Affordable Housing Levy & PAYE Calculation Guide for Kenyan Businesses
Once pension and health insurance deductions are accounted for, an employer must process the Affordable Housing Levy and Pay As You Earn (PAYE) tax.
1. The Affordable Housing Levy (AHL)
The Affordable Housing Act mandates a monthly contribution based on gross salary:
- Employee Rate: 1.5% of Gross Salary.
- Employer Match: 1.5% of Gross Salary.
- Total Remittance: 3.0% remitted directly to KRA via iTax under Agency Revenue.
- Definition of Gross Salary: Includes basic pay, housing/transport/meal allowances, and bonuses. It excludes non-taxable expense reimbursements.
- Affordable Housing Relief: Employees paying the levy are entitled to an Affordable Housing Relief (15% of their contribution) against their final PAYE liability.
2. Pay As You Earn (PAYE) Calculation Logic
PAYE is calculated on Chargeable (Taxable) Pay, not total gross income.
-------------------------------------------------------------------------- PAYE CALCULATION WORKFLOW -------------------------------------------------------------------------- 1. GROSS SALARY (Basic + Allowances) - Less: NSSF Employee Contribution (Allowable Deduction) - Less: SHIF Contribution / Pension Schemes (Tax Exempt Portions) = CHARGEABLE (TAXABLE) PAY --------------------------------------------------------------------------2. Apply Graduated Tax Bands (10%, 25%, 30%, 32.5%, 35%) = GROSS PAYE TAX -------------------------------------------------------------------------- 3. Deduct Allowable Reliefs: - Personal Relief (KES 2,400/month) - Affordable Housing Relief (1.5% of Housing Levy contribution) - Insurance Relief (where applicable) = NET PAYE PAYABLE TO KRA
Pro-Tip for Employers: Offering allowable benefits (like registered pension schemes or medical benefits) reduces the employee's chargeable pay legally, lowering their PAYE bracket while keeping compensation competitive.