Running payroll in Nigeria is not just about paying salaries. The law requires you to calculate and remit PAYE (Pay As You Earn), pension contributions, NHF (National Housing Fund), and in some cases NHIF. Getting it wrong means penalties from FIRS — and frustrated employees.
1. Calculate Gross Salary
Gross salary is the total cost of employment before any deductions. It includes basic salary plus any allowances (housing, transport, meal). Write this down clearly per employee — it is the starting point for all calculations.
2. Deduct Pension (Employee Side)
Under the Pension Reform Act, employees contribute a minimum of 8% of their monthly emoluments (basic salary + housing + transport allowances). This is deducted from the employee's gross and remitted to their chosen Pension Fund Administrator (PFA) before the 7th of the following month.
3. Deduct NHF
National Housing Fund deduction is 2.5% of basic salary for employees earning ₦3,000 or more per month. This is remitted to the Federal Mortgage Bank of Nigeria. NHF deduction happens before PAYE is calculated.
4. Calculate Consolidated Relief Allowance (CRA)
Before you calculate PAYE, you are entitled to a Consolidated Relief Allowance. This is the higher of: ₦200,000 per annum, or 1% of gross income, PLUS 20% of gross income.
For example: an employee on ₦5,000,000 gross annual salary gets CRA of: ₦200,000 + (20% × ₦5,000,000) = ₦1,200,000.
5. Apply the PAYE Tax Table
Once you have taxable income (gross minus CRA minus pension minus NHF), apply the FIRS graduated tax bands:
• 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%
Note: Any remaining tax after applying these bands gets an additional 24%.
6. Employer Pension Contribution
The employer must also contribute a minimum of 10% of the employee's monthly emoluments to the same PFA. This is not deducted from the employee — it is an additional cost to the employer on top of the gross salary.
7. Generate Payslips
Every employee must receive a payslip showing gross salary, each deduction itemised, and net take-home pay. Keep payroll records for at least 6 years for FIRS audit purposes.
How ElorPra handles all of this automatically
In ElorPra, you enter each employee's gross salary and the system calculates PAYE, pension, and NHF automatically using the current tax bands. It generates payslips, exports a bank transfer file for payment, and keeps your full payroll history. You never touch a spreadsheet again.
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