Kenya Payroll Compliance Checklist for Foreign Employers
For many companies expanding into Kenya, payroll may initially appear as a routine administrative duty just another part of HR or finance. Yet, for foreign employers, Kenya’s payroll framework is far more complex. With multiple mandatory contributions, tight remittance windows, and evolving regulations, even a minor oversight can expose your business to significant financial or legal risk.
Whether you’re hiring your first team member in Nairobi or scaling a regional workforce, mastering the country’s four core obligations, PAYE (income tax), NSSF (pension/provident fund), SHIF (Social Health Insurance Fund), and AHL (Affordable Housing Levy) is essential. These functions define both your employment cost base and risk profile.
In the sections that follow, you’ll find a comprehensive checklist designed for foreign employers: how to register properly, what deductions you must make, when to pay, and how to avoid common pitfalls that catch global firms off guard.
A. Critical Statutory Landscape Snapshot
Foreign employers must simultaneously comply with Kenya’s four statutory payroll deductions, together referred to as the “Quadruple Mandate”:
- PAYE (Pay As You Earn) – income tax deduction from employees.
- NSSF (National Social Security Fund) – retirement fund contributions.
- SHIF (Social Health Insurance Fund, replacing NHIF) – health insurance deduction.
- AHL (Affordable Housing Levy) – employer/employee contribution toward national housing goals.
The regulatory environment emphasizes Kenya’s push to broaden social protections and raise infrastructure funding through employer-employee contributions. The recent introduction of SHIF and AHL marks a shift away from capped contributions toward deductions based on an employee’s gross monthly salary. This requires foreign entities to frequently reassess their total cost of employment and ensure payroll systems are equipped to absorb these dynamic changes.
B. The 9th-Day Pressure Point and Local Representation
Payroll efficiency in Kenya is tightly linked to clustered remittance deadlines. Most key statutory payments, PAYE, NSSF and SHIF, are due by the 9th day of the following month. Meanwhile, the AHL introduces a variation: contributions must be remitted within nine working days after month-end. This distinction may seem subtle but creates administrative complexity, as payroll teams must prioritise AHL immediately after closing the month, sometimes ahead of reconciling other obligations.
Additionally, for foreign employers lacking a Kenyan legal entity, there is a legal requirement to engage a local representative. If a non-resident employer pays remuneration abroad and fails to notify the Kenya Revenue Authority (KRA) via a local agent, the employer may incur penalties. This requirement effectively elevates the role of a payroll or compliance agent from optional to essential.
C. The Strategic Necessity of the Employer of Record (EOR) Model
For foreign firms without a permanent establishment in Kenya, utilising an Employer of Record (EOR) provides a streamlined and legally robust route to compliance. Through the EOR model, the service provider becomes the legal employer of record, taking responsibility for employment contracts, payroll processing, statutory contributions and remittances, while your organisation retains operational control of the workforce.
Benefits of partnering with an EOR include:
- Immediate compliance with local labour and tax law.
- Reduced internal overhead and avoidance of entity-setup costs.
- Hands-off management of payroll and tax filings while you focus on business growth.
For foreign employers entering Kenya’s market, an EOR is a strategic compliance partner, especially when considering the tight regulation and complex platforms involved.
II. Establishing the Payroll Nexus: Registration Requirements
A. Defining the Foreign Employer’s Status and Liability
Any entity — resident or non-resident — that pays emoluments to an employee in Kenya must register for the PAYE obligation and deduct tax accordingly. Kenyan tax law uses the principle of Worldwide Income, meaning that if an individual is resident in Kenya (typically 183+ days or has a permanent home there), they must declare all income from any source. Foreign payroll must therefore consider correct currency conversion, global salary inclusion, and proper withholding.
B. KRA PIN Registration Pathway for Foreign Entities and Personnel
- Non-Citizen Investors: Must provide a certified passport copy, introduction letter with local agent’s PIN, proof of investment, and CR-12 company documents.
- Non-Citizen Employees: For long-term employees (resident) you’ll need passport and copy, employer introduction letter (with PIN), endorsed work permit; for short-term professionals (under six months), passport, introduction letter and special pass are required.
Securing immigration credentials before payroll actions is critical — the KRA will not issue a PIN without appropriate work authorisation, making the coordination between immigration and payroll teams essential.
C. Expatriate Work Permits and Visas (Employer Responsibility)
The hiring entity must apply for the relevant work permit on behalf of expatriates. Key documentation includes: completed application form, employer cover letter, copy of the passport, two photo-IDs, and application fee. The passport must be valid for at least six months beyond the requested visa period and have at least two blank pages for visa stamps.
D. Mandatory Social Security Registration
- NSSF Employer Registration
- Registration is mandatory and can be initiated online via the Employer Self Service portal. Employers submit forms including Certificate of Incorporation and Trading Licence, then contact the local office for activation which issues a “Pin Key” for e-filing.
- SHA/SHIF Employer Registration
With the transition from NHIF to SHIF, employers must register via the Social Health Authority (SHA) portal. Employee registration can also occur via USSD (*147#) or the afyayangu.go.ke website, followed by biometric verification. Employers are responsible for deducting SHIF contributions and submitting them appropriately.
III. Core Compliance Checklist: Payroll Processing and Deductions
A. Taxable Income Determination (Gross vs. Taxable)
Kenya defines employment income broadly — wages, salary, bonuses, commissions, allowances, director’s fees all count. Non-cash benefits exceeding KSh 5,000/month (e.g., company car, housing, club membership) must be valued and included in gross salary. Foreign employers offering global packages must establish valuation mechanisms and consistently apply them to avoid audit exposure.
B. Mandatory Statutory Deductions and Calculation Mechanics
1. PAYE – Income Tax
Using progressive tax bands (as per the Finance Act 2023), employers must withhold PAYE. Personal relief is KSh 28,800 annually (KSh 2,400/month).
2. AHL – Affordable Housing Levy
Introduced in 2024, employers and employees each contribute 1.5% of the gross monthly salary (3% total). Remittance is due within nine working days after month-end and must be declared in the monthly PAYE return.
3. SHIF – Social Health Insurance Fund
Employers deduct 2.75% of each employee’s gross monthly salary (minimum contribution KSh 300) and remit to SHA by the 9th of the following month. SHIF contributions are deductible in calculating taxable employment income.
4. NSSF – National Social Security Fund
Employers must ensure registration and remittance of contributions via the NSSF portal by the 9th of the following month. Tiered contribution rates apply based on earnings.
C. Allowable Deductions and Reliefs
When determining taxable income for PAYE, the following deductions apply:
- Mandatory contributions: SHIF, AHL.
- Pension/provident fund contributions: up to KSh 360,000/year.
- Mortgage interest: up to KSh 360,000/year.
- Post-retirement medical fund contributions: up to KSh 15,000/month.
C. Allowable Deductions and Reliefs
When determining taxable income for PAYE, the following deductions apply:
- Mandatory contributions: SHIF, AHL.
- Pension/provident fund contributions: up to KSh 360,000/year.
- Mortgage interest: up to KSh 360,000/year.
Post-retirement medical fund contributions: up to KSh 15,000/month.
IV. Cross-Border Financial Management and Tax Mitigation
A. The Monthly Compliance Calendar
Statutory Requirement | Basis of Calculation | Remittance Deadline | Governing Body |
PAYE Deduction & Filing | Taxable Income | 9th of following month | KRA (iTax) |
AHL Remittance (Employer + Employee) | Gross Salary (3.0%) | Nine working days after month-end | KRA (iTax) |
SHIF Contribution | Gross Salary (2.75% minimum KSh 300) | 9th of following month | SHA (Afya Yangu) |
NSSF Contribution | Pensionable Earnings | 9th of following month | NSSF (Self-Service Portal) |
Missing these deadlines, especially the nine working day rule for AHL, attracts penalties and audit triggers.
B. Electronic Reporting and Remittance Platforms
Employers must navigate separate portals:
- KRA iTax for PAYE and AHL.
- NSSF Self-Service Portal for pension registrations and monthly returns.
- SHA/Afya Yangu Portal for SHIF registration and contributions.
The fragmented landscape demands strong internal controls and process discipline.
C. Worker Classification Warning
Classifying genuine employees as independent contractors is a major risk. Kenya’s authorities emphasise that all workers under employer-control must be registered as employees, contributing to NSSF and similar schemes.
VI. Strategic Compliance Options (EOR and PEO Models)
A. Leveraging the Employer of Record (EOR) Model
For foreign companies expanding into Kenya, partnering with an Employer of Record (EOR) such as Remote Solutions Africa allows you to onboard and pay staff compliantly without establishing a local subsidiary. The EOR manages contracts, payroll, statutory deductions, and remittances, letting your team focus purely on growth.
B. Considerations for Formal Entity Setup
While an EOR is ideal for rapid market entry, establishing a local entity may suit long-term operations or full strategic control. Transitioning requires full local compliance, entity registration and internal payroll infrastructure.
Conclusion and Recommendations
Kenya offers substantial growth opportunities but with those comes a detailed and multi-layered compliance framework. Foreign employers must manage the “Quadruple Mandate” of PAYE, NSSF, SHIF, and AHL, navigate tight deadlines, maintain correct gross salary computation, manage foreign currency payout risks and choose whether to partner with an EOR or establish a subsidiary.
The most practical path for many foreign firms is partnering with Remote Solutions Africa. With local expertise, payroll technology and statutory compliance built in, you gain a secure, compliant foundation for hiring in Kenya and the freedom to scale your operations with confidence.
