Allowances and perks can be tax-free up to a limit, and the limits changed recently. Employers who still use the old amounts either over-tax their staff or pay allowances in the wrong form. This article lists the changes that matter to payroll teams, and gives a short action list.

Per diem: KES 10,000 a day from 1 July 2025

A per diem is an allowance paid to an employee for meals and accommodation when travelling on official business away from their home base. The Income Tax Act treats the per diem as tax-free up to a daily limit. That limit was KES 2,000 a day. From 1 July 2025 the limit rose to KES 10,000 a day. Amounts above the limit are taxable benefits and go through PAYE.

To benefit, the allowance must be a genuine per diem for travel for the employer's business, not a disguised salary. Keep travel authorisations, dates and destinations. The distinction between a taxable allowance and an exempt one is covered in taxable allowances and company benefits, and you can test the numbers in the taxable benefits calculator.

Staff meals: KES 5,000 a month from 27 December 2024

When an employer provides meals to staff, for example in a canteen or through meal vouchers, the value is exempt from tax up to a monthly limit. The limit was KES 4,000 for a long period. From 27 December 2024, following the Tax Laws (Amendment) Act 2024, it is KES 5,000 a month per employee. The excess is taxable. This applies to meals provided to employees; cash paid instead of meals is part of pay.

Post-retirement medical costs

Contributions to a post-retirement medical fund are a deduction capped at KES 15,000 a month from 27 December 2024. Before that date the relief took a different form. Employers should confirm how their scheme is set up and whether contributions are processed before tax: see pension contributions and tax relief. The pension contribution limit also changed, with the monthly deduction limit now at KES 30,000.

What this means for the payroll

  1. Update the rates in payroll software for per diem and staff meals from the effective dates. Payroll for months before the dates uses the old limits.
  2. Review allowance policy. If travel per diems were set low because of the tax limit, you may now pay a fair daily rate within the exemption.
  3. Do not relabel salary as per diem. Regular payments not linked to travel are salary. KRA looks at the substance.
  4. Document each trip: purpose, dates, place and amount.
  5. Show the allowance separately on the payslip, with the taxable portion (if any) in taxable pay. The payslip generator can display allowances.
  6. Use the register. Record all allowances in the benefits and allowances register.

For employees

If you travel for work, check that your employer applies the new limit. If you are paid a per diem above the old limit and your payslip taxed the excess, ask payroll to recompute from 1 July 2025 and, if tax was overpaid, claim any balance on your return: how to claim a PAYE refund. Compare your take-home pay with the PAYE calculator.

Other limits to know

Example

An employee travels for five days and receives a per diem of KES 12,000 a day, KES 60,000 in total. Under the limit of KES 10,000 a day, KES 50,000 is exempt and KES 10,000 is taxable. Add the KES 10,000 to the month's taxable pay and run the PAYE calculator to see the tax.

Keep checking

Allowance limits are changed by Finance Acts. Subscribe to updates and review your payroll settings at the start of each financial year: how to follow tax changes in Kenya.

Frequently asked questions

Does the per diem limit apply to local and international travel? The Act sets one daily limit for per diem. Check the conditions on the type of travel and the documents required.

Can I pay a per diem without a trip? No. Without business travel it is not a per diem and is taxed as salary.

Is meal allowance in cash exempt? No. The exemption is for meals provided by the employer. Cash allowances are taxable pay.

When did the changes take effect? Staff meals from 27 December 2024 and the per diem limit from 1 July 2025.