PAYE Deductions Schedule (Kenya)

A PAYE Deductions Schedule in Kenya organises the details a party must supply for the purpose it serves.

The PAYE system in Kenya operates on a monthly withholding basis. Section 37 of the Income Tax Act Cap. 470 requires every employer who pays emoluments to an employee to deduct from those emoluments the amount of tax estimated to be chargeable on the employee for that year of income, using the rates and personal relief amounts prescribed by the Cabinet Secretary for National Treasury in the annual Finance Act. The Tax Procedures Act No. 29 of 2015 governs the procedural aspects of tax compliance, including the filing of PAYE returns and the payment of deducted taxes.

A PAYE Deductions Schedule is not itself a statutory filing — it is the employer's working document that supports the monthly PAYE return filed on the KRA iTax platform. The schedule lists every employee on the payroll, with their KRA Personal Identification Number (PIN), gross emoluments for the month (including basic salary, housing allowance, transport allowance, commissions, and other cash benefits), allowable deductions (such as NSSF contributions under the National Social Security Fund Act No. 45 of 2013 and mortgage interest relief under Section 15(3) of the Income Tax Act Cap. 470), personal relief of KES 28,800 per year (KES 2,400 per month) under Section 30 of the Income Tax Act Cap. 470, and the resulting net PAYE liability for each employee.

The KRA PAYE tax bands applicable from January 2024, as amended by the Finance Act 2023, are: 10% on the first KES 24,000 per month; 25% on the next KES 8,333 per month; 30% on the next KES 467,667 per month; 32.5% on the next KES 300,000 per month; and 35% on the balance above KES 800,000 per month. Every employee earning above the personal relief threshold of KES 2,400 per month is liable to PAYE.

The Insurance Relief under Section 31 of the Income Tax Act Cap. 470 allows employees to claim relief of 15% of premiums paid for life insurance, education insurance, or health insurance policies, subject to a maximum relief of KES 60,000 per year. The Affordable Housing Levy (AHL) introduced by the Finance Act 2023 and upheld by the High Court following the Supreme Court ruling in Petition No. E001 of 2024 is also deducted at 1.5% of gross salary and must be reflected on the deductions schedule.

The PAYE Deductions Schedule serves as the primary audit trail for the KRA when conducting PAYE audits under the Tax Procedures Act No. 29 of 2015. Employers are required to maintain records under Section 23 of the Tax Procedures Act No. 29 of 2015 for a minimum of five years from the end of the relevant year of income, and the PAYE Deductions Schedule is among the key documents demanded during KRA audit field visits.

A PAYE Deductions Schedule is required in Kenya by every employer who has employees earning emoluments above the threshold for PAYE liability, on a monthly basis coinciding with each payroll run.

The schedule must be prepared every month before the employer files the monthly PAYE return on the KRA iTax portal, which must be submitted and payment made on or before the 9th day of the month following the month in which emoluments were paid, under Section 37(3) of the Income Tax Act Cap. 470 and Regulation 7 of the Income Tax (Pay As You Earn) Rules (Legal Notice No. 39 of 2010).

A PAYE Deductions Schedule is required when a new employee joins the payroll mid-month and the employer must calculate a pro-rated PAYE liability for that employee's first partial month of employment. The schedule captures the adjusted gross emoluments and confirms the correct PAYE amount to withhold.

The schedule is needed when the employer grants an employee a bonus, commission, or lump-sum termination benefit, which may push the employee into a higher PAYE tax band for that month. Under Section 37 of the Income Tax Act Cap. 470, lump-sum payments are aggregated with regular emoluments for PAYE purposes in the month of payment unless separately assessable as pension or gratuity.

A PAYE Deductions Schedule is required when the employer responds to a KRA audit notice under Section 59 of the Tax Procedures Act No. 29 of 2015. The KRA Revenue Officer will request the payroll PAYE schedules for each month under review as the primary document to reconcile deductions with the iTax PAYE returns filed.

The schedule is also required when the employer processes final pay for a resigning, retiring, or retrenched employee, to calculate any outstanding PAYE on leave pay, notice pay, and severance pay under Section 35(7) of the Income Tax Act Cap. 470 and the Employment Act No. 11 of 2007.

Parties in Kenya should prepare a PAYE Deductions Schedule (Kenya) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Employment Act No. 11 of 2007, the Employment and Labour Relations Court (ELRC) adjudicates workplace disputes in Kenya. Section 35 of the Employment Act 2007 governs termination of employment. The National Social Security Fund Act No. 45 of 2013 mandates employer contributions to NSSF. The Social Health Insurance Fund (SHIF) replaced NHIF in 2024. The Kenya Revenue Authority (KRA) administers PAYE under the Income Tax Act (Cap. 470). Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A valid PAYE Deductions Schedule in Kenya under the Income Tax Act Cap. 470 s.37 must include the following key elements to support accurate PAYE computation and KRA compliance.

Employer Identification: The employer's full legal name, KRA PIN, and the applicable month and year of income. The KRA PIN is the primary identifier used on the iTax platform for all PAYE filings and payments. The month reference must match the PAYE return period.

Employee Master List: For each employee, the schedule must capture: full legal name; KRA Personal Identification Number (PIN) — mandatory under Section 12 of the Tax Procedures Act No. 29 of 2015 for every taxpayer; National Identity Card (NIC) number; job designation; and employment commencement date.

Gross Emoluments Breakdown: The schedule must itemise all components of gross pay for the month, including: basic salary; housing allowance; transport allowance; airtime and data allowances; commissions and bonuses; any non-cash benefits computed at market value under Section 5(2) of the Income Tax Act Cap. 470; and employer-paid school fees or medical costs that constitute taxable emoluments.

Allowable Deductions: Statutory deductions reducible from gross emoluments before PAYE computation include: NSSF contributions under the National Social Security Fund Act No. 45 of 2013 (Tier I + Tier II); owner-occupied mortgage interest up to KES 300,000 per year under Section 15(3) of the Income Tax Act Cap. 470; and any other allowable deductions approved by the KRA.

Tax Computation Columns: Chargeable income (gross emoluments less allowable deductions); PAYE computed at the current graduated rates under the Finance Act 2023; personal relief of KES 2,400 per month; insurance relief under Section 31 of the Income Tax Act Cap. 470 (15% of premiums, max KES 5,000 per month); and net PAYE liability after reliefs.

Affordable Housing Levy: The Affordable Housing Levy deduction at 1.5% of gross salary under the Affordable Housing Act 2024, deducted from each employee's pay and matched by the employer, must appear as a separate line item on the schedule.

Remittance Summary: A totals row showing the aggregate PAYE and AHL for all employees for the month, which must reconcile with the KRA iTax PAYE return and the payment made via the KRA payment gateway or Pesalink.

Employer Declaration: An authorised signatory's confirmation that the deductions schedule is accurate and corresponds to payroll records, with signature and date.

Forms-legal.com provides this Kenya PAYE Deductions Schedule template as a practical tool for payroll managers and HR officers to organise monthly PAYE computations before filing on KRA iTax. Employers should verify the current PAYE tax bands, personal relief amounts, and AHL rates with the KRA or a certified tax advisor, as these figures are updated annually by the Finance Act passed by the National Assembly.

Additional compliance elements for a PAYE Deductions Schedule (Kenya) used in Kenya include: Under the Employment Act No. 11 of 2007, the Employment and Labour Relations Court (ELRC) adjudicates workplace disputes in Kenya. Section 35 of the Employment Act 2007 governs termination of employment. The National Social Security Fund Act No. 45 of 2013 mandates employer contributions to NSSF. The Social Health Insurance Fund (SHIF) replaced NHIF in 2024. The Kenya Revenue Authority (KRA) administers PAYE under the Income Tax Act (Cap. 470). Forms-legal.com provides this template as a starting point for Kenya-compliant documentation.