Your total pay is more than the number on the contract. Allowances in cash and benefits in kind, such as a car or housing, usually count as income, and tax is due on them even though you never see the money. Understanding how they are valued helps you compare job offers properly.

Cash allowances

Housing, transport, commuter, airtime and similar allowances paid in cash are added to your salary and taxed in full. They also increase SHIF and the Housing Levy, which are charged on gross pay. If an employer offers KES 20,000 in allowances instead of KES 20,000 of salary, the tax is the same, though NSSF may differ because it is based on pensionable pay.

Benefits in kind

When the employer provides something instead of cash, a taxable value is placed on it.

Company car. The benefit is the higher of a percentage of the car's cost each month or an amount set by KRA based on engine size. Even a car you use mainly for work can have a private-use value. The taxable benefits calculator works out the value for you.

Housing. If the employer provides housing, the benefit is usually the higher of the rent paid by the employer and a share of your income, with different rules for directors and for agricultural employees.

Meals. Free or subsidised meals can be a benefit above a monthly value.

Per diem. Reasonable allowances for travel on business, up to a daily limit, are not taxed; anything above the limit is.

A worked example

An employee earning KES 120,000 is given a car worth KES 1,500,000 with a taxable value of KES 30,000 a month. The benefit adds KES 30,000 to taxable income, and at the 30% band the extra PAYE is about KES 9,000 a month. You never receive the KES 30,000 in cash, but you pay the tax on it. Enter your own numbers in the PAYE calculator to see the total effect.

Benefits that are not taxed

Some arrangements are treated more kindly, for example certain pension contributions, medical insurance paid by the employer and benefits provided for the employer's purposes. The rules are detailed, so confirm any benefit before you rely on it. Reliefs you can claim yourself are covered in how to claim insurance relief.

What to ask before you accept a benefit

  1. Is it taxable, and at what value?
  2. Does the employer pay the tax, or do I?
  3. What happens to the benefit if I leave?
  4. Is it in my contract in writing?

Records for employers

Employers must show taxable benefits on the payslip and on the P9. The benefits and allowances register lists each benefit by employee with its monthly value and whether it is taxable, and the monthly payroll workbook adds allowances to taxable pay. Read filing your employment return with a P9 to see how benefits appear at year end.

Comparing offers

When two jobs offer different packages, compare net pay after tax and the value of what you will really use. The gross-to-net salary table helps compare take-home pay for different salaries, and gross pay versus net pay shows how to negotiate with the full picture in mind.

Valuation rules for benefits are set out in the Income Tax Act and KRA notices and are revised from time to time. Confirm the current rules with KRA.