Your exact take-home
2026 KRA rates, instant
Yes. Payment in lieu of notice is normally taxable employment income in Kenya. Being paid after your last working day does not by itself make it tax-free. The important checks are what the payment replaces, the period used for tax and whether the final statement separates it from salary, leave and other exit payments.
Use the Kenya PAYE calculator to understand ordinary salary deductions. It is not a terminal-settlement calculator: a payment allocated across periods needs a separate payroll calculation. The employment and tax guide explains the wider context.
Notice worked and notice paid are different records
If you work through a notice period, the salary for that work is recorded through payroll. Payment in lieu of notice replaces a period you do not work. Your employer should identify it as a separate item so its calculation can be checked against the contract or applicable employment terms.
Do not confuse notice pay with compensation for termination or a contractual gratuity. A settlement headed “terminal benefits” may contain all three, but that heading does not establish the tax treatment of each line. Start with the terminal-dues breakdown if the offer is presented as one total.
Which period does notice pay belong to?
KRA's lump-sum guidance places notice pay in the period immediately following termination. Ask payroll to show the dates covered, especially if a notice period runs across December and January. The transfer date alone does not explain the allocation.
The published examples in the older employer guide use historical tax bands. Copying their procedure is different from copying their rates. Ask which year's rules were applied and how income or tax already accounted for in the relevant period was treated.
A gross notice-pay example
Suppose the agreed notice entitlement is two months at KES 60,000 a month. The gross notice amount is KES 120,000. If the settlement also contains KES 18,000 unpaid salary and KES 12,000 unused leave, the gross settlement is KES 150,000, with three separately labelled lines.
These figures establish the gross entitlement only. They do not imply a fixed tax of 30% or a guaranteed net payment. The notice period, other income, applicable reliefs and the treatment of each component still matter. Keep the contractual salary basis explicit rather than assuming every allowance is included in the notice calculation.
What to ask payroll before payment
- How many days or months of notice are being paid, and under which terms?
- What salary basis and effective dates produce the gross amount?
- Which tax period receives each part of the notice payment?
- What PAYE has already been credited in that calculation?
- Which other deductions reduce the bank payment, and why?
Request the calculation in writing, together with the final payslip and relevant P9 records. If another employer starts paying you during the same period, use the changing-jobs PAYE checklist to keep both sets of records consistent.
If the notice amount is disputed
A disagreement about how much notice you are owed is separate from whether payroll calculated tax correctly. Identify the disputed gross entitlement first, then ask for a revised tax calculation if the amount changes. Retain the original and corrected statements; the PAYE correction guide explains how to organise that evidence.
Sources and review date
Published and reviewed on 29 October 2026. Historical guidance explains allocation; use the law and rates applicable to each payment and period.