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Pay-As-You-Earn (PAYE) is the tax deducted from employee salaries in Nigeria. As an employer, you're responsible for calculating, deducting, and remitting PAYE to the relevant tax authority. This guide explains the current tax tables, calculation methods, and how to ensure accurate payroll tax compliance.

Understanding PAYE in Nigeria

What is PAYE?

PAYE is:

Tax on employment income
Deducted monthly by employers
Remitted to State Internal Revenue Service (SIRS)
Credited to employee's annual tax liability

Who Pays PAYE?

Employment Type	PAYE Applies?
Full-time employees	Yes
Part-time employees	Yes
Contract staff (on payroll)	Yes
Independent contractors	No (different rules)
Directors with salaries	Yes

Responsible Parties

Employee: Bears the tax (deducted from salary)
Employer: Calculates, deducts, and remits
State IRS: Receives and administers PAYE

Personal Income Tax Rates

The Tax Bands

Nigeria uses a graduated tax rate system:

Annual Income Band	Tax Rate
First ₦300,000	7%
Next ₦300,000	11%
Next ₦500,000	15%
Next ₦500,000	19%
Next ₦1,600,000	21%
Above ₦3,200,000	24%

Monthly Equivalent

Monthly Income Band	Tax Rate
First ₦25,000	7%
Next ₦25,000	11%
Next ₦41,667	15%
Next ₦41,667	19%
Next ₦133,333	21%
Above ₦266,667	24%

Minimum Tax

If calculated tax is less than minimum tax:

Minimum tax = 1% of gross income
Pay the higher of calculated tax or minimum tax

Tax Reliefs and Allowances

Consolidated Relief Allowance (CRA)

Every taxpayer receives CRA:

CRA = ₦200,000 + 20% of Gross Income

Gross Income	CRA Calculation	CRA Amount
₦2,000,000	₦200,000 + (20% × ₦2M)	₦600,000
₦5,000,000	₦200,000 + (20% × ₦5M)	₦1,200,000
₦10,000,000	₦200,000 + (20% × ₦10M)	₦2,200,000

Other Allowable Deductions

Additional deductions from gross income:

Deduction	Rate/Amount
Pension contribution (employee)	8% of basic, housing, transport
National Housing Fund (NHF)	2.5% of basic salary
National Health Insurance (NHIS)	Varies
Life assurance premium	Subject to limits
Mortgage interest	Subject to limits

Step-by-Step PAYE Calculation

Step 1: Determine Gross Income

Add all taxable income components:

Component	Amount
Basic salary	₦400,000
Housing allowance	₦200,000
Transport allowance	₦100,000
Other allowances	₦100,000
Gross monthly income	₦800,000

Annual gross = ₦800,000 × 12 = ₦9,600,000

Step 2: Calculate Consolidated Relief Allowance

CRA = ₦200,000 + (20% × ₦9,600,000) CRA = ₦200,000 + ₦1,920,000 CRA = ₦2,120,000

Step 3: Deduct Pension Contribution

Employee pension (8% of pensionable):

Pensionable = Basic + Housing + Transport
Pensionable = ₦400,000 + ₦200,000 + ₦100,000 = ₦700,000/month
Annual pensionable = ₦8,400,000
Pension deduction = 8% × ₦8,400,000 = ₦672,000

Step 4: Deduct NHF

NHF = 2.5% × Basic salary NHF = 2.5% × (₦400,000 × 12) NHF = ₦120,000

Step 5: Calculate Taxable Income

Item	Amount
Gross income	₦9,600,000
Less: CRA	(₦2,120,000)
Less: Pension	(₦672,000)
Less: NHF	(₦120,000)
Taxable income	₦6,688,000

Step 6: Apply Tax Bands

Band	Amount	Rate	Tax
First ₦300,000	₦300,000	7%	₦21,000
Next ₦300,000	₦300,000	11%	₦33,000
Next ₦500,000	₦500,000	15%	₦75,000
Next ₦500,000	₦500,000	19%	₦95,000
Next ₦1,600,000	₦1,600,000	21%	₦336,000
Balance ₦3,488,000	₦3,488,000	24%	₦837,120
Total annual tax	₦1,397,120

Step 7: Determine Monthly PAYE

Monthly PAYE = ₦1,397,120 ÷ 12 = ₦116,427

Step 8: Check Minimum Tax

Minimum tax = 1% × ₦9,600,000 = ₦96,000

Calculated tax (₦1,397,120) > Minimum tax (₦96,000)

Pay calculated tax.

