAYE tax.

3. Affordable Housing Levy (AHL)

Enacted under the Affordable Housing Act, 2024, the Affordable Housing Levy (AHL) funds the government's housing projects. The key details include:

• Contribution Rate: The levy is charged at 1.5% of the gross salary for the employee, matched by 1.5% from the employer, resulting in a total monthly remittance of 3.0% of the employee's gross income.
• No Tax Relief: Unlike NSSF, the Housing Levy is not tax-deductible. It must be computed and deducted from the gross salary, and it does not reduce the taxable income base for PAYE calculations.

4. Step-by-Step PAYE Calculation Example

Let us walk through a PAYE calculation for an employee with a gross monthly salary of KES 50,000:

1. NSSF Deduction: 6% of pensionable earnings up to KES 36,000 = KES 2,160.
2. SHIF Deduction: 2.75% of KES 50,000 gross = KES 1,375.
3. Housing Levy Deduction: 1.5% of KES 50,000 gross = KES 750.
4. Taxable Income: Gross Pay minus NSSF = KES 50,000 - KES 2,160 = KES 47,840.
5. PAYE before Reliefs: Calculated on taxable income of KES 47,840 using the standard KRA bands:
   • First KES 24,000 @ 10% = KES 2,400
   • Next KES 8,333 @ 25% = KES 2,083
   • Remaining KES 15,507 @ 30% = KES 4,652
   • Total PAYE before reliefs = 2,400 + 2,083 + 4,652 = KES 9,135
6. Tax Reliefs:
   • Personal Relief = KES 2,400
   • Insurance Relief (15% of SHIF) = 15% of KES 1,375 = KES 206
   • Total Reliefs = 2,400 + 206 = KES 2,606
7. Net PAYE Due: PAYE before reliefs minus total reliefs = KES 9,135 - KES 2,606 = KES 6,529.
8. Net Take-Home Pay: Gross Pay minus NSSF, SHIF, Housing Levy, and Net PAYE:
   • KES 50,000 - 2,160 (NSSF) - 1,375 (SHIF) - 750 (Housing Levy) - 6,529 (PAYE) = KES 39,206.

Managing these calculations manually for a growing team is highly susceptible to errors. Utilizing professional payroll partners ensures your schedules are updated instantly in response to tax law changes, keeping your business compliant and your team happy.