Updates: NSSF Rates Starting February 2025
Starting February 1, 2025, Kenya will implement new National Social Security Fund (NSSF) rates, marking the third phase of the gradual adjustment to contribution rates under the NSSF Act, 2013. This change follows the Supreme Court’s ruling on February 21, 2024, which upheld the legality of the Act and affirmed the ongoing implementation of revised contribution rates.
Key Changes to NSSF Contributions (Effective February 2025)
- Tier I (Lower Limit Contributions):
- Lower Limit increases from Ksh 7,000 to Ksh 8,000.
- Employee Contribution: Ksh 480 (previously Ksh 420).
- Employer Contribution: Ksh 480 (previously Ksh 420).
- Total Tier I Contribution: Ksh 960 (previously Ksh 840).
- Tier II (Upper Limit Contributions):
- Upper Limit increases from Ksh 36,000 to Ksh 72,000.
- Contribution based on 6% of pensionable earnings beyond the Lower Limit.
- Employee Contribution: Ksh 3,840 (previously Ksh 1,740).
- Employer Contribution: Ksh 3,840 (previously Ksh 1,740).
- Total Tier II Contribution: Ksh 7,680 (previously Ksh 3,480).
- Total NSSF Contributions (Employee + Employer):
- Ksh 8,640 per month (previously Ksh 4,320 per month).
Implications of the New NSSF Rates
- For Employees:
- The increase in NSSF contributions will reduce net take-home pay.
- However, higher contributions will enhance retirement savings.
- For Employers:
- Employers will face higher payroll costs, doubling their contributions.
- Additional compliance burden alongside other statutory deductions, including:
- Social Health Insurance Fund (SHIF) Contributions (2.75% of gross salary).
- Affordable Housing Levy (1.5% of gross salary, for both employer and employee).
- Revised PAYE bands from the recent Tax Laws (Amendment) Act, 2024.
Employers must update their payroll systems to accommodate these changes, ensuring compliance with the revised NSSF rates. The PAYE Calculator Kenya has been updated to reflect the increased NSSF contributions to help employees and employers compute tax and deductions accurately.
Updates: PAYE Regulations for 2025
On December 11, 2024, President William Ruto signed the Tax Laws (Amendment) Bill (National Assembly Bill No. 47 of 2024) into law, introducing significant changes to Kenya’s Pay As You Earn (PAYE) regulations. These amendments aim to enhance employee benefits, streamline deductions, and replace the National Hospital Insurance Fund (NHIF) with the Social Health Insurance Fund (SHIF). This guide explains the new PAYE regulations applicable in 2025 and highlights how to calculate your tax obligations using the updated PAYE Calculator Kenya.
Key Amendments to PAYE Regulations for 2025
Allowable Deductions in Taxable Income Computation
- Contributions to the Social Health Insurance Fund (SHIF).
- Contributions to a post-retirement medical fund, capped at Ksh 15,000 monthly.
- Contributions to affordable housing.
- These changes increase disposable income and enhance employees’ take-home pay.
Increased Deductions for Registered Pension or Provident Funds
- Deductible contributions by employees increased from Ksh 240,000 to Ksh 360,000 annually (Ksh 20,000 to Ksh 30,000 monthly).
- Employers’ contributions are also adjusted accordingly, fostering greater savings for retirement.
Deductions for Registered Individual Retirement Funds
- Contributions to registered individual retirement funds or public pension schemes are now deductible up to Ksh 360,000 annually (Ksh 30,000 monthly), up from Ksh 240,000.
Repeal of Affordable Housing Relief
- The Affordable Housing Relief has been repealed but is now accounted for as an allowable deduction under Section 15 of the Income Tax Act.
Harmonization with the Social Health Insurance Act
- Section 31 of the Income Tax Act has been amended to harmonize with the Social Health Insurance Act, 2023.
- References to NHIF have been replaced by SHIF, effective October 1, 2024.
SHIF Replacing NHIF As of October 2024
As of 1 October 2024, the Social Health Insurance Fund (SHIF) replaces the National Hospital Insurance Fund (NHIF). Contributions to SHIF are calculated as 2.75% of gross salary, with a minimum contribution of KES 300 per month and no maximum limit. Employers must remit these contributions by the 9th day of the following month, along with PAYE.
As of November 8, 2024, the Kenya Revenue Authority (KRA) clarified that insurance relief previously available for NHIF contributions does not apply to contributions made to SHIF under the new Social Health Insurance Act. An amendment proposed in the Tax Laws (Amendment) Bill, 2024, seeks to make SHIF contributions deductible from taxable income.
PAYE Tax Rates in Kenya (Effective 2025)
The updated PAYE Calculator Kenya allows employees and employers to input salary details and see exact tax obligations, including SHIF and NSSF contributions.
| Monthly Pay Bands (Ksh) | Annual Pay Bands (Ksh) | Rate of Tax (%) |
|---|---|---|
| First 24,000 | First 288,000 | 10% |
| Next 8,333 | Next 100,000 | 25% |
| Next 467,667 | Next 5,612,000 | 30% |
| Next 300,000 | Next 3,600,000 | 32.5% |
| Above 800,000 | Above 9,600,000 | 35% |
PAYE Filing Process in Kenya
- Employers must compile employee data and submit it via PAYE returns on iTax.
- Log in to iTax to file the return, even if it’s a nil return.
- The updated PAYE Calculator Kenya assists in gathering accurate information for return filing, including SHIF and NSSF contributions.
PAYE Penalties for Non-Compliance
- Late Filing: Penalty of 25% of the tax due or Ksh 10,000, whichever is higher.
- Late Payment: 5% of the tax due plus 1% interest per month.
- Failure to Deduct and Remit: 25% of the tax due or Ksh 10,000, whichever is higher.
With the transition from NHIF to SHIF, increased NSSF contributions, and revised PAYE rates, employers and employees must stay updated on their tax obligations. The updated PAYE Calculator Kenya makes this process easier by integrating all new deductions and tax rates, ensuring compliance and accurate tax calculations.