Nigeria — Payroll Computation (End-to-End) — Skill v1.0

Scope note: This skill is the end-to-end monthly payroll orchestrator. It does NOT redefine PAYE brackets, CRA formulas, pension percentages, or NHF thresholds — those live in the dependency skills (ng-paye, ng-statutory-deductions). This skill defines the sequence, the payslip layout, the remittance calendar, and the year-end reconciliation workflow.

2025 changes summary (v1.0): The Nigeria Tax Administration Act 2025 (NTA 2025), passed in Q1 2025 with phased commencement through 2026, introduces a unified payroll module under FIRS Tax Pro-Max intended to consolidate PAYE filings for federal MDAs and (subject to MoU) state Internal Revenue Services. As of the 2025 tax year, state IRS portals (LIRS e-tax, FCT-IRS, OGIRS, etc.) remain the primary PAYE remittance channel for private-sector employers. See Section 5 for the current remittance routing.

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Section 1 — Quick reference: payroll component order

The order of deductions matters because Pension and NHF reduce the chargeable income before PAYE is computed, while NSITF, ITF, EDT and the employer pension share are employer costs that do NOT affect the employee's PAYE base.

Step	Component	Effect on employee PAYE base	Paid by
1	Gross monthly emolument (basic + housing + transport + other taxable allowances + BIK)	Starting point	—
2	− Employee Pension contribution (8% of BHT, see ng-statutory-deductions)	Reduces PAYE base	Employee
3	− Employee NHF contribution (2.5% of basic, if applicable)	Reduces PAYE base	Employee
4	− Employee NHIS contribution (if scheme operated; varies)	Reduces PAYE base	Employee
5	= Gross income for CRA purposes	—	—
6	− Consolidated Relief Allowance (CRA) — max(NGN 200,000, 1% × gross) + 20% × gross	Reduces PAYE base	—
7	= Chargeable income	—	—
8	Apply PITA Sixth Schedule progressive brackets (see ng-paye)	→ PAYE liability	—
9	= PAYE for the month	—	Employee (withheld)
10	Net pay = Gross − Employee Pension − Employee NHF − Employee NHIS − PAYE − any voluntary deductions	—	—

Employer-side costs (parallel, do NOT affect employee net):

Component	Rate / amount	Notes
Employer Pension	10% of BHT	Remitted to employee's PFA via PFC
NSITF (ECS)	1% of total payroll	Employer-only
ITF	1% of total payroll (employers with ≥ 5 staff OR turnover ≥ NGN 50m)	Annual return
EDT (Tertiary Education Tax)	Not employer payroll cost — corporate tax on assessable profits
NHIS employer share	If group scheme operated; varies

Conservative default: When in doubt whether a deduction reduces the PAYE base, treat it as non-deductible (i.e. PAYE is computed on the higher figure) and flag for reviewer. Over-withholding can be refunded via year-end reconciliation; under-withholding triggers SIRS penalties and interest.

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Section 2 — Required inputs & refusal catalogue

2.1 Inputs required to run a payroll

For each employee, the following must be confirmed before computation:

Input	Source	Notes
TIN (Tax Identification Number)	Employee record / JTB	Required for PAYE filing; flag if missing
State of tax residence	Employee record	Determines which SIRS receives PAYE (per PITA §2(2))
Gross monthly emolument breakdown	Contract / HR	Must split Basic / Housing / Transport / Other
Pension scheme status	RSA + PFA details	Confirm employee has RSA opened
NHF applicability	Salary ≥ NGN 3,000/month and Nigerian citizen	See ng-statutory-deductions
NHIS scheme details	If operated by employer	Optional except for federal MDAs
Marital / dependent status	Not relevant for CRA (Nigeria abolished personal/children allowances in 2020)	Retained only for HR records
Benefits in Kind (BIK) for the month	HR / accounts payable	Must be quantified before PAYE

