Understanding Your Nigerian Payslip: Every Deduction Explained
Your Payslip Decoded
Every month, your employer hands you a payslip with various deductions. Many employees don't understand what each item means or whether the calculations are correct.
Gross vs Net Salary
Gross Salary: Your total earnings before any deductions
Net Salary: What actually hits your bank account (gross minus deductions)
Common Payslip Items
Earnings Side
| Item | What It Means |
|---|---|
| Basic Salary | Your base pay (usually 50-60% of gross) |
| Housing Allowance | For accommodation (usually 15-20%) |
| Transport Allowance | For commuting (usually 10-15%) |
| Leave Allowance | Paid when you take annual leave |
| Overtime | Extra hours worked |
| Bonus | Performance or annual bonus |
Deductions Side
| Item | What It Means | Typical % |
|---|---|---|
| PAYE | Income tax to state government | 0-25% |
| Pension | Retirement savings | 8% |
| NHF | National Housing Fund | 2.5% |
| NHIS | Health insurance (if enrolled) | 1.75% |
| Union Dues | Trade union membership | Varies |
| Loan Repayment | Salary advance recovery | Varies |
PAYE (Pay As You Earn)
This is your income tax, calculated based on:
1. Your annual gross income
2. Minus Consolidated Relief Allowance
3. Minus pension contribution
4. Applied to progressive tax brackets
2025/2026 Brackets
| Income Band | Rate |
|---|---|
| First ₦800,000 | 0% |
| Next ₦2,000,000 | 15% |
| Next ₦2,400,000 | 18% |
| Next ₦5,000,000 | 21% |
| Next ₦30,000,000 | 23% |
| Above ₦40,200,000 | 25% |
Pension (8%)
This is your money going into a retirement account:
- Managed by your chosen PFA
- Grows over time
- Accessible at retirement (or early under certain conditions)
- Your employer adds 10% on top
Good news: This reduces your taxable income.
NHF (2.5%)
National Housing Fund contribution:
- Goes to Federal Mortgage Bank
- You can access for housing loans
- Only applies above minimum wage
NHIS (1.75%)
If your employer participates in the National Health Insurance Scheme:
- Provides health coverage
- Employer contributes 3.25%
- Combined gives you access to HMOs
Checking Your Payslip
1. Verify Gross Matches Your Contract
Your total earnings should match your employment terms.
2. Check Pension Calculation
Pension base = Basic + Housing + Transport (not full gross in most cases)
Your deduction should be 8% of this base.
3. Verify PAYE
This is hardest to check manually. Use our PIT Calculator with your annual gross to see expected PAYE.
4. Confirm NHF Base
Should be 2.5% of basic salary only.
Common Payslip Errors
1. PAYE using old rates - Should use 2025 rates from January 2026
2. Pension on full gross - Should only be on basic + housing + transport
3. NHF on full salary - Should only be on basic
4. Missing employer pension - They should add 10%
What to Do If Something's Wrong
1. Calculate what the deduction should be
2. Document the discrepancy
3. Raise with HR or payroll
4. Escalate if not resolved
5. Contact your state IRS if tax is wrong
Your Rights
- Receive a payslip every pay period
- See breakdown of all deductions
- Get annual tax deduction card (Form H1)
- Verify pension remittances with your PFA
Conclusion
Your payslip isn't just a formality - it's proof of your earnings and deductions. Understand it, verify it, and speak up if something's wrong.
Use our Reverse Calculator to work out what gross salary you need for a target net pay.
TaxHQ Editorial
Expert tax content based on Nigeria Tax Act 2025 and insights from leading Nigerian tax professionals.