Benefits in kind and PAYE in Kenya
When non-cash benefits, employer meals, club fees and medical cover are taxable for Kenyan employees, and how to keep a benefits register for payroll.
By Achekam · · 4 min read · For Running a business businesses in Kenya
Not everything an employer gives its staff arrives in the pay packet. A manager lives in a company-owned house. The sales director's golf club membership is paid by the business. The workshop team eats lunch in a canteen the company runs, and everyone is on the group medical scheme.
Each of these has a value, and each raises the same payroll question: is it part of the employee's taxable pay? KRA's PAYE guidance answers it for several common benefits. This article goes through them and ends with a simple register that keeps the answers straight from month to month.
The monthly threshold for non-cash benefits
KRA says the value of non-cash benefits is taxable employment income where it exceeds KShs 5,000 per month, or KShs 60,000 per year. Its wider statement on taxable employment income says the same: it includes all cash payments, however described, and the value of non-cash benefits exceeding KShs 5,000 per month.
The threshold works per employee, across everything they receive in kind. Add up the monthly value of every non-cash benefit each person gets, and compare the total with the threshold. One modest benefit may stay below it; a house plus a phone plus school fees paid directly will not.
How the value of a particular benefit is measured, and how the amount above the threshold is brought into pay, are questions to settle with KRA's guidance or your adviser before the first payroll that includes it. Write the answer down, so that every month is treated the same way.
Meals provided by the employer
KRA says meals provided by the employer are not taxed up to KShs 5,000 per month.
The word "provided" matters. A canteen lunch, or meals the business buys and serves to staff, is a meal provided by the employer. A cash "lunch allowance" added to salary is something else: a cash payment, which KRA's wording brings into taxable pay however it is described. If you want the meals rule to apply, provide the meals, keep the supplier invoices, and keep the cost per person within the figure.
Club entrance and subscription fees
KRA says club entrance and subscription fees paid by an employer are taxable income of the employee to the extent the expense has been allowed against the employer's income.
That ties the employee's tax to the business's own tax return. If the fees are allowed as a deduction against the business's income, they are taxable on the employee to that extent; to the extent they are not allowed, KRA's wording does not tax the employee on them. The person running payroll and the person preparing the business's tax computation therefore need to talk before the year end, not after. Agree, club by club, how the fees are treated in the business's return, and reflect the same decision in payroll.
Medical cover
KRA says medical cover provided by the employer is not chargeable to PAYE.
As with meals, the wording is "provided". A group medical scheme the business arranges and pays for is cover provided by the employer. A cash "medical allowance" paid into salary, for employees to buy their own cover, is a cash payment and falls under the general rule. If the aim is to keep medical cover out of taxable pay, arrange the cover rather than paying cash for it.
Entering taxable benefits as payroll inputs in Achekam
Achekam's Kenyan payroll calculates PAYE with the reliefs, NSSF, SHIF, the Affordable Housing Levy and the NITA levy, and its pay runs take each period's overtime, commission, allowances, reimbursements and unpaid leave as variable inputs.
A benefit in kind is not cash, so its taxable value needs to raise taxable pay without raising the money the employee receives. Before you enter a benefit's value through any of those inputs, run a test payslip for one employee and check two things: that taxable pay and PAYE rise as expected, and that net pay does not rise by the benefit's value. If the result is not what you need, ask your adviser how to handle that benefit before the run is approved. Once the method is settled, the PAYE on benefits flows into the P10 schedule and each employee's P9A with everything else.
The bands that turn taxable pay into tax are explained in working out PAYE with the Kenyan tax bands. Loans to staff at low interest raise a different tax altogether, covered in fringe benefit tax on staff loans.
Keeping a benefits register
A benefits register is a short table, kept by payroll and reviewed each year:
| Column | What to record |
|---|---|
| Employee | Name and payroll number |
| Benefit | House, phone, school fees, club, meals, medical cover |
| Provided or paid in cash | The distinction KRA's rules turn on |
| Monthly value | And how it was worked out |
| Taxable? | Yes or no, with the reason and the KRA rule relied on |
| Evidence | Where the invoices, contracts or club bills are kept |
Keep the evidence in Document Centre, Achekam's folder-based store, in a folder per benefit or per employee, tagged so that it can be found by search. When a contract or invoice changes, upload the new version; earlier versions are kept, so the register's history can be traced.
Review the register whenever someone joins, leaves or changes role, and at least once a year. Travel payments follow their own rules; see mileage and night-out allowances.
KRA's FAQ on PAYE and employee benefits explains how PAYE applies to benefits, non-cash pay and staff loans, with a worked example. Read it with the person who prepares your corporation tax return.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
