Payroll Management in Nigeria: A Step-by-Step Guide

Payroll is the one finance process every employee checks. Get an invoice wrong and a customer queries it. Get payroll wrong and 46 people query it, on the same morning. This guide walks through a monthly payroll in Nigeria from start to finish, under the rules in force from 1 January 2026.

Before you start: the rules changed in 2026

The Nigeria Tax Act 2025 took effect on 1 January 2026. It replaced the Personal Income Tax Act, removed the old Consolidated Relief Allowance and introduced new PAYE bands and a rent relief. Tax administration now sits with the Nigeria Revenue Service (NRS) at federal level and the state internal revenue services, which collect PAYE for employees resident in their state. If your payroll spreadsheet still has a CRA column, it's out of date.

Step 1: Get employee data right before anything else

Most payroll errors are data errors. Before the first run, and whenever someone joins or changes role, confirm the following for each employee:

• legal name, staff ID, department and start date;
• the salary structure: basic, housing, transport and any other allowances, each as a separate line;
• TIN, the state of residence (this decides which state's revenue service receives their PAYE), and annual rent paid if they claim rent relief;
• pension: the Pension Fund Administrator (PFA) and Retirement Savings Account (RSA) PIN;
• bank account for salary;
• any standing deductions: staff loans, salary advances, cooperative contributions.

The structure matters because different deductions use different bases. Pension is calculated on basic, housing and transport. NHF is usually calculated on basic. PAYE is calculated on total income less allowable deductions.

Step 2: Capture the month's changes

Before calculating, collect everything that changes this month's pay: new starters and leavers (pro-rated), overtime, one-off allowances, penalties, unpaid leave and loan repayments. Each change should come with an approval. "The MD said it was fine" isn't a record.

Step 3: Calculate gross pay

Gross pay is the fixed salary plus this month's variable items. Keep the components separate on every line, so the next steps use the right base.

Step 4: Calculate statutory deductions

These are the items most Nigerian employers deal with. Rates below are as published at the time of writing; check them against the sources listed with this article.

PAYE under the Nigeria Tax Act 2025

Annual chargeable income is taxed in bands:

Chargeable income is gross income less allowable deductions, which include the employee's pension and NHF contributions and rent relief: 20% of annual rent paid, capped at ₦500,000, for employees who rent and can document it. Our guide to PAYE under the Nigeria Tax Act 2025 covers the detail.

A worked example

Aisha Bello earns ₦650,000 a month: basic ₦300,000, housing ₦150,000, transport ₦75,000 and other allowances ₦125,000. She rents a flat in Yaba for ₦1,800,000 a year.

PAYE: 0% on the first ₦800,000, then 15% on ₦2,200,000 (₦330,000) and 18% on the remaining ₦3,846,000 (₦692,280). That's ₦1,022,280 a year, or ₦85,190 a month. Her employer also pays ₦52,500 a month into her RSA (10% of ₦525,000), on top of her salary.

Step 5: Apply other deductions

Now apply loan repayments, salary advances and any other approved deductions. Keep them visibly separate from statutory items on the payslip. Make sure no deduction takes an employee's pay below what your policy, and the law, allows. If a loan repayment is paused this month, record who approved the pause.

Step 6: Review and approve the run

Before anyone pays anything, a second person should review the run. Compare it against last month: headcount, gross total and each statutory total. A 30% jump in overtime or a new employee with no pension PIN should be explained before approval, not after. A proper approval workflow means the person who prepared the payroll isn't the person who approves it, and each approval is timestamped.

Step 7: Pay salaries and issue payslips

Pay net salaries and issue a payslip to every employee on the same day. A clear payslip, with each deduction shown, prevents most payroll questions before they're asked. See what a payslip should show.

Step 8: Prepare and pay the remittances

Each statutory item has its own destination and deadline:

• PAYE goes to the state internal revenue service where each employee lives, monthly. Check your state's current deadline.
• Pension goes to each employee's PFA, through the custodian, within 7 working days of paying salaries.
• NHF goes to the Federal Mortgage Bank of Nigeria.
• NSITF is commonly paid monthly, but we couldn’t confirm an official due date, so check the current deadline with the NSITF (see NHF, NSITF and ITF).
• ITF is paid annually.

A remittance schedule per item, listing each employee and amount, makes this a checklist instead of a scramble.

Step 9: Keep the records

Keep each month's approved payroll, payslips, remittance schedules and proof of payment. Tax authorities, PenCom and auditors can all ask for them, and a former employee may ask for a payslip from three years ago.

How Flux helps

Flux Payroll runs pay runs through approval steps, with a payroll dashboard and an audit trail. It calculates and tracks PAYE, pension, NHF, NSITF and ITF, and prepares the statutory remittance schedules for you to pay. Allowances, overtime, penalties, deductions and staff loans, including loan pauses, each carry their own approvals. Payslips go to employees through self-service, and monthly and annualised reports, pension schedules and staff-loan reports export to Excel. You can onboard staff in bulk from Excel too.