Julius Omwamba has recently being promoted to Head of Communications! This well-deserved career advancement likely comes with a bump in salary. But with a higher income, Julius might also be wondering: how much will PAYE (Pay As You Earn) affect his net pay?
PAYE is the system in Kenya where income tax and National Hospital Insurance Fund (NHIF) deductions are automatically withheld from your salary each month. Let’s break down Julius’ salary example to understand how PAYE is calculated, summarized in the table below:
Julius’ Salary Breakdown
| Description | Amount (Ksh) |
|---|---|
| Basic Pay | 85,000.00 |
| NSSF Contribution | -2,160.00 |
| Taxable Pay | 82,840.00 |
| Income Tax (10% rate) | -19,635.36 |
| – Insurance Relief | 225.00 |
| – AHL Relief | 191.25 |
| – Personal Relief | -2,400.00 |
| PAYE | -16,819.11 |
| Net Pay | 66,020.89 |
| NHIF Deduction | -1,500.00 |
| Housing Levy | -1,275.00 |
| Final Take-Home Pay | 63,245.89 |
Taxable Pay: This is calculated by subtracting NSSF contributions from Julius’ gross salary.
Income Tax Calculation:
- Kenya uses a tiered tax system. Julius’ taxable income falls within the bracket for a 10% tax rate.
Reliefs:
- These deductions are subtracted from Julius’ income tax to reduce his taxable amount.
PAYE: This is the final income tax amount deducted from Julius’ salary after applying reliefs.
Net Pay: This is the amount Julius receives after PAYE deductions but before NHIF and Housing Levy.
Further Deductions:
- NHIF and Housing Levy are mandatory deductions from Julius’ net salary.
Final Take-Home Pay: This is the amount Julius receives after all deductions.
Understanding Your Own PAYE:
By understanding how PAYE works, you can better plan your finances and know what to expect on your payslip.