2.2 Refusal catalogue — out of scope for this skill

Scenario	Action
Cross-border employment (employee tax-resident outside Nigeria, employer in Nigeria)	Refer to a qualified Nigerian tax consultant — treaty analysis required
Expatriates with split-pay arrangements (home-country + Nigeria)	Out of scope; refer to specialist
Directors' fees not paid through payroll	Out of scope — covered by WHT under ng-paye
Employee stock options / share-based payments	Out of scope — bespoke valuation and CGT interaction
Salary sacrifice into pension above 8% statutory	Permitted under PRA 2014 §11(7) but flag for reviewer — quantum and PAYE-deductibility need confirmation
Termination payments / gratuity > NGN 10m	Flag — exemption thresholds and tax treatment require legal review
Backdated salary adjustments spanning > 1 tax year	Refer to specialist — re-opening of prior-year H1 may be required

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Section 3 — Step-by-step payroll computation

The procedure below is the canonical monthly run. Apply per employee.

Step 1 — Build the gross emolument

Basic salary                          B
+ Housing allowance                   H
+ Transport allowance                 T
+ Other taxable allowances            O   (utility, meal, leave, entertainment, etc.)
+ Cash bonus paid in month            X
+ Benefits in Kind (BIK)              K
= Gross monthly emolument             G = B + H + T + O + X + K

Note on BHT: Pension contributions are computed on Basic + Housing + Transport (BHT), not on G. See ng-statutory-deductions for the legislative basis (PRA 2014 §4(3)).

Step 2 — Compute statutory deductions that reduce PAYE base

Deduction	Formula	Notes
Employee Pension	8% × (B + H + T)	Per PRA 2014
Employee NHF	2.5% × B	Only if Nigerian citizen AND monthly basic ≥ NGN 3,000
Employee NHIS	Per scheme rules (commonly 1.75% × B for federal MDAs)	Skip if no scheme

Call these collectively D_pre.

Step 3 — Compute CRA gross income and CRA

Gross_for_CRA = G − D_pre
CRA = max(NGN 200,000 annual / NGN 16,666.67 monthly, 1% × Gross_for_CRA) + 20% × Gross_for_CRA

Monthly application: Divide annual CRA components by 12, OR — recommended approach — compute on annualized gross and divide the result by 12. The annualized approach is more accurate when income varies month-to-month and matches the year-end reconciliation. See ng-paye for the canonical formula.

Step 4 — Chargeable income

Chargeable_monthly = Gross_for_CRA − CRA_monthly

Step 5 — Apply PITA Sixth Schedule progressive brackets

Annualize Chargeable_monthly × 12, apply the brackets from ng-paye, divide the result by 12 to get monthly PAYE. The annualized method avoids the regressive distortion that occurs when applying brackets directly to monthly income.

Step 6 — Minimum tax check

If the computed PAYE is less than 1% of gross income (minimum tax under PITA §37, see ng-paye), substitute the minimum tax. Common for low earners; rare for the salary range typically processed via formal payroll.

Step 7 — Net pay

Net pay = G − Employee Pension − Employee NHF − Employee NHIS − PAYE − Voluntary deductions (loan repayments, salary advance recoveries, union dues, etc.)

Step 8 — Employer-side accruals (parallel posting)

Item	Posted to
Employer Pension 10% × BHT	DR Payroll expense, CR Pension payable
NSITF 1% × total payroll	DR Payroll expense, CR NSITF payable
ITF 1% × total payroll (qualifying employers)	DR Payroll expense, CR ITF payable (accrued monthly, paid annually)

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Section 4 — Payslip components & sample

A conforming Nigerian payslip must show, at minimum:

1. Employer name, address, employer TIN
2. Employee name, employee TIN, RSA PIN, state of tax residence
3. Pay period and pay date
4. Gross emolument breakdown (basic, housing, transport, other allowances, BIK)
5. Statutory deductions, itemized (Pension, NHF, NHIS, PAYE)
6. Voluntary deductions
7. Net pay
8. Employer contributions (for transparency — Pension 10%, NSITF, ITF)
9. YTD totals (cumulative gross, cumulative PAYE, cumulative pension)

Sample payslip — Lagos employee, NGN 500,000 gross monthly

Full worked numbers are in Section 7. The layout below is the recommended template.

