Employer's Guide to Payroll Tax Compliance in Nigeria

Your Obligations as an Employer

When you hire employees in Nigeria, you take on several statutory obligations. Getting these wrong can mean penalties, employee complaints, and audit issues.

The Key Deductions

1. PAYE (Pay As You Earn)

What it is: Personal income tax deducted from employee salaries

Rate: Progressive (0% - 25% based on income)

Remit to: State Internal Revenue Service

Deadline: 10th of following month

2. Pension

What it is: Retirement savings contribution

Rate:

• Employee: 8% of basic + housing + transport
• Employer: 10% of same

Remit to: Employee's chosen PFA

Deadline: Within 7 days of salary payment

3. NHF (National Housing Fund)

What it is: Housing scheme contribution

Rate: 2.5% of basic salary

Remit to: Federal Mortgage Bank

Deadline: Monthly

Note: Only for employees earning above minimum wage

4. NSITF (Employees Compensation)

What it is: Workplace injury insurance

Rate: 1% of monthly payroll (employer pays)

Remit to: NSITF

Deadline: Monthly

5. ITF (Industrial Training Fund)

What it is: Training levy

Rate: 1% of annual payroll (employer pays)

Remit to: ITF

Who pays: Companies with 5+ employees or turnover above ₦50M

Deadline: April 1 each year

Monthly Payroll Checklist

• [ ] Calculate gross salaries
• [ ] Deduct employee pension (8%)
• [ ] Add employer pension (10%)
• [ ] Calculate PAYE using tax tables
• [ ] Deduct NHF if applicable
• [ ] Calculate employer NSITF
• [ ] Process net salaries
• [ ] Remit all deductions to appropriate bodies

Example Payroll Calculation

Employee: ₦400,000 monthly gross (₦4.8M annual)

Total employer cost: ₦444,000

Common Mistakes

1. Late Remittance

All deductions have deadlines. Late payment attracts:

• Interest charges
• Penalties
• Potential employee complaints

2. Wrong PAYE Calculation

Using old tax tables or calculating incorrectly. Use updated 2025 rates.

3. Pension to Wrong PFA

Employees choose their PFA. Make sure you remit to the right one.

4. Not Registering with NSITF/ITF

Many employers don't know about these. Non-registration is penalized.

5. Treating Contractors as Employees

Independent contractors have different tax treatment. Misclassification creates problems.

Record Keeping

Maintain:

• Payroll records (7 years)
• Tax deduction cards (annual per employee)
• Remittance receipts
• Employee files with TINs

Year-End Requirements

1. Annual PAYE returns to State IRS

2. Tax deduction cards (Form H1) to employees

3. Pension schedule to PFAs

4. ITF contribution by April 1

Technology Solutions

Consider payroll software that:

• Auto-calculates deductions
• Generates payslips
• Tracks remittance deadlines
• Produces year-end reports

Our Payroll API can handle all these calculations.

Conclusion

Payroll compliance in Nigeria requires attention to multiple obligations. Set up proper systems from the start, and it becomes routine. Cut corners, and you'll face penalties and employee issues.

Use our Employer Cost Calculator to see true employment costs.