How to Run Payroll in Nigeria (2026): PAYE, Pension, NHF & Every Deduction You Must Remit

Most Nigerian founders think payroll means one thing: "pay everybody their salary by month-end." If only. In reality, the salary is the easy part. The part that trips people up — and quietly stacks up unpaid liabilities and penalties — is everything you're legally supposed to deduct, match and remit on top of that salary.

Get payroll wrong and it doesn't announce itself. It hides. Then one day PenCom, the state tax office or the NSITF comes knocking with back-payments and penalties, and the "savings" you thought you were making evaporate. Worse, your staff discover their pension was never remitted, and trust dies on the spot.

So let me lay out the full picture: every statutory deduction and contribution a Nigerian employer deals with in 2026, what the rates are, and how to keep it clean.

One caveat up front: this is general guidance, not tax, legal or financial advice, and Nigeria's rules genuinely change — the 2026 tax reform is a live example. Confirm the current rates and thresholds with a qualified professional or the relevant agency before you rely on any figure here.

Start with the mindset: you are a collection agent

Here's the framing that keeps you out of trouble. On payroll, you are not just paying people — you are collecting money on behalf of the government and pension administrators, and you are legally responsible for handing it over. PAYE deducted from staff is not your money to hold. Pension deducted is not your cash-flow buffer. Treat those deductions as money in trust, ring-fenced and remitted on time, and payroll stops being scary.

PAYE: the big change for 2026

Pay-As-You-Earn is the income tax you deduct from each employee's salary and remit to their state's internal revenue service — for most private employers, the state where the employee works.

The headline news: the Nigeria Tax Act 2025 took effect on 1 January 2026 and rewrote the personal income tax bands. The new annual bands on taxable income are:

• First ₦800,000 — 0%

• Next ₦2,200,000 — 15%

• Next ₦9,000,000 — 18%

• Next ₦13,000,000 — 21%

• Next ₦25,000,000 — 23%

• Above ₦50,000,000 — 25%

What this means in practice: the first ₦800,000 of taxable income a year is now tax-free, so many entry-level and junior staff will owe little or nothing in PAYE, while higher earners only hit the top 25% rate on income above ₦50 million. For most SMEs, this reform lowered PAYE for the lower-paid half of the team — a genuine relief for take-home pay.

Two things to keep straight. First, PAYE is charged on taxable income — gross pay minus allowable reliefs such as pension contributions and the new rent relief — not on gross pay flat. Second, you as the employer must deduct correctly and remit monthly, usually by the 10th of the following month. Late remittance attracts penalties and interest.

Don't try to keep these bands in your head at scale. Use a proper payroll tool or a payroll accountant so the maths is right and auditable.

Pension: 18% total, and it's not optional above 15 staff

Under the Pension Reform Act 2014, if you have 15 or more employees, the Contributory Pension Scheme is mandatory. The minimum contribution is 18% of the employee's basic, housing and transport allowances, split as:

• 10% from you, the employer

• 8% from the employee, deducted from their pay

The employee's 8% is deducted and, together with your 10%, remitted to their chosen Pension Fund Administrator, into their Retirement Savings Account, typically within seven working days of paying salaries. Below 15 employees you can still run it voluntarily — and increasingly staff expect it.

This is the deduction employers are most tempted to "borrow" from when cash is tight. Don't. Unremitted pension is one of the fastest ways to lose staff trust and attract a PenCom recovery action, penalties included.

Group life insurance: three employees is the trigger

Related to pensions but separate: under the same Pension Reform Act 2014, once you have three or more employees, you must maintain a group life insurance policy for them, with a sum assured of at least three times each employee's annual total emolument. It's an employer cost, not a staff deduction, and it's cheaper than most founders assume. Skipping it is a common, quiet compliance gap.

NHF: 2.5%, but now largely voluntary for private staff

The National Housing Fund contribution is 2.5% of an employee's monthly basic salary, remitted to the Federal Mortgage Bank of Nigeria. The important 2026 nuance: private-sector employees are no longer under compulsory NHF and may now contribute voluntarily. So confirm each employee's position rather than deducting blindly — and where it applies, remit within the required window.

NSITF: 1% of payroll, entirely on you

The NSITF Employees' Compensation Scheme covers staff for work-related injury, disability or death. The contribution is 1% of your total monthly gross payroll, paid entirely by the employer — nothing is deducted from staff. Register with the NSITF and remit monthly. It's small, it's often forgotten, and it's exactly the kind of thing that surfaces in an audit.

ITF: the training levy for bigger employers

The Industrial Training Fund levy is 1% of your total annual payroll, aimed at funding staff training and development. It applies to larger organised-sector employers rather than tiny startups — thresholds are tied to employee numbers and turnover — so confirm whether your business currently qualifies with the ITF directly, because the threshold is one of the details that gets misquoted. Where it applies, you file and pay annually and can access reimbursements for approved training.

Putting it together: a simple monthly payroll routine

Here's a clean rhythm that keeps all of the above under control:

• Calculate gross pay for each employee for the month.

• Work out reliefs and taxable income, then deduct PAYE using the 2026 bands.

• Deduct the employee's 8% pension; set aside your 10% employer match.

• Deduct NHF (2.5%) where it applies.

• Pay net salary to staff.

• Remit: PAYE to the state IRS by the 10th, pension to the PFAs within about seven working days, NHF to the FMBN, and — from employer funds — NSITF (1% of payroll) and, where applicable, ITF and your group life premium.

• Keep records. Payslips, schedules and remittance receipts, filed monthly. Your future self, and any auditor, will thank you.

The mistakes that cost the most

• Treating deductions as cash flow. PAYE and pension you've deducted are not your money. Spending them is borrowing from the government and your staff.

• Remitting late — or not at all. Penalties and interest turn a manageable bill into a painful one.

• Running payroll on a spreadsheet at scale. Fine for three people; a liability at thirty. A payroll tool or accountant pays for itself.

• Forgetting the employer-only costs. NSITF, group life and ITF don't show up as staff deductions, so they're easy to ignore until an audit finds them.

• Not updating for the 2026 tax bands. If your payroll still uses pre-2026 PAYE tables, you're getting everyone's tax wrong.

Do you need a payroll person or a tool?

Rough rule of thumb: up to a handful of staff, a careful founder plus a good accountant can manage. Past ten or fifteen, get proper payroll software or outsource it. The cost of getting payroll wrong — penalties, back-payments, staff mistrust — is almost always higher than the cost of doing it properly from the start.

Payroll is where a business quietly proves whether it's trustworthy. Pay people right, remit what you've deducted, and keep clean records — and you build a company people want to stay at, and regulators leave alone.

Cut corners on payroll and the bill always arrives — usually with interest. So do it properly, every month, and sleep well.

— Team CareerBuddy

Featured image: Photo by Pavel Danilyuk on Pexels.

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