PAYE Calculation Summary Table

Item	Annual (₦)	Monthly (₦)
Gross income	9,600,000	800,000
Less: CRA	(2,120,000)	(176,667)
Less: Pension	(672,000)	(56,000)
Less: NHF	(120,000)	(10,000)
Taxable income	6,688,000	557,333
PAYE	1,397,120	116,427

Net Salary Calculation

Item	Monthly (₦)
Gross salary	800,000
Less: PAYE	(116,427)
Less: Pension (employee)	(56,000)
Less: NHF	(10,000)
Net salary	617,573

Common Scenarios

Scenario 1: Low Income Employee

Annual gross: ₦1,200,000 (₦100,000/month)

Item	Amount
Gross income	₦1,200,000
CRA	(₦440,000)
Pension (8%)	(₦96,000)
NHF (2.5% of basic)	(₦15,000)
Taxable income	₦649,000

Tax calculation:

First ₦300,000 @ 7% = ₦21,000
Next ₦300,000 @ 11% = ₦33,000
Balance ₦49,000 @ 15% = ₦7,350
Annual tax = ₦61,350

Minimum tax = 1% × ₦1,200,000 = ₦12,000

Pay calculated tax (₦61,350 > ₦12,000)

Monthly PAYE = ₦5,113

Scenario 2: Executive

Annual gross: ₦24,000,000 (₦2,000,000/month)

Item	Amount
Gross income	₦24,000,000
CRA	(₦5,000,000)
Pension	(₦1,440,000)
NHF	(₦240,000)
Taxable income	₦17,320,000

Tax (simplified):

Through bands 1-5: ₦560,000
Balance ₦14,120,000 @ 24%: ₦3,388,800
Annual tax = ₦3,948,800

Monthly PAYE = ₦329,067

Scenario 3: Part-Year Employment

Employee joins mid-year (July):

Calculate annual equivalent for bands
Prorate for months worked
Or calculate monthly directly

State-Specific Considerations

Residence vs Employment State

PAYE is paid to the State where the employee is resident, not where they work.

Employee Residence	Employment Location	PAYE Paid To
Lagos	Lagos	Lagos State IRS
Lagos	Abuja	Lagos State IRS
Abuja	Lagos	FCT-IRS

State Differences

While rates are federally harmonized, some administration may vary:

Filing procedures
Payment channels
Deadlines

Employer Obligations

Monthly Requirements

Calculate PAYE for each employee
Deduct from salary at payment
Remit to State IRS by 10th of following month
Keep records of deductions

Annual Requirements

File Form H1 (annual return) by January 31
Reconcile annual deductions
Issue P9 (tax deduction cards) to employees
Respond to queries from State IRS

Common Errors

Error 1: Wrong Reliefs

Mistake: Not applying CRA correctly Impact: Over or under-deduction Fix: Use formula: ₦200,000 + 20% of gross

Error 2: Missing Pension Deduction

Mistake: Not deducting pension before tax Impact: Higher tax than required Fix: Deduct pension from gross before applying bands

Error 3: Wrong State

Mistake: Remitting to wrong State IRS Impact: Employee doesn't get credit Fix: Confirm employee residence; remit to correct state

Error 4: Ignoring Minimum Tax

Mistake: Not checking minimum tax rule Impact: Under-deduction for low tax cases Fix: Always compare calculated tax to 1% minimum

How Finora Calculates PAYE

Automatic Computation

Finora handles all PAYE calculations:

Employee Setup:

Enter salary components
System calculates gross income
Reliefs applied automatically

Monthly Payroll:

PAYE calculated per employee
Deductions computed
Net salary determined

Configured Reliefs

Pre-configured for Nigeria:

CRA calculation
Pension deduction rates
NHF rates
Tax bands

Payslip Generation

Professional payslips showing:

Gross earnings
All deductions
PAYE tax
Net pay

PAYE Return Preparation

Monthly and annual returns:

Employee-by-employee detail
Summary for remittance
Form H1 preparation

Frequently Asked Questions

Do all employees pay PAYE?

All employees with taxable income are subject to PAYE. However, after reliefs, some low-income employees may have minimal or zero tax.

What if I have employees in different states?

Remit PAYE to each employee's state of residence. You may have multiple remittances.

Is overtime pay taxable?

Yes. Overtime, bonuses, and most allowances are part of gross income for PAYE purposes.

What about benefits in kind?

Benefits in kind (car, housing provided by employer, etc.) may be taxable. Rules are complex—consult regulations.

How do I handle mid-month joiners?

Prorate their first month's salary and calculate PAYE on the prorated amount, or include in full next month.

Conclusion

PAYE is a fundamental employer obligation in Nigeria. Key points:

Graduated rates from 7% to 24%
CRA reduces taxable income (₦200,000 + 20%)
Pension and NHF are also deducted before tax
Monthly remittance by the 10th
Annual returns via Form H1

Accurate PAYE calculation protects both you (as employer) and your employees. Finora automates the entire process—from calculation to payslip generation to return preparation.

Need accurate PAYE calculations?

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