Payroll mistakes tend to cluster at the turn of the year. Rates change, employees' circumstances change and last year's loose ends carry over. A short checklist, completed before the first payroll of the year, prevents most errors and sets up a clean twelve months. This guide covers the main steps for employers, whatever size. Check current rates and rules with the relevant authorities.

1. Close the old year

Before you move on, finish the previous year's payroll. Reconcile the annual totals of PAYE, NSSF, SHIF and the Housing Levy with what was paid, and issue P9 forms to employees. Understanding your P9 form, box by box shows what employees expect, and the annual PAYE and payroll summary helps compile the figures. Clear any differences and file outstanding returns.

2. Update statutory rates and thresholds

Check the current rates for PAYE bands, personal relief, NSSF, SHIF, the Housing Levy and the minimum wage. Rates can change with a Finance Act or an order, and the effective dates vary. Look at NSSF rates change from February 2026, minimum wage order 2026: new rates from May and housing levy and SHIF now deductible before PAYE as examples of changes that took effect on specific dates. Update your payroll system or workbook, and test a few salaries with the PAYE calculator, the NSSF calculator and the net to gross salary calculator.

3. Review employee records

Check every employee's details: name, ID, PIN, bank account, job title, pay and benefits. Ask staff to confirm their details and report changes. Update dependants, insurance relief claims and pension contributions. The employee records register and the staff contact and emergency details register help you keep them tidy.

4. Confirm pay changes

Record any increases agreed for the new year, with effective dates and approval. A salary change that is agreed but not entered will cause arguments. The salary increment planner and the salary bands and pay grade structure workbook support this. Check that nobody is below the minimum wage.

5. Update leave balances

Carry forward leave according to your policy, and calculate liabilities for unused days. The leave liability and accrual calculator and the leave encashment calculator help. Annual leave rights and leave pay in Kenya sets out the rules. Plan public holidays with the public holiday and leave calendar planner.

6. Set the payroll budget

Prepare a budget for the year based on current headcount, planned changes and statutory costs. The staff cost and headcount budget and the employee cost to company calculator show the full cost of each person. Track it against actual with the payroll budget vs actual tracker.

7. Review benefits and allowances

Check that benefits in kind and allowances are recorded and taxed correctly; see taxable allowances and company benefits and company car and housing benefits. Update the benefits and allowances register. Confirm medical cover renewals and limits.

8. Set up the filing calendar

Put the monthly deadlines for PAYE, NSSF, SHIF and the Housing Levy in your calendar, with reminders. Employer obligations checklist lists them, and the statutory remittance tracker tracks each payment. Late payment has penalties; see KRA penalties and interest explained.

9. Test the first payroll

Run a draft of the first payroll and compare it with the last payroll of the old year. The payroll month-on-month variance report flags lines that moved. Investigate every unexpected change before you pay. Use the payroll run checklist for the steps.

10. Communicate with staff

Tell employees about changes that affect their pay, with examples; see how to explain a tax change to your staff or customers. Offer a contact for questions. After the first payslips, check for queries and fix errors quickly.

Keep records

File the checklist, the rate updates and the approvals with the payroll records. How to run payroll for a small business in Kenya describes the full cycle. A careful start to the year saves time and avoids the corrections that follow a rushed one.

Keep evidence of the checks

When you finish the checklist, sign and date it and file it with the first payroll of the year, together with a printout of the rates you applied and the approvals for pay changes. If a question arises later about why a figure was used from a given month, the file answers it. It also gives whoever covers payroll while you are away a clear record of what was done and why.