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The short answer
To budget a naira payroll from pounds, total the full monthly naira cost (salaries plus employer pension, NSITF and ITF), convert it at a cautious budget rate, add a buffer for the naira strengthening against sterling, and add the conversion cost: the transfer fee plus the margin between your rate and the mid-market rate. Review the budget rate each month against what you actually paid.
A UK company that earns in pounds and pays staff in naira has a currency exposure every payday. When the naira weakens against the pound, the payroll costs fewer pounds; when it strengthens, it costs more. Neither is predictable enough to ignore. The method below is simple enough for a small company and is the same logic larger groups use.
Step 1: total the full naira cost
Salaries are only part of the cost. For a Nigerian employer the monthly add-ons, with their sources, are:
- Employer pension of at least 10% of monthly emoluments (Pension Reform Act 2014, three or more staff).
- NSITF at 1% of total monthly payroll (Employees' Compensation Act 2010).
- ITF at 1% of annual payroll for employers with five or more staff or ₦50 million turnover; accrue one twelfth monthly.
- Group life insurance premium, and any HMO health cover you offer.
- If you use an employer of record, its fee.
PAYE and the employee's 8% pension come out of gross salary, so they do not add to your cost; they change when the money must move.
Step 2: the worked example
| Line (monthly) | Naira |
|---|---|
| Gross salaries, 6 staff | ₦10,000,000 |
| Employer pension 10% | ₦1,000,000 |
| NSITF 1% | ₦100,000 |
| ITF accrual (1% of payroll) | ₦100,000 |
| Total employer cost | ₦11,200,000 |
Assume an illustrative budget rate of ₦2,000 to £1. The sterling cost is ₦11,200,000 ÷ 2,000 = £5,600 a month.
Stress-test the rate
| Scenario (illustrative) | Rate | Sterling cost |
|---|---|---|
| Naira strengthens 10% | ₦1,800 to £1 | £6,222.22 |
| Budget rate | ₦2,000 to £1 | £5,600.00 |
| Naira weakens 10% | ₦2,200 to £1 | £5,090.91 |
The bad case for you is the naira strengthening. A 10% buffer on the budget gives £5,600 × 1.10 = £6,160, which covers the first scenario. Choose your buffer from how far the rate has moved in past months, not from a guess.
Add the cost of converting
Every conversion has two costs: any transfer fee, and the margin between the rate you get and the mid-market rate. Example: if the all-in cost is 1% of the amount, converting £5,600 costs £56. Compare providers on the naira that actually arrives for the same pounds, on the same day, not on the headline fee. Each provider shows its own rate and fee before you approve; this article does not rank them.
Step 3: decide when to convert
- Convert on payday: simplest; you take whatever the rate is that day.
- Convert in advance: buy naira for the next one to three months when the rate suits your budget, and hold it. This fixes the cost but ties up cash.
- Split: convert part early and part on payday to average the rate.
Leave a margin of working days before payday. Pension must reach PFAs within seven working days of salary, and PAYE is due by the 10th to be safe, so a delay in conversion can become a compliance problem. Nigerian public holidays and UK bank holidays both affect timing.
Holding naira between paydays
If you convert ahead, the naira you hold is a monetary item in the UK company's books. It is revalued at each month end and produces exchange gains or losses even before it is spent. Factor that into how much you buy in advance, and tell whoever reads the management accounts why the line moves.
Step 4: review monthly
- Record the rate you actually got and the total cost, in pounds and naira.
- Compare with the budget rate; book the difference as an exchange gain or loss.
- Reset the budget rate and buffer each quarter.
- Report the naira exposure to whoever approves the budget.
How those differences appear in the accounts is covered in FX gains and losses on naira balances; for larger exposures, see hedging naira exposure.
Common budgeting mistakes
- Budgeting salaries only. In the example, employer add-ons are ₦1,200,000 a month, 12% on top of salaries.
- Using last year's rate. Set the budget rate from recent months and reset it each quarter.
- Ignoring the cost of conversion. A small percentage on every payroll adds up over a year: 1% of £5,600 a month is £672 over 12 months.
- Forgetting the annual items. Thirteenth-month pay, bonuses and annual pay reviews often land in December or January; budget them in advance.
- Converting at the last minute. A delayed transfer can push pension past its seven-working-day limit.
Where Pryme fits
With a Pryme Business Account, pounds and naira sit in one account. Swap converts when you choose, with the rate shown first and the fee on its own line, so you can convert ahead of payday and hold naira. The Finance agent can prepare the monthly comparison of budget against actual for a person to review.
Questions people ask
How do I budget for naira payroll in pounds?
Total the full naira cost including employer contributions, convert at a cautious budget rate, add a buffer for the naira strengthening, and add conversion costs.
Is a weaker naira good or bad for a UK payer?
A weaker naira means each pound buys more naira, so payroll costs fewer pounds. A stronger naira costs you more.
What does converting pounds to naira really cost?
The transfer fee plus the margin between your rate and the mid-market rate. Compare the naira received for the same pounds on the same day.
How big should an FX buffer be?
Base it on how much the rate has moved over recent months. The 10% in this example is illustrative.
Sources
- ThisDay: CPS, what you should know about employee's rights (20 Mar 2023) · accessed Oct 2026
- NSITF: Compensation (Employees' Compensation Act 2010) · accessed Oct 2026
- Mondaq (TNP): The ITF levy, to pay or not to pay (17 Feb 2020) · accessed Oct 2026
- PenCom: Framework for Micro Pension Plan (coverage of the Pension Reform Act 2014) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.