The order in one paragraph
On a correctly configured 2026 Kenyan payslip, deductions flow from gross to net in this sequence:
- Gross pay
- Less NSSF Tier I + Tier II (employee share)
- Less SHIF (2.75% of gross)
- Less Affordable Housing Levy (1.5% of gross)
- Less registered pension contributions (up to statutory cap)
- PAYE is computed on the remainder
- Less PAYE
- Net pay
The block of pre-PAYE deductions (NSSF, SHIF, Housing Levy, pension) all reduce the amount on which PAYE is charged. That is what the Tax Laws (Amendment) Act 2024 changed for SHIF and Housing Levy [Source 1].
What changed in December 2024
Under NHIF, contributions were deducted from net pay after PAYE. NHIF was not treated as an allowable deduction, so the PAYE base was gross less NSSF less pension only. When SHA replaced NHIF, the government put through the Tax Laws (Amendment) Act 2024 to make SHIF an allowable deduction, gazetted and effective 27 December 2024. The Affordable Housing Levy received the same treatment.
The practical effect on employees is a slightly lower PAYE bill. For employers, the practical effect is that payroll software had to be reconfigured. Any payroll still applying the old order in 2026 is over-collecting PAYE.
Worked example on KES 80,000 gross
A single employee on KES 80,000 gross monthly pay, no pension, no other allowances or benefits. This is illustrative and uses widely-reported 2026 PAYE bands; treat the exact PAYE figure as directional, not definitive.
Under the correct 2026 order (SHIF before PAYE)
| Line | Amount (KES) |
|---|---|
| Gross pay | 80,000 |
| Less NSSF (Tier I + II employee share, illustrative) | (2,160) |
| Less SHIF (2.75% of 80,000) | (2,200) |
| Less Affordable Housing Levy (1.5% of 80,000) | (1,200) |
| PAYE base | 74,440 |
| Less PAYE (illustrative, on the KES 74,440 base) | (approx. 15,700) |
| Net pay | approx. 58,740 |
Under the old NHIF-style order (deduction after PAYE)
If SHIF and Housing Levy were still treated as post-PAYE deductions (the pre-Dec 2024 pattern for NHIF), the PAYE base would rise by KES 3,400 (SHIF KES 2,200 + Housing Levy KES 1,200). At the 30% marginal rate that applies at this band, that lifts PAYE by roughly KES 1,020.
On SHIF alone, that is roughly a KES 660/month PAYE saving for a KES 80,000 earner. Extend that to the full year and it is roughly KES 7,900 that stays with the employee instead of going to KRA. Smaller sums at lower salary bands, larger sums at higher salary bands. The point is not the exact number; it is that the ordering matters and any payroll still on the old logic is quietly costing employees money.
Why the order matters at all
Payroll deductions can arithmetically add up to the same total in any order. What changes with the ordering rule is what counts as the taxable base for PAYE. Because PAYE is a percentage of taxable income, anything that reduces taxable income before PAYE is computed reduces PAYE.
Under NHIF, that lever did not exist. NHIF sat outside taxable income entirely. Under SHIF, and now the Housing Levy, both sit inside the pre-tax block. So both reduce the taxable base and both reduce PAYE proportionally at the marginal rate that applies to the employee.
The change is small per employee per month but material at the aggregate. Applied across the entire Kenyan formal payroll base, moving SHIF and the Housing Levy from post-PAYE to pre-PAYE ordering reduces PAYE collection by a measurable amount. That is what the Tax Laws (Amendment) Act 2024 delivered.
Worked example at KES 30,000 gross
At a lower salary band the absolute saving is smaller, but the relative importance to the employee is higher. A KES 30,000 gross earner:
- SHIF: 2.75% × 30,000 = KES 825
- Housing Levy: 1.5% × 30,000 = KES 450
- Together, KES 1,275 moves from post-PAYE to pre-PAYE base
At the applicable band for that gross the marginal PAYE rate is lower than 30%. But even at a marginal 15%, that saves roughly KES 190 per month in PAYE. Across the year, roughly KES 2,300 that stays in the employee's pocket. On a KES 30,000 wage that matters.
Worked example at KES 300,000 gross
At the upper end the absolute number is larger. A KES 300,000 gross earner:
- SHIF: 2.75% × 300,000 = KES 8,250
- Housing Levy: 1.5% × 300,000 = KES 4,500
- Together, KES 12,750 shifts out of the PAYE base
At the top marginal rate, that saves roughly KES 4,250 per month in PAYE, or roughly KES 51,000 per year. This is the group in which correct payroll ordering compounds most obviously.
What payroll software should look like in 2026
A correctly configured 2026 Kenyan payroll system should show, in order:
- Gross pay
- NSSF line (Tier I and Tier II)
- SHIF line, computed from gross
- Housing Levy line, computed from gross
- Pension line, if applicable
- PAYE line, computed on the taxable base (gross less all the above)
- Net pay
If the payroll system has an "NHIF" field still active, the configuration is stale. Rename it, remap it, or upgrade. Software vendors that had not published a SHA update by mid-2025 should be treated with suspicion.
What the employer does differently
Nothing on the SHA side changes because of the ordering rule. The employer still deducts 2.75% of gross, still remits by the 9th, still faces the section 27(6) 2% penalty on late payment. What changes is the PAYE calculation, which is a separate KRA obligation.
The two operational rules the employer must both get right in 2026:
- SHIF at 2.75% of gross, not net, not basic. See the full employer deduction guide.
- PAYE computed on the base after SHIF, NSSF, Housing Levy, and pension are already off.
Pension note
Employee contributions to a registered pension scheme have always been allowable against taxable income, up to a statutory cap. The 2024 Amendment did not change that. Pension still comes off before PAYE. So in the correct 2026 stack, the taxable base is gross less NSSF less SHIF less Housing Levy less pension.
For employees at higher earnings bands, pension is often the largest lever on PAYE. SHIF and Housing Levy also matter, but on a per-shilling basis pension typically moves the number most.
What employees should check on the payslip
- SHIF line exists and equals 2.75% of gross (or KES 300, whichever is higher).
- SHIF line sits above the PAYE calculation, not below it.
- The PAYE line is calculated on the reduced base, not on the pre-SHIF gross.
- Housing Levy line, if applicable, follows the same treatment.
For a per-salary check of the SHIF number in isolation, use the SHA contribution calculator. For the full explainer on tax ordering aimed at employees, see is SHA deducted before or after tax.
Related SHA guides
- SHA contribution calculator
- SHA paybill (200222) reference
- Employer overview (Phase 1)
- Full employer deduction guide
- The 9th-of-month deadline
- Is SHA deducted before or after tax?
- SHA vs NHIF: what changed
- How much is SHA per month
Sources
- Tax Laws (Amendment) Act 2024, gazetted and effective 27 December 2024. SHIF and the Affordable Housing Levy are allowable deductions against taxable income (deducted before PAYE).
- SHA premium rates (2.75%, KES 300 floor, no cap): sha.go.ke/premium-rates, accessed 26 August 2026.
- NSSF Act No. 45 of 2013 (Tier I and Tier II framework as currently applicable).
- Affordable Housing Act 2024, rate 1.5% of gross.
- KRA PAYE bands as widely published for 2026; treat exact PAYE figures in the worked example as illustrative.