Is SHIF calculated before or after PAYE tax?

Before. Since the Tax Laws (Amendment) Act 2024, SHIF and the Affordable Housing Levy are both deducted from gross pay before PAYE is calculated, not after. Payroll processes that still compute PAYE on gross pay minus NSSF only will overstate tax and short-change employees.

What is the NSSF Tier II earnings limit in 2026?

Kenya's NSSF Act phases in higher contribution limits over several years. As of Phase 4 (February 2026 to January 2027), the Tier I limit is KES 9,000 and the Tier II upper limit is KES 108,000, with a combined 6% employee contribution and a matching 6% employer contribution.

Is the Affordable Housing Levy tax deductible?

Yes. Since December 27, 2024, both the employee's and employer's Affordable Housing Levy contributions are treated as pre-tax allowable deductions, reducing the taxable pay used to calculate PAYE.

Does my business need to remit the NITA levy separately?

Yes. The National Industrial Training Authority levy is a flat, employer-paid amount per employee per month. It's never deducted from employee wages and is remitted alongside your other statutory filings.

Blog

How to Automate NSSF, SHIF & Housing Levy Deductions in Kenya

7/22/2026•9 min read

Kenyan payroll compliance hasn't stood still. NSSF contribution limits are rising on a multi-year schedule, NHIF was replaced by SHIF in 2024, the Affordable Housing Levy became a permanent fixture, and a 2024 tax law amendment quietly changed the order in which all of it gets calculated. If your payroll process still runs on a spreadsheet formula from a year or two ago, there's a good chance it's now wrong — not because anyone made an error, but because the rules moved underneath it.

The Three Statutory Deductions Employers Must Get Right

Every Kenyan payslip has to account for National Social Security Fund (NSSF) pension contributions, Social Health Insurance Fund (SHIF) healthcare contributions, and the Affordable Housing Levy (AHL) — on top of PAYE income tax. Each is governed by its own legislation, administered by a different authority, and has its own rate, floor, or cap. Getting the order of operations wrong on any one of them cascades into every number below it on the payslip.

NSSF Tier I & Tier II in 2026 (Phase 4)

The NSSF Act No. 45 of 2013 replaced Kenya's old flat KES 200 pension contribution with a tiered, earnings-related model, phased in gradually so employers and employees could adjust. As of Phase 4, covering February 2026 to January 2027:

Tier I applies to the first KES 9,000 of pensionable earnings, at 6% employee / 6% employer.
Tier II applies to earnings between KES 9,000 and KES 108,000, also at 6% employee / 6% employer.
Combined, an employee earning KES 108,000 or more contributes up to KES 6,480 a month, matched by the employer.
Employers can "contract out" Tier II into an approved private retirement scheme; Tier I must always go directly to NSSF.

These limits rise again in Phase 5 (from February 2027), tied to gazetted minimum wage figures rather than a fixed number — a payroll system that hardcodes NSSF limits needs a manual update when that happens.

SHIF Replaced NHIF — What Changed

The Social Health Insurance Fund (SHIF) replaced NHIF on October 1, 2024, under the Social Health Insurance Act of 2023. Instead of NHIF's old stepped bracket scale (capped at KES 1,700 for higher earners), SHIF charges a flat 2.75% of gross monthly pay with no upper cap, subject to a statutory minimum of KES 300 a month — meaning even very low earners still pay at least KES 300.

Affordable Housing Levy (AHL)

The Affordable Housing Levy charges 1.5% of gross monthly pay from the employee, matched by another 1.5% from the employer — 3% combined, with no cap. It funds public housing infrastructure and, since December 27, 2024, both the employee and employer portions are treated as pre-tax allowable deductions rather than a post-tax charge.

The 2024 Tax Law Change That Catches Payroll Teams Out

The Tax Laws (Amendment) Act 2024, effective December 27, 2024, amended Section 15(2) of the Income Tax Act and reclassified both SHIF and AHL as pre-tax deductions — the same treatment NSSF already had. Under the old regime, health contributions were a post-tax insurance relief instead. The practical effect: NSSF, SHIF, and AHL are all now subtracted from gross pay before PAYE is calculated on what's left, which lowers the taxable base and, for most employees, lowers PAYE too. A payroll process still computing PAYE on gross pay minus NSSF alone will systematically overstate tax owed.

Try the Interactive Payroll Calculator

See a full gross-to-net breakdown — PAYE, NSSF, SHIF, Housing Levy, and employer Cost to Company — computed against current 2026 rates.

Open the Payroll Calculator

How to Automate This Without Manual Spreadsheets

The fix isn't a smarter spreadsheet — it's separating the rules from the calculation. A payroll engine built around a parametric rules configuration (tax bands, statutory caps, and contribution percentages stored as versioned, dated data rather than hardcoded formulas) can apply the correct rules automatically, including historical payroll runs against past regimes when needed. That's the architecture behind ERP Kenya's HR & Payroll module: PAYE bands, NSSF tiers, SHIF, and Housing Levy update centrally, so every payslip reflects current law without anyone editing a formula by hand.

Explore the full HR & Payroll solution for employee self-service, P9 generation, and statutory reporting, or see what drives implementation cost if you're ready to move off manual payroll.