How to prepare a payslip in Nigeria: start with gross pay (basic, housing, transport and other allowances), then deduct the employee’s 8% pension on basic + housing + transport, NHF at 2.5% only if the employee contributes, PAYE worked out under the 2026 tax bands, and any agreed loan repayments. What remains is net pay, written in figures and words.
This guide is for whoever runs payroll in a small school, clinic, shop, NGO or church, and for employees checking their own payslips. Much of what ranks online is out of date: some pages still use the old Consolidated Relief Allowance and the 7% to 24% tax bands, and some still treat NHF as compulsory for everyone. Both have changed. Here is the current picture, step by step, with one worked example at the end.
How to prepare a payslip in Nigeria: the six steps
- Fill in the header: employer name, employee name, staff ID, job title, pay period and payment date.
- List the earnings: basic salary and each allowance on its own line, then the gross total.
- Work out pension: 8% of basic + housing + transport, deducted from the employee.
- Check NHF status: deduct 2.5% only for staff who must contribute or have chosen to.
- Enter PAYE: the monthly figure from the employee’s annual tax computation under the 2026 bands.
- Subtract other agreed deductions and show net pay in figures and words, with the employer’s pension contribution shown separately.
What a payslip should show
A clear payslip format in Nigeria has four blocks. The header says who is paying whom, for which month. Earnings list every part of gross pay. Deductions list everything taken out, one line each. Net pay is the amount that lands in the employee’s account.
I also recommend a small fifth block for employer contributions, such as the employer’s 10% pension. It is not taken from the employee’s pay, but showing it lets staff confirm that their full pension is being paid, and it saves you questions later.
Earnings: basic, housing, transport and other allowances
Split gross pay into the components stated in the employment letter. Basic, housing and transport matter most, because pension is calculated on those three. Other allowances (meal, utility, responsibility, call duty) go on separate lines.
Under the Nigeria Tax Act 2025, all forms of pay are taxable, and DLA Piper’s review of the new payroll rules points out that bonuses and 13th-month pay fall within PAYE. Put them through payroll rather than paying them outside it. Set the salary split in the offer or confirmation letter so the payslip matches it; our HR letter templates help keep the two consistent. For hourly or shift staff, record hours first with a free timesheet and plan cover with the staff rota maker, so every earnings line has a record behind it.
Pension deduction: 8% from the employee, 10% from the employer
Under the Pension Reform Act 2014, the minimum contribution is 18% of monthly emoluments: 8% from the employee and 10% from the employer. PenCom’s frequently asked questions define monthly emoluments as whatever the employment contract says, but never less than basic salary plus housing and transport allowances.
- The scheme is compulsory for private-sector employers with three or more employees. Staff of smaller employers can join voluntarily.
- An employer may choose to pay the whole contribution itself, but the Act then sets the minimum at 20% of monthly emoluments.
- Contributions go to each employee’s Pension Fund Custodian not later than 7 working days after salaries are paid. Late payment attracts a penalty.
You may still find 7.5% on some older PenCom pages. That was the 2004 rule. In July 2026, PenCom’s Director-General said the commission plans to raise the employer share as part of its review of the Act, but no new rate has been set. Until the law changes, the pension deduction is 8% in Nigeria and the employer adds 10%.
NHF deduction: when the 2.5% applies and when it is voluntary
The National Housing Fund contribution is 2.5%. The Business Facilitation (Miscellaneous Provisions) Act 2023 replaced section 4 of the NHF Act: public-sector employees earning the national minimum wage or more shall contribute, while private-sector employees may. The same DLA Piper review warns that employers who keep deducting NHF automatically, without the employee’s informed consent, are operating outside the current law.
So for a private school, clinic or shop: ask each employee in writing whether they want to contribute, keep the answer on file, and deduct only for those who opt in. The amended section speaks of “monthly income” without defining it, and many payroll providers still apply 2.5% to basic salary. Whichever base you use, write it down and apply it to everyone the same way.
PAYE 2026 Nigeria: where the figure comes from
The Nigeria Tax Act 2025 took effect on 1 January 2026. It abolished the Consolidated Relief Allowance and introduced new annual bands, summarised by PwC’s Nigeria tax summary:
| Annual taxable income | Rate |
|---|---|
| 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% |
To get the monthly PAYE figure:
- Annualise gross pay (monthly gross × 12).
- Subtract the reliefs the employee qualifies for: pension and NHF contributions, national health insurance contributions, life insurance premiums, mortgage interest on a home they live in, and rent relief of 20% of annual rent, capped at ₦500,000, backed by evidence such as a tenancy agreement or rent receipt.
- Apply the bands to what remains, then divide by 12.
Employees who earn the national minimum wage (₦70,000 a month) or less pay no PAYE.
This is why our free Payslip Generator asks you to type PAYE in rather than calculating it. The right figure depends on reliefs only you and the employee know about, such as rent paid and the evidence behind it, and on how your state tax office handles your returns. Work it out once a year, or whenever pay changes, check it with your accountant or state Internal Revenue Service, then enter the monthly amount.
Other deductions: loans, salary advances and union dues
Anything beyond pension, NHF and PAYE should rest on the employee’s written agreement: a staff loan agreement, a salary-advance form or a union check-off form. On the payslip:
- Give each deduction its own line with a clear label, such as “Salary advance (1 of 5)”.
- Show the outstanding balance on loans so staff can follow it.
- Never net a deduction off quietly against an allowance. If it is not on the payslip, the employee cannot check it.
Worked example: one employee’s monthly payslip
Take a teacher on ₦280,000 a month who has opted in to NHF, pays ₦1,200,000 a year in rent (with a tenancy agreement), and is repaying a ₦50,000 salary advance at ₦10,000 a month. Here is the net pay calculation.
The annual PAYE computation:
- Annual gross: ₦280,000 × 12 = ₦3,360,000
- Less pension (₦20,000 × 12): ₦240,000
- Less NHF (₦3,750 × 12): ₦45,000
- Less rent relief (20% of ₦1,200,000): ₦240,000
- Taxable income: ₦2,835,000
- Tax: 0% on the first ₦800,000, plus 15% on the remaining ₦2,035,000 = ₦305,250
- Monthly PAYE: ₦305,250 ÷ 12 = ₦25,437.50
The payslip:
| Line | Amount (₦) |
|---|---|
| Basic salary | 150,000.00 |
| Housing allowance | 60,000.00 |
| Transport allowance | 40,000.00 |
| Meal and utility allowance | 30,000.00 |
| Gross pay | 280,000.00 |
| Pension, 8% of ₦250,000 (basic + housing + transport) | 20,000.00 |
| NHF, 2.5% of basic | 3,750.00 |
| PAYE | 25,437.50 |
| Salary advance (1 of 5) | 10,000.00 |
| Total deductions | 59,187.50 |
| Net pay | 220,812.50 |
| Employer pension, 10% (not deducted) | 25,000.00 |
Net pay in words: Two hundred and twenty thousand, eight hundred and twelve naira, fifty kobo. The Pension Fund Custodian receives ₦45,000 for this teacher: ₦20,000 from salary and ₦25,000 from the school.
In the Payslip Generator, the default rates produce the pension, NHF and employer pension lines above, and you type the PAYE figure in yourself. For staff who have not opted in to NHF, set the NHF line to “Not deducted”. The payslip downloads as a PDF through your browser’s print window, with net pay already written in words.
Keeping records, remitting deductions and sharing payslips safely
- Pension: to each employee’s Pension Fund Custodian within 7 working days of paying salaries.
- PAYE: to the Internal Revenue Service of the state where the employee is resident (broadly, where they lived on 1 January), which is not always where your office is. PwC’s summary of Nigerian tax administration puts the deadline at the 10th of the following month; confirm it with your state IRS.
- Annual return: by 31 January, every employer files a return of the previous year’s pay showing each employee’s gross pay, deductions and tax deducted. Twelve tidy payslips per person make this an afternoon’s work.
- NHF: remit contributions for staff who opt in to the Federal Mortgage Bank of Nigeria, which manages the fund.
A payslip carries salary, bank and pension details. Send each one only to the employee it belongs to, by their own email or printed in a sealed envelope, never in a staff WhatsApp group. Keep your copies filed by month so you can answer a query or an audit quickly.
If you run a school, clinic, shop or NGO and want your payroll records, staff letters and documents to work together, see how I support physical product and service organizations.
Frequently asked questions
Is the NHF deduction compulsory for private-sector staff in 2026?
No. Since the Business Facilitation (Miscellaneous Provisions) Act 2023 amended the NHF Act, public-sector employees earning the minimum wage or more must contribute 2.5%, but private-sector employees may choose to. Ask each employee in writing, keep the answer on file, and deduct NHF only for those who opt in.
Is pension calculated on gross pay or on basic salary?
Neither, exactly. Pension is calculated on monthly emoluments, which PenCom says are whatever the employment contract defines, but never less than basic salary plus housing and transport allowances. The employee contributes at least 8% of that figure and the employer at least 10%.
Does a business with only two employees have to pay pension?
The Contributory Pension Scheme is compulsory for private-sector employers with three or more employees. Below that number it is not compulsory, but PenCom allows employees of smaller organizations to join the scheme voluntarily. Once you reach three staff, get an employer code from PenCom and start deducting.
Why does the Payslip Generator not calculate PAYE?
Because the correct PAYE figure depends on reliefs only you and the employee know about, such as rent paid and the evidence for it, NHF status, health and life insurance, plus how your state tax office treats your returns. You work out the annual figure, divide it by 12 and type the monthly amount in.