All The Deductions In A Kenyan's Payslip In 2024

Payroll deductions play a significant role in shaping the financial landscape of individuals, as they represent the amounts withheld from one's salary before receiving the take-home pay. These deductions encompass a variety of contributions, including taxes, retirement plans, health insurance premiums, and, more recently, the affordable housing levy. 

Starting March 2024, Kenyan workers can anticipate notable changes in their payslip deductions, as the government has introduced revisions and additions to the payroll structure. 

While these adjustments serve various purposes, such as raising money to sustain public services, they may also impact individuals by reducing their net income. 

According to the Business Daily, the take-home salary of workers who fall in the median middle-class family in Nairobi, according to computation on expenditure patterns by the Kenya National Bureau of Statistics (KNBS), will see a reduction in their net income from the current average of Ksh76,041 to Ksh71,661.

Read Also: All The Taxes You Pay In A Day If You Earn Ksh80k 

How Your Payslip Will Look Like

There are two types of payroll deductions: mandatory and voluntary. 

Mandatory deductions are required by law and must be subtracted from your gross salary before you receive your net pay. They include individual income tax and health insurance. On the other hand, voluntary deductions are optional deductions you choose to have taken out of your salary, such as contributions to your Sacco savings or life insurance plans. 

It's particularly important to pay attention to the mandatory deductions as they significantly impact your pay slip and are unavoidable. In Kenya, the four main mandatory deductions are:

• Income Tax (PAYE): This is the tax deducted from your salary by your employer on behalf of the government. The amount of PAYE deducted depends on your income level and the prevailing tax rates.

• Retirement Contribution (NSSF): The National Social Security Fund (NSSF) deduction is a mandatory contribution towards your retirement savings or pension. This deduction aims to ensure financial security for individuals in their old age.

• Universal Health Care (NHIF, now SHIF): The National Hospital Insurance Fund (NHIF), now known as the Social Health Insurance Fund (SHIF), deduction is mandatory and provides access to healthcare services for you and your dependents.

• Housing Levy: This is a mandatory deduction to finance affordable housing projects under the National Housing Development Fund. It is levied at 1.5% of your gross income, and your employer matches your contribution. 

Since the Finance Act 2023 legislation, mandatory taxes in Kenya have undergone a complete makeover, potentially leading to a decrease in your net salary. 

One of the key changes is now reflected in the new Pay As You Earn (PAYE) rates after the Act introduced two new income tax bands and rates at 32.5% for persons earning between Ksh500,000 and Ksh800,000 monthly, and 35% for persons making more than Ksh800,000.

While the new tax band will increase the tax burden of higher earners, others will see relief. According to calculations done using the PAYE Calculator By Kangai Technologies, the PAYE of a person making Ksh100,000 reduced from Ksh21,804.33 in January 2022 to Ksh21,322.83 in February 2023. 

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While some employees will have a sigh of relief given the new PAYE rates, everyone making more than Ksh18,000 per month will feel the pinch of increased NSSF rates. Starting February 2024, we’ll enter the second year of the five-year transition plan outlined in the new NSSF Act that will see employees contribute six percent of their monthly pensionable income to NSSF to be marched by their employers. This is after the Upper Earnings Limit jumped from Ksh18,000 to Ksh36,000.

Effectively, workers earning more than Ksh36,000 per month will be required to contribute a maximum of Sh2,160 to the pension fund. Employee contributions will still be deducted from their salaries and wages, while employer contributions will still come directly from the employer.

Another place Kenyans will notice significant changes is the Universal Health Coverage, which saw NHIF replaced by SHIF. Kenyans will start paying 2.75% of their pay to the Social Health Insurance Fund (SHIF) from March 1, 2024, which will see contributions for top earners rise by more than 8x. 

Salaried workers earning between Ksh30,000 and Ksh100,000 will significantly increase their contribution. For instance, if your gross income is Ksh50,000, you'll start paying Ksh1,375 up from Ksh1,200. And if you take home Ksh100,000, the deductions will increase from Ksh1,700 to Ksh2,750.

Finally, there's the housing levy that was introduced by the Finance Act of 2023 as a mandatory deduction aimed at financing affordable housing projects under the National Housing Development Fund. 

Since the legislation of the Act, all salaried Kenyans have been required to contribute 1.5% of their gross salary to the National Housing Development Fund, with their employers matching their contribution. 

However, the implementation of the housing levy has been met with considerable debate and legal challenges. There have been court cases questioning the constitutionality of the levy. 

In a recent development on 26 January 2024, the Court of Appeal declined to issue stay orders suspending the implementation of the High Court decision issued on 28 November 2023. 

Despite this setback, the government has vowed to appeal the decision at the Supreme Court. Additionally, Parliament is currently debating and crafting a new law to address the issues raised by the court regarding the housing levy. 

In the meantime, the government has indicated its intention to continue with the deductions from salaried workers as they await the final decision from the Supreme Court.

With all those changes, how will your payslip look compared to January 2023? 

According to calculations done using the PAYE Calculator By Kangai Technologies, if you earn a gross salary of Ksh100,000, your net salary after all the deductions will reduce from Ksh75,415 to Ksh72,267. And if you make Ksh50,000, your net income will drop from Ksh40,840 to Ksh39,185.

Here is a pictorial illustration: 

What To Do If Your Income Has Reduced

With the payroll deductions increasing, you might experience a sudden reduction in income, which can be challenging. But there are steps you can take to manage the situation effectively.

1. Assess Your Financial Situation: Start by taking stock of your current financial situation. Calculate your new income after the reduction and list all your expenses. Separate your expenses into essential ones such as housing, utilities, groceries, and healthcare, and non-essential ones, then prioritize the former.

2. Create a New Budget: Develop a new budget based on your reduced income. Cut out non-essential expenses and look for areas where you can reduce spending further. This strategy will ensure you stay on track to achieve your savings goals. 

3. Negotiate with Creditors: If you have debt payments and the salary reduction is significant, contact your creditors to explain your situation. Many creditors are willing to work with you to establish a new payment plan or temporarily reduce your payments.

4. Increase Your Income: Consider finding additional sources of income to supplement your reduced earnings. This could involve taking on a part-time job, freelancing, or selling items you no longer need. Additionally, you can ask your employer for a promotion or more responsibilities that come with a salary increment.  

Read Also: 5 Daily Habits That Will Make Your Salary Last Longer 

WRAPPING UP 

Beyond payroll deductions, several other factors can affect your overall income and expenses. Two of those are the increasing cost of living and emergency expenses. 

Over time, the cost of living tends to rise due to inflation. This can impact various expenses such as rent or mortgage payments, utilities, groceries, transportation, and healthcare costs. It's essential to regularly review your budget and adjust your spending categories accordingly to factor in the cost of living increases into your finances. 

Unexpected emergencies, such as car repairs, home maintenance issues, or medical emergencies, can arise at any time and put a strain on your finances. It's essential to anticipate these potential expenses by building an emergency fund. Aim to regularly set aside a portion of your income into a separate savings account designated for emergencies.