Payroll Procedures Update for Finance Act 2023

The Court of Appeal on 28th July 2023 lifted the suspension of The Finance Act, 2023. This meant that the provisions on Affordable Housing Levy (AHL) and the new PAYE bands took effect from 1st July 2023.Following the Court of Appeal decision above, the State Department for Housing and Urban Development issued a public notice on 3rd August 2023 informing the members of the public that the AHL took effect from 1st July 2023 and that it has appointed Kenya Revenue Authority (KRA) as the collecting agent.By this date, most employers had processed their July 2023 payroll. 

We wish to recommend the following: – 

1. Employers who have processed July 2023 salaries/payroll should use the new PAYE bands to recompute PAYE and deduct the AHL which is at 1.5% of employees’ gross monthly salaries. We emphasize that it is payable by both the employer and employee.

2. Employers who had already processed their July 2023 payroll/salaries without using the new PAYE bands and deducting AHL can consider: –

 a) Amending the payroll to include the new PAYE bands and AHL;

b) Remit the PAYE and AHL on or before 9th August 2023;

c) Alert the employees on salary (net pay) overpayment as a result of implementation of The Finance Act, 2023;

d) Communicate to the employees on whether the overpaid salary will be recovered from their subsequent month salary or will be absorbed by the employer.

3. The penalty for non-compliance with AHL is punitive. An employer will be forced to pay a penalty equal to 2% of the amount owed for each month it goes unpaid.

KRA has already updated its iTax PAYE (P10) return to incorporate the above changes.