Statutory Deductions in Kenya

In Kenya, all payments made to employees for salary and wages are subject to the following statutory deductions:

Pay As You Earn (PAYE)

The Income Tax Act places on employers an obligation to deduct and remit monthly, income tax for Kenyan resident employees earning above Ksh 10,164/= per month. Employers are required also to tax benefits such as use of company vehicles. In addition, the employer is required to file Annual income tax returns for all employees whether subject to PAYE or not.

The penalty for failing to comply is twenty five per cent of the amounts of tax involved or ten thousand shillings, whichever is greater. The employer is also subject to proceedings for the recovery of that tax plus interest thereon at two percent per month. Directors and managers are also liable to a fine of not less than ten thousand shillings but not more than two hundred thousand shillings or to imprisonment for a term not exceeding two years or to both.

National Social Security Fund (NSSF)

The National Social Security Fund Act (cap 258) establishes the NSSF as a compulsory contributory social security scheme whose objective is to receive contributions from employers and employees as well as make payments to employees when they leave the organization.

The employer is expected to contribute fifty percent of the contribution while the employee contributes the other fifty percent. Standard NSSF (currently under review) contribution is Ksh 200/= deducted from employee’s salary, with employer contributing an equal amount. Failure to comply is a criminal offence subject to a penalty equal to five per cent of the amount payable and a fine of up to Ksh 15,000/=.

National Hospital Insurance Fund (NHIF)

The National Hospital Insurance Fund Act (cap 255) establishes the NHIF, which is an insurance fund, which: Caters for medical insurance and Pays for expenses incurred by a contributor, and his or her spouse and dependant children. All employers are required to deduct NHIF contribution from employee’s salary through check off system depending on their salary. Failure to comply is a criminal offence subject to a penalty equal to five times the amount of that contribution.

The National Hospital Insurance Fund (NHIF) is the primary health insurance provider in Kenya with a mandate to enable all Kenyans to access quality and affordable health services. Membership is mandatory for all Kenyans above 18 years of age. The benefits package includes comprehensive medical coverage for all diseases meaning that NHIF members can be fully treated at cost to the NHIF without making additional payments.

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