+-----------------------------------------------------------------+
|  ACME NIGERIA LTD                       PAYSLIP — MAY 2025      |
|  12 Awolowo Road, Ikoyi, Lagos                                  |
|  Employer TIN: 12345678-0001                                    |
+-----------------------------------------------------------------+
|  Employee: Adaeze Okafor       TIN: 98765432-0001               |
|  RSA PIN: PEN100123456789      State of residence: LAGOS        |
|  Pay date: 28 May 2025         Period: 01-31 May 2025           |
+-----------------------------------------------------------------+
|  EARNINGS                              NGN                      |
|    Basic salary                        250,000.00               |
|    Housing allowance                   100,000.00               |
|    Transport allowance                  50,000.00               |
|    Utility allowance                    50,000.00               |
|    Meal allowance                       50,000.00               |
|    Gross emolument                     500,000.00               |
+-----------------------------------------------------------------+
|  DEDUCTIONS                            NGN                      |
|    Employee Pension (8% × BHT)          32,000.00               |
|    NHF (2.5% × Basic)                    6,250.00               |
|    PAYE                                 56,xxx.xx (see §7)      |
|    Total deductions                                             |
+-----------------------------------------------------------------+
|  NET PAY                               NGN xxx,xxx              |
+-----------------------------------------------------------------+
|  EMPLOYER CONTRIBUTIONS (info only)    NGN                      |
|    Employer Pension (10% × BHT)         40,000.00               |
|    NSITF (1% × Gross)                    5,000.00               |
|    ITF (1% × Gross, accrued)             5,000.00               |
+-----------------------------------------------------------------+
|  YTD TOTALS (Jan–May 2025)              NGN                     |
|    Gross YTD                          2,500,000.00              |
|    PAYE YTD                             [auto]                  |
|    Pension YTD (employee)              160,000.00               |
+-----------------------------------------------------------------+

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Section 5 — Monthly remittance calendar

Item	Recipient	Deadline	Channel
PAYE	Relevant State IRS (state of employee's tax residence)	10th of the following month	LIRS e-tax (Lagos); FCT-IRS portal (FCT); other state IRS portals or bank Pay-Direct
Employee + Employer Pension	Pension Fund Custodian (PFC) for credit to employee's PFA	Within 7 working days of salary payment date	PFA transfer via PFC; PenCom RSA Multifund schedule
NHF	Federal Mortgage Bank of Nigeria (FMBN)	Within 1 month of deduction	FMBN-designated commercial banks
NSITF (ECS)	Nigeria Social Insurance Trust Fund	Monthly, by the last day of the following month	NSITF e-portal / designated banks
NHIS (if operated)	NHIS / HMO	Per scheme rules — typically monthly	HMO direct
ITF (employer only)	Industrial Training Fund	Annual — by 1 April of following year	ITF portal

NTA 2025 unified module (status note)

The NTA 2025 unified payroll module under FIRS Tax Pro-Max is being rolled out in phases:

• Phase 1 (2025): Federal MDAs migrate from IPPIS-only PAYE flows to Tax Pro-Max integration. Private-sector employers are NOT required to switch.
• Phase 2 (TBC, expected 2026): State IRS integration via MoU. Until the relevant state IRS publishes its onboarding notice, continue using the existing state portal (LIRS e-tax, etc.).
• Conservative default: Continue with current state IRS portals; track NTA 2025 commencement notices monthly.

Late-payment penalties (summary — full detail in ng-paye and ng-statutory-deductions)

Item	Penalty
PAYE late remittance	10% of unremitted tax + interest at CBN MPR + 5% (PITA §82)
Pension late remittance	2% per month of unremitted amount (PRA 2014 §11(7))
NHF late remittance	NGN 50,000 (individual) / NGN 100,000 (body corporate) + recovery
NSITF late remittance	10% of contribution + interest

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Section 6 — Year-end activities

6.1 Form H1 — Annual Employer's Return

Every employer must file Form H1 (Annual Employer's Return of all emoluments paid to employees) with the relevant State IRS by 31 January of the following year, covering the preceding tax year (1 January – 31 December).

Field	Content
Employer details	Name, TIN, address
Schedule of employees	Name, TIN, RSA PIN, total gross emolument, total reliefs (CRA, pension, NHF, NHIS), chargeable income, total PAYE remitted by month
Reconciliation	Sum of monthly PAYE remitted must equal computed annual PAYE per employee
Variance	Any under-remittance is payable; over-remittance is offsetable against the next year (refund procedurally difficult)

6.2 Employee tax deduction certificate (informal "P9A/P9B equivalent")

Nigeria has no single statutory equivalent of the Kenyan P9A/P9B form, but employers customarily issue an "Employee Tax Deduction Certificate" at year-end showing:

• Gross emolument per month and YTD
• Statutory deductions (Pension, NHF, NHIS) per month and YTD
• PAYE deducted per month and YTD
• Receipt numbers / SIRS PAYE schedule references

This certificate enables the employee to claim WHT credits, file self-assessment if they have other income sources, or substantiate income for credit/visa applications.

6.3 Reconciliation checklist

Check	Pass criterion
Sum of monthly Form A (PAYE schedule) = Form H1 total	✓
Pension contributions remitted = 18% × annual BHT for each employee	✓
NHF contributions remitted = 2.5% × annual basic for each qualifying employee	✓
NSITF remitted = 1% × annual total payroll	✓
ITF annual return filed (if applicable)	✓
Any retroactive bonuses / 13th-month spread per ng-paye rules	✓
BIK valuations consistent across months	✓

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Section 7 — Worked example

Scenario: Software developer, Lagos resident, NGN 500,000 gross monthly, employed full-time at a private fintech. No BIK. Nigerian citizen. Has RSA, TIN, and is NHF-eligible. Employer operates no NHIS group scheme.

A — Gross emolument breakdown

Component	NGN
Basic (50% of gross)	250,000
Housing (20%)	100,000
Transport (10%)	50,000
Utility allowance	50,000
Meal allowance	50,000
Gross monthly (G)	500,000

BHT = 250,000 + 100,000 + 50,000 = 400,000

B — Statutory deductions reducing PAYE base

Item	Formula	NGN
Employee Pension	8% × 400,000	32,000
NHF	2.5% × 250,000	6,250
NHIS	n/a (no scheme)	0
D_pre total		38,250

C — CRA computation (monthly basis using annualization)

Gross_for_CRA (monthly)   = 500,000 − 38,250        = 461,750
Gross_for_CRA (annualized)                          = 5,541,000

CRA (annual) = max(200,000, 1% × 5,541,000) + 20% × 5,541,000
             = max(200,000, 55,410)        + 1,108,200
             = 200,000                     + 1,108,200
             = 1,308,200

CRA (monthly) = 1,308,200 / 12 = 109,016.67

D — Chargeable income

Chargeable_monthly  = 461,750 − 109,016.67 = 352,733.33
Chargeable_annual   = 4,232,800

E — PAYE (PITA Sixth Schedule, applied annually then divided by 12)

Bracket	Slice	Rate	Tax (annual)
0 – 300,000	300,000	7%	21,000
300,001 – 600,000	300,000	11%	33,000
600,001 – 1,100,000	500,000	15%	75,000
1,100,001 – 1,600,000	500,000	19%	95,000
1,600,001 – 3,200,000	1,600,000	21%	336,000
3,200,001 – 4,232,800	1,032,800	24%	247,872
Annual PAYE			807,872
Monthly PAYE	807,872 / 12		67,322.67

Minimum tax check: 1% × 500,000 = 5,000 → not binding (computed PAYE is higher).

F — Net pay

Item	NGN
Gross	500,000.00
− Employee Pension	(32,000.00)
− NHF	(6,250.00)
− PAYE	(67,322.67)
Net pay	394,427.33

G — Employer cost ledger (monthly)

Item	NGN
Gross emolument	500,000.00
Employer Pension (10% × BHT)	40,000.00
NSITF (1% × Gross)	5,000.00
ITF accrual (1% × Gross)	5,000.00
Total employer cost	550,000.00

H — Remittances arising from this payslip

Recipient	Amount NGN	Deadline
LIRS (PAYE)	67,322.67	10 Jun 2025
PFC → PFA (Pension total)	72,000.00	within 7 working days of pay date
FMBN (NHF)	6,250.00	within 1 month
NSITF	5,000.00	last day of following month
ITF	5,000.00 (accrued; paid annually by 1 Apr 2026)	annual

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Section 8 — Conservative defaults

Situation	Conservative position
Pension status unclear (RSA exists?)	Assume RSA exists and deduct 8% / pay employer 10% — flag for HR; under-remittance triggers 2%/month penalty
NHF applicability unclear	If Nigerian citizen and basic ≥ NGN 3,000, deduct 2.5% — flag for reviewer if foreign national
BIK valuation uncertain	Use higher of cost-to-employer or open-market value — flag
Bonus / 13th-month timing	Spread evenly across the 12 months of the period it relates to for PAYE smoothing; flag if employer prefers month-paid taxation (allowed but produces a higher PAYE spike that month)
Multi-state employee (works across states)	Use the state where employee is principally resident per PITA §2(2); flag for reviewer
Mid-month joiner / leaver	Pro-rate gross emolument, pro-rate CRA on annualized basis, full statutory deductions on actual paid amounts
Employee TIN missing	Compute PAYE normally but flag immediately — SIRS reconciliation will reject schedule without TIN
Salary advance / loan recovery	Show as voluntary deduction below the line; does NOT reduce PAYE base
Pay in foreign currency	Convert to NGN at CBN official rate on pay date; document the rate used
Late hire — backdated salary	Apply current-month PAYE on full amount paid; do NOT spread retroactively without reviewer sign-off

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Section 9 — Sources

Source	Reference
Personal Income Tax Act (PITA) Cap P8 LFN 2004, as amended by Finance Acts 2019–2023	Federal Inland Revenue Service
Pension Reform Act 2014 (PRA 2014)	National Pension Commission (PenCom)
National Housing Fund Act, Cap N45 LFN 2004	Federal Mortgage Bank of Nigeria (FMBN)
Employees Compensation Act 2010 (NSITF)	Nigeria Social Insurance Trust Fund
Industrial Training Fund Act, Cap I9 LFN 2004 (as amended 2011)	Industrial Training Fund
National Health Insurance Authority Act 2022	NHIA (formerly NHIS)
Nigeria Tax Administration Act 2025 (NTA 2025)	FIRS Tax Pro-Max unified module
Lagos State Internal Revenue Service e-tax portal	https://etax.lirs.net
FCT Internal Revenue Service portal	https://fctirs.gov.ng
FIRS Tax Pro-Max	https://taxpromax.firs.gov.ng
Companion skill — PAYE rules	ng-paye
Companion skill — Statutory deductions	ng-statutory-deductions
Companion skill — Income tax (self-employed)	ng-income-tax

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OpenAccountants — open-source accounting skills for AI This is not tax advice. All outputs must be reviewed by a qualified Nigerian payroll professional or tax consultant before any payslip is issued or any remittance is made.

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