Understanding your payslip can be a complex task, especially when it comes to deciphering all the deductions listed. In Kenya, PAYE is a system where employers withhold income tax from your salary and remit it to the KRA on your behalf. Let’s break down the deductions on a sample payslip for Peter Mwangi, who earns a basic salary of Ksh 170,000.
Breakdown of Peter Mwangi’s Payslip:
| Description | Amount (Ksh) |
|---|---|
| Basic Pay | 170,000.00 |
| Taxes (PAYE) | -42,097.86 |
| Other Deductions | -4,350.00 |
| * NSSF (Retirement) | -2,160.00 |
| * NHIF (Health Insurance) | -1,700.00 |
| * Housing Levy | -2,550.00 |
| Net Pay | 121,492.14 |
The Foundation: Establishing Your Basic Pay
First, let’s set the foundation – your basic pay. This represents the total salary you earn before any deductions are taken out.
- What is Basic Pay?
Simply put, your basic pay is the gross salary you earn before any taxes or contributions are withheld. In Peter’s case, his basic pay is Ksh 170,000.00. This figure represents the total amount your employer agreed to pay you for your work.
Understanding Deductions: Where Your Money Goes
Now, we transition to the not-so-fun part: deductions. These are portions of your salary withheld for various reasons. Let’s explore them one by one:
- Taxes: Contributing to the Bigger Picture
The government collects a portion of your income, called taxes, to fund public services like infrastructure, education, and healthcare.
- What is PAYE?
Moving on to your payslip, you’ll find a deduction for PAYE . This is the income tax your employer deducts and sends to the Kenya Revenue Authority (KRA) for you. The exact amount depends on your tax bracket (specific amount not shown on the simplified table). Your tax bracket is determined by your annual income level, with higher earners paying a larger percentage of their income in taxes.
- Securing Your Future: Contributing to Social Security
Plan for the future! Next, part of your deductions goes towards social security, specifically the NSSF
- What is NSSF?
This mandatory contribution helps build your retirement nest egg. In simpler terms, it’s a way to save for your future self. The NSSF contribution ensures you have a source of income after you retire. Peter’s NSSF deduction is Ksh -2,160.00.
- Staying Healthy: Contributing to Health Insurance
Taking care of your health is important! Another deduction you’ll encounter is your contribution to the NHIF
- What is NHIF?
This mandatory contribution grants you access to medical services from NHIF-approved facilities. Peter’s NHIF deduction is Ksh -1,700.00. The NHIF contribution ensures you can access medical care when needed.
- Building a Brighter Future: Contributing to the Housing Levy
A recent initiative in Kenya is the Housing Levy, which supports affordable housing development. This levy involves both you and your employer contributing a small percentage (currently 1.5% each) of your salary.
- What is the Housing Levy?
Finally, Peter’s payslip reflects a deduction of Ksh -2,550.00 for the Housing Levy. This levy contributes towards making housing more affordable for Kenyans.
The Final Tally: Receiving Your Net Pay
After all these deductions are factored in, you arrive at your net pay. This is the amount that actually lands in your pocket – the money you can use for your monthly expenses. In Peter’s case, his net pay comes to Ksh 121,492.14.
Remember:
This is a simplified explanation. Your payslip might have additional deductions specific to your job or benefits. Tax rates and reliefs can change. To stay updated on the latest information, it’s always a good idea to consult a tax professional or your HR department.