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The short answer
A Nigerian payslip starts with gross pay (basic, housing, transport and other allowances), then subtracts employee pension (at least 8% of basic, housing and transport), NHF where it applies (2.5%), any health insurance contribution, and PAYE tax worked out on income after those reliefs. In our worked example, ₦500,000 gross becomes about ₦393,380 net under the 2026 bands.
The top half: what you earn
Most payslips split gross pay into components. The split matters, because some deductions are calculated on only part of your pay.
- Basic salary
- The core of your pay. NHF and some health insurance contributions are usually calculated on it.
- Housing allowance
- Cash towards accommodation. Counts towards pensionable pay.
- Transport allowance
- Cash towards commuting. Also counts towards pensionable pay.
- Other allowances
- Utility, meal, leave or other lines. Usually taxable, usually not pensionable.
- Gross pay
- The total before any deduction.
The bottom half: what comes off, and why
Pension (employee contribution)
Under the Pension Reform Act 2014, as summarised by KPMG, the employee contributes at least 8% and the employer at least 10% of monthly emoluments, which must be no less than basic, housing and transport combined. Only the 8% appears as a deduction on your payslip; the employer's 10% is paid on top into your retirement savings account. See pension contribution rates.
NHF (National Housing Fund)
NHF is 2.5% of monthly income, paid to the Federal Mortgage Bank of Nigeria. Since the Business Facilitation Act amended the NHF Act, as Templars explained in April 2023, it is compulsory only for public-sector employees earning the national minimum wage or more, and for the self-employed; private-sector employees may contribute voluntarily. Many employers calculate it on basic salary. If you work in the private sector and see an NHF line, you have either opted in or should ask why.
NHIS or health insurance
The National Health Insurance Authority's FAQ describes a formal-sector contribution of 10% of basic salary from the employer and 5% from the employee, and in the same answer "3.25% for employer and 1.75% for employee in a consolidated salary"; the page does not reconcile the two. State schemes and private HMO arrangements also vary. Check what your employer's scheme charges and whether your payslip line matches it.
PAYE (income tax)
PAYE is worked out on yearly income after reliefs, then divided by 12. Under the Nigeria Tax Act 2025, as explained by BusinessDay in January 2026, the bands are:
| 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% |
Reliefs that reduce taxable income include pension, NHF and NHIS contributions, and rent relief of 20% of annual rent, capped at ₦500,000, as Mondaq listed in November 2025. Rent relief must be claimed; your employer applies it only if you have told them your rent in the prescribed way.
Worked example: ₦500,000 gross a month
Example figures only. Gross ₦500,000 a month: basic ₦200,000, housing ₦150,000, transport ₦100,000, other ₦50,000. Annual rent ₦1,200,000. Health insurance deduction set by the employer's scheme at ₦5,000 a month (example).
| Item | Monthly | Annual |
|---|---|---|
| Gross pay | ₦500,000 | ₦6,000,000 |
| Pension, 8% of ₦450,000 | ₦36,000 | ₦432,000 |
| NHF, 2.5% of ₦200,000 basic | ₦5,000 | ₦60,000 |
| Health insurance (example) | ₦5,000 | ₦60,000 |
| Rent relief, 20% of ₦1,200,000 (relief only, not a cash deduction) | ₦240,000 | |
| Taxable income | ₦5,208,000 | |
| Tax: ₦800,000 at 0% | ₦0 | |
| Tax: ₦2,200,000 at 15% | ₦330,000 | |
| Tax: ₦2,208,000 at 18% | ₦397,440 | |
| PAYE | ₦60,620 | ₦727,440 |
| Net pay | ₦393,380 | ₦4,720,560 |
Check: ₦500,000 minus ₦36,000, ₦5,000, ₦5,000 and ₦60,620 is ₦393,380. Taxable income is ₦6,000,000 minus ₦432,000, ₦60,000, ₦60,000 and ₦240,000.
What your employer pays that you do not see
Your payslip shows what comes out of your pay. It rarely shows what the employer adds. In the example above, the employer's minimum pension contribution of 10% of ₦450,000 is ₦45,000 a month, paid into your retirement savings account on top of your own ₦36,000. Together that is ₦81,000 a month, or ₦972,000 a year, going to your pension in this example. If the employer's health scheme has an employer share, that is extra too.
This matters when you compare jobs. An offer with a lower gross figure but full pension and health cover can be worth more than a higher gross with neither. It also matters when you check your pension statement: if the amount credited each month is below the sum of both contributions, raise it with HR and your pension fund administrator, with payslips as evidence.
Other lines you may see
- Loan or advance repayment. Under section 5(7) of the Labour Act, total deductions in a month cannot exceed one third of wages for workers the Act covers.
- Union dues or cooperative savings. Usually with your written consent.
- Arrears. Back pay from a late increase; taxed in the month paid.
What to check first on your own payslip
- Is pension 8% of basic plus housing plus transport, not of basic alone?
- Is NHF there, and should it be?
- Has your rent relief been applied?
- Does PAYE look right for your bands? Use our PAYE bands guide and gross versus net.
Where Pryme fits
Businesses running payroll on a Pryme Business Account can have the Finance agent prepare each month's pay run, with a person approving before anything is paid.
Questions people ask
How is PAYE