The levy is intended to pay for the construction of affordable housing for poorer Kenyans.
But it sparked an outcry from the opposition and a large section of the population who feel burdened by a raft of new taxes.
The law had been held up in the courts.
A judge had stopped the deductions citing lack of a legal framework. However, MPs amended and approved the bill last week despite objections from opposition legislators.
The levy, which had been mentioned in Mr Ruto's manifesto for the 2022 election, was part of a finance law adopted last June that also doubled the sales tax on fuel. A new higher health insurance levy is also due to come into effect soon.
The government has argued that it needs to increase its revenue from taxation in order to reduce the budget deficit and pay for public services.
The authorities had begun deducting the 1.5% housing levy from peoples' pay from last July. But, amid public anger, one activist took the government to court arguing successfully that it unfairly singled out Kenyans in the formal sector who get a regular monthly salary.
In order to address the issues raised by the court, the new law now extends the levy to other workers and now requires non-salaried Kenyans in the informal sector to pay the levy.
It is not clear how the government will collect the money from those in the informal sector.
The new law also establishes the Affordable Housing Fund, which is intended to manage the money the government will get from the levy.
The authorities say the deduction will not be backdated to include the money that would have been paid had the scheme not been suspended.
President Ruto is aiming to construct 200,000 affordable housing units every year and hopes to create more than 600,000 jobs.
The opposition has threatened to take this new law to court, alleging the government ignored concerns of Kenyans over the increasing tax burden.
