Payroll Services in Nigeria

On 1 January 2026 Nigeria replaced its personal income tax system. The Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025 were signed on 26 June 2025 and took effect on 1 January 2026, and section 195 of the Tax Act repeals the Personal Income Tax Act outright – its bands, its 24% top rate and its reliefs. Two companion Acts, establishing the Nigeria Revenue Service and the Joint Revenue Board, took effect on signature, so the institutions existed six months before the new charging rules. The Federal Inland Revenue Service is now the Nigeria Revenue Service.

The new bands in the Fourth Schedule are more generous at the bottom and slightly higher at the top. The first NGN 800,000 of chargeable income is taxed at nil, the next NGN 2.2 million at 15%, the next NGN 9 million at 18%, the next NGN 13 million at 21%, the next NGN 25 million at 23%, and anything above NGN 50 million at 25%. Separately, sections 58 and 163 take anyone earning no more than the national minimum wage – NGN 70,000 a month – out of tax altogether.

Be careful with secondary summaries. A widely shared version gives the third and fourth bands as NGN 7 million at 18% and NGN 9 million at 21%; those figures do not add up to the NGN 50 million threshold where the top rate starts, and they are wrong. The bands above are taken from the Schedule itself.

The administration changed as much as the rates. Failing to deduct tax carries a penalty of 40% of the amount not deducted; deducting it and remitting late costs 10% a year plus interest; a late or inaccurate return costs NGN 100,000 and then NGN 50,000 for each further month. Employees must file their own annual return even where the employer files, and every deduction has to be claimed in writing, with the tax authority entitled to refuse any it cannot see evidenced.

The Consolidated Relief Allowance is gone. For years it gave every Nigerian employee a deduction of 20% of gross income plus the higher of NGN 200,000 or 1% of gross before the bands applied – a broad, unconditional relief that kept effective rates down. The Nigeria Tax Act does not carry it forward; the wider nil-rate band of NGN 800,000 is what replaced it.

What did arrive is a rent relief under section 30(2)(a)(vi): 20% of annual rent paid, capped at NGN 500,000, whichever is lower, provided the employee accurately declares the rent. It is conditional in a way the old allowance was not. An employee paying NGN 2.5 million a year or more in rent gets the full NGN 500,000; one who owns their home outright gets nothing. Two people doing the same job on the same salary now have different tax bills, and the employer is the one collecting the declarations.

That produces a threshold effect worth stating plainly. With pension relief at 8% of gross and the full rent relief, PAYE starts at an annual gross of about NGN 1.41 million – roughly NGN 118,000 a month. With no rent relief it starts at about NGN 870,000 a year, or NGN 72,000 a month. The same salary can be taxable for one employee and not for another.

The other deductions that survive are contributions to pension, the National Housing Fund and national health insurance, life assurance and deferred annuity premiums, and interest on a loan to build an owner-occupied home. That last one partly answers the homeowner’s position, but only where there is a loan. Every deduction must be claimed in writing, so a payroll that applied reliefs on an employee’s say-so needs a documented process.

Pension under the Pension Reform Act 2014 is 8% from the employee and a minimum of 10% from the employer, or at least 20% where the employer chooses to bear the whole cost. The base is monthly emoluments, which the Act defines as whatever the employment contract says – but never less than basic salary plus housing and transport allowances. Nigerian packages are conventionally built from a stack of allowances, and the share sitting in those three components varies widely between employers, which makes the base the largest single lever in Nigerian employer cost.

The arithmetic is worth seeing. Where basic, housing and transport make up 60% of the package and the contract uses that minimum base, employer pension is 6% of gross and total statutory cost with the levies is about 8%. Where they make up the whole package, pension is 10% of gross and the total is 12%. Four points of gross – a third of the statutory bill – turn on a drafting decision made in the offer letter. It is legitimate, and it has a floor: pension is a benefit, and structuring it down reduces what the employee retires on.

Two employer-only levies sit alongside it. The employee compensation contribution to NSITF is at least 1% of total monthly payroll. The Industrial Training Fund levy is 1% of annual payroll, due by 1 April of the following year, for employers with five or more employees or turnover of NGN 50 million or more – either test is enough. Part of the ITF levy can be reclaimed against approved training, but it is prudent to budget it as a cost. Group life cover is also mandatory under section 4(5) of the Pension Reform Act: at least three times each employee’s gross annual emoluments, with the premium paid before cover starts. Pension itself must reach the fund custodian within seven working days of payday.

The National Housing Fund needs its own paragraph, because the position changed and much guidance has not caught up. The Business Facilitation (Miscellaneous Provisions) Act 2022, in force since February 2023, changed the 2.5% contribution from ‘shall’ to ‘may’ for private sector employees. It is voluntary for them, so it should be deducted only where the employee has agreed. Many international guides still list it as compulsory, and payrolls configured from them are still taking it.

The most important structural fact about Nigerian employment law is that the Labour Act does not cover most of the people an international employer hires. It applies to ‘workers’ – manual and clerical staff – and section 91 excludes anyone exercising administrative, executive, technical or professional functions. Its minimums are a floor for one population and irrelevant to another, and a guide that presents them as the national standard is describing the wrong workforce.

For those it does cover, the floor is low. Annual leave is six working days after twelve months’ continuous service (section 18) – among the lowest statutory entitlements anywhere. Sick leave is up to twelve working days a year on full pay (section 16). Maternity leave is twelve weeks, paid at no less than 50% for a woman with six months’ service (section 54). For professional and managerial staff none of this binds: market practice is 20 to 25 days of annual leave and fuller maternity pay, set by contract. The contract is the instrument that matters.

There is no statutory redundancy pay. Section 20 requires the employer to inform the workers’ representatives, apply last-in-first-out subject to skill and merit, and use its best endeavours to negotiate redundancy payments – not to make one. Notice under the Act runs by length of service for covered workers; for everyone else it is whatever the contract says.

Dismissal is unsettled, and both confident answers in circulation are wrong. The National Industrial Court has, in a line of cases, required a valid reason for termination, drawing on international labour standards through section 254C of the Constitution. The Court of Appeal, which hears appeals from it, restated the common law position in Oak Pensions v Olayinka (2017): an employer that follows the contract may terminate without giving a reason. The two positions have not been reconciled, so the practical advice is to terminate as though a valid reason is required, and to document it.

A foreign company cannot lawfully run a Nigerian payroll without incorporating. Section 78 of the Companies and Allied Matters Act 2020 requires a foreign company that intends to carry on business in Nigeria to incorporate a Nigerian company, and any act in breach is void. The exemptions in sections 80 to 83 are narrow – projects for the government or for international donors, for example – and registering for tax does not cure the position. The realistic options are to incorporate a subsidiary or to engage through an employer of record that already has one.

Expatriate employment runs through the Ministry of Interior’s expatriate quota system, with a combined expatriate residence permit and aliens card for each foreign employee and Nigerian understudies attached to quota positions. The Expatriate Employment Levy is the item most often misreported: announced in February 2024 at USD 15,000 a year for a director and USD 10,000 for other expatriates, it was suspended in March 2024 before it took effect, and had not been reinstated by September 2026. It has not been repealed either, so a multi-year expatriate programme should treat it as a live possibility.

Foreign exchange is where Nigerian operations most often fail in practice, and it is almost absent from payroll guidance. The Central Bank’s Foreign Exchange Manual, fourth edition, in force since 1 June 2026, requires transactions between Nigerian parties to be priced and settled in naira outside a few exempt sectors. For the parent company, inbound capital must be registered for an electronic certificate of capital importation within 24 to 48 hours of arrival. Without it, the right to repatriate that capital and the dividends on it is at risk.

The sequence for a foreign group is therefore: incorporate; register for tax and with each relevant state revenue service; open naira accounts; register every capital inflow for its certificate at once; register with PenCom and choose a pension fund administrator; place group life cover; and only then run the first payroll. Several of these cannot be done retrospectively.