How to calculate PAYE in Nigeria (2026)

Your staff will ask why net pay changed. PAYE is usually why. Here’s how Nigerian employers work out the deduction, remit on time, and keep records that satisfy state IRS.

  • Taxable pay = gross minus pension, NHF, then reliefs and bands.
  • Remit monthly to the employee’s state IRS — late costs interest.
  • Keep payslips and statutory payment receipts for six years.

Friday afternoon. Your ops lead slides a payslip across the table: “Why is my tax higher this month?” If you are still calculating PAYE in a spreadsheet tab you copied in 2023, that conversation will keep happening.

Pay-As-You-Earn is the monthly income tax you deduct from staff and pay to the State Internal Revenue Service (SIRS) where each employee is resident. Get it wrong and you pay interest. Get it opaque and you lose trust.

PAYE should sit on the payslip next to pension and NHF — not in a hidden cell.

What goes into taxable pay

Start with what the employee actually earns in cash: basic, housing, transport, bonuses paid that month. Then subtract what the law treats as non-taxable or deductible before you apply the tax bands.

  • Include: basic, fixed allowances, commissions and bonuses paid in the month
  • Deduct employee pension (8%) and NHF (2.5% of basic where it applies) before PAYE
  • Apply consolidated relief allowance (CRA) per current FIRS guidance
  • Document assumptions on benefits-in-kind — do not guess quietly

Working out the monthly deduction

  1. Annualise monthly taxable emoluments (watch one-off bonuses — they can spike a month).
  2. Apply CRA and arrive at chargeable income.
  3. Run progressive tax bands on the chargeable amount.
  4. Divide annual tax by 12 for the PAYE withheld this month.
  5. Show PAYE clearly on the payslip after pension and NHF.

Remittance — do not miss the date

Remit to the employee’s state of residence (your adviser will confirm edge cases). Most states expect monthly payment, often by the 10th of the following month. Late payment attracts interest and penalties you could have avoided with a calendar reminder.

  • Monthly schedule: name, gross, tax deducted per employee
  • Proof of payment — portal receipt, bank teller, or gateway confirmation
  • Annual returns where your state requires them
  • Payslips archived — staff and auditors both ask

What to keep for six years

Revenue officers reconcile three things: what you paid people, what you deducted, and what you paid to the state. Payslips, payroll registers, and payment receipts should tell one story.

Run PAYE in Business Buddy — Nigeria statutory pack · payslips staff can open on their phone