2025 Payslip Overhaul: Housing Levy and SHIF Become Allowable Deductions as NSSF Contributions Surge

Overview of Recent Legislative Changes

NSSF

The NSSF Act 2013, introduced a tiered contribution system, replacing the previous flat-rate contributions. The NSSF Act of 2013 entered its third implementation phase in February 2025. This tiered system was scheduled for rollout on a progressive basis over a five-year period starting February 2023 when the Court of Appeal upheld the legality of the Act that had been declared unconstitutional by the High Court.

AHL and SHIF

Last year the introduction of the AHL at 1.5% (effective March 2024) and SHIF at 2.75% (effective October 2024) brought major changes to employees' pay slips. These new levies were designed to bolster affordable housing and improve health services across the country; however, they came with increased financial burden and significant decrease in disposable pay for employees.

Due to the significant financial impact, Kenyans and lobbyist groups demanded the suspension of the AHL and a return to the old NHIF regime. To mitigate the tax burden on employees, the government amended the Income Tax Act through the Tax Laws (Amendment) Act of 2024. As a result, contributions to AHL and SHIF are now allowable deductions in the calculation of taxable pay effective 27 December 2024.

Impact on Employee Payslips and What to Expect on Your 2025 Payslip?

While the treatment of AHL and SHIF as allowable deductions provides some relief, the relief will be short-lived as the NSSF contributions increase effective 1 February 2025 as follows:

 

• The tier I contribution will increase from KES 420 to KES 480
• The tier II contribution will increase from KES 1740 to KES 3840.

 

To illustrate the impact of these changes, consider the below comparative analysis of a pay slip before and after the introduction of these levies and the NSSF tiered contributions:

Key takeaways

The shift to treat AHL and SHIF as allowable deductions is beneficial to employees, as it lowers the taxable income, reducing the overall tax liability for employees. However, the increased NSSF contributions will be a further decrease in employees' net pay which will limit their disposable income.

On the plus side, employee's financial security will be boosted in the long run as their savings rates increases in NSSF. For employers, these cumulative changes in statutory deductions will impact workforce planning and operational expenses, requiring employers to reassess their compensation strategies.