The Complete Guide to Setting Up Payroll for Your Nigerian Business

Before any deductions or filings, decide how you will actually structure pay across your team. Most Nigerian businesses run a monthly cycle, paying between the 25th and the last working day of the month, though some, particularly in retail and hospitality, pay biweekly to match cash flow from daily sales. Decide early whether staff will be full time employees on your payroll, or contractors and consultants paid against invoices. This distinction matters legally and financially. Employees are entitled to statutory benefits including pension contributions, and their income tax is deducted at source under Pay As You Earn, commonly called PAYE. Contractors invoice you directly and handle their own tax affairs, though you are still required to deduct withholding tax from payments to them in many cases. Draft a simple salary structure for each role before you hire, breaking gross pay into basic salary, housing allowance, transport allowance, and any other components. This breakdown is not just administrative tidiness, it directly affects how much pension and tax each employee pays, since pension contributions in Nigeria are calculated on a defined portion of gross emoluments rather than the full salary figure. Write this structure down in an offer letter template so every new hire receives consistent, defensible terms, and keep a simple spreadsheet or HR tool tracking start dates, salary changes, and bank details for each staff member from day one.

Once you have employees on payroll, you are legally required to deduct PAYE from their salaries and remit it to the relevant state internal revenue service, such as LIRS in Lagos or the equivalent body in whichever state your employees are resident. Registration typically requires your company's CAC documents, your Tax Identification Number from FIRS, and a list of employees with their personal TINs. PAYE rates in Nigeria are progressive, meaning higher income bands attract higher rates, currently ranging from 7 percent on the lowest taxable band up to 24 percent on income above roughly ₦3.2 million annually, after applying the Consolidated Relief Allowance and any other allowable reliefs. Most state revenue authorities publish a PAYE calculator or table you can use to check your own calculations, and it is worth doing this manually for your first few payroll runs even if you use software, so you understand exactly what is being deducted and why. Remittance is due by the 10th of the month following the month in which the deduction was made. Missing this deadline attracts penalties and interest, and persistent non compliance can affect your ability to obtain tax clearance certificates, which many government contracts and even some private clients now require before payment. Keep signed remittance receipts and schedules for every month, since these become essential during any tax audit.

Under the Pension Reform Act, any organisation with fifteen or more employees is legally required to enrol staff in the Contributory Pension Scheme, and many businesses below that threshold choose to participate voluntarily because it makes them more attractive to serious job candidates. Each employee contributes 8 percent of their pension eligible emoluments, and the employer contributes at least 10 percent, for a combined minimum of 18 percent. To set this up, each employee needs a Retirement Savings Account with a Pension Fund Administrator of their choosing, such as Stanbic IBTC Pension, ARM Pension, or Leadway Pensure. If an employee does not already have one, help them open an account as part of onboarding, since you cannot remit contributions without a valid RSA number attached to each staff member. Remit both the employee and employer portions to each employee's PFA within seven working days of paying salaries, not the following month like PAYE. This shorter window catches many new employers off guard. Keep a register showing each employee's RSA number, PFA, and monthly contribution history, since PENCOM compliance certificates are increasingly requested alongside tax clearance certificates when bidding for larger contracts or opening certain corporate bank facilities.

Beyond PAYE and pension, a handful of other statutory deductions apply depending on your business size and sector. The National Housing Fund requires a 2.5 percent deduction from employees earning above the minimum wage threshold, remitted monthly to the Federal Mortgage Bank of Nigeria, and while enforcement has historically been inconsistent, participating gives employees access to NHF mortgage financing later. The Nigeria Social Insurance Trust Fund, or NSITF, covers employees against workplace injury and requires a 1 percent contribution of total monthly payroll, paid entirely by the employer rather than deducted from staff pay. This applies to businesses with five or more employees and is separate from any private group life insurance you may also carry, which is itself a legal requirement under the Pension Reform Act for employers with three or more staff. If your business operates in specific sectors such as manufacturing or construction, additional levies like the Industrial Training Fund contribution may apply once you cross certain employee count thresholds, currently five or more staff with an annual turnover above ₦50 million. Build a simple annual compliance calendar listing every statutory deduction relevant to your business size, its rate, its due date, and the agency it goes to, so nothing gets missed as your headcount grows.

Every employee should receive a clear, itemised payslip each pay period, even in a small team of three or four people. A proper payslip lists gross salary broken into its components (basic, housing, transport, and any allowances), followed by each deduction separately: PAYE, pension, and any others, before arriving at net pay. This transparency matters for two reasons. First, it protects you legally, since a documented payslip is evidence of correct treatment if a dispute or audit arises later. Second, it builds trust with staff, particularly in a market where informal employers are common and many workers have experienced undocumented pay arrangements that left them vulnerable. A clear payslip signals that you run a properly structured business, which helps with retention. Standardise your salary structure percentages across the company rather than negotiating each component individually for every hire. A common approach splits gross pay roughly 50 percent basic, 30 percent housing allowance, and 20 percent transport and other allowances, though the exact split should be set with input from an accountant familiar with current Nigerian tax guidance, since the balance affects both pension and PAYE calculations. Once set, apply the same structure consistently so payroll stays simple to audit and explain.

Running payroll manually on a spreadsheet works for a team of two or three, but becomes error prone and time consuming past that point, particularly once you are tracking PAYE bands, pension remittances, and leave balances simultaneously. Nigerian payroll platforms such as PaySpace, Bento, PaidHR, and NowPayHR handle these calculations automatically and, in most cases, generate the remittance schedules tax and pension authorities expect. When comparing providers, check three things specifically for the Nigerian market: whether they auto update PAYE bands and rates when the Finance Act changes them, whether they support remittance to any PFA an employee might already have an account with rather than locking you into one partner, and whether they can generate the statutory reports (PAYE schedules, pension schedules, NSITF returns) in the exact format your state revenue authority and PENCOM expect. Pricing typically runs per employee per month, often modest enough that even a five person team can justify the cost against the hours saved and the compliance risk avoided. If your budget genuinely cannot stretch to a paid tool yet, at minimum build a locked spreadsheet template with formulas for each statutory calculation, reviewed periodically by an accountant, rather than calculating figures fresh by hand every month.

With structure, registrations, and tooling in place, run a full dry cycle before your first live payroll, calculating every deduction for each employee and having a second person, whether a cofounder, accountant, or HR consultant, check the numbers. Errors caught before money moves are far cheaper to fix than errors discovered afterward, which may require reversing bank transfers or issuing corrections to tax authorities. On payday, disburse net salaries to employee accounts, then remit the PAYE deduction to your state revenue authority by the 10th of the following month, and pension contributions to each employee's PFA within seven working days as covered in step three. Keep proof of every remittance, whether a receipt, a reference number, or a schedule acknowledgment, in a dedicated folder organised by month, since you will need these for annual filings and any future audit. At year end, file annual PAYE returns summarising the full year's deductions for each employee, typically due by the end of January for the previous tax year, and issue each employee a tax deduction card or equivalent statement they can use for personal tax purposes. Treat your first two or three payroll cycles as a period of extra scrutiny, checking every figure manually even if you are using software, until you are confident the system is calculating correctly for your specific salary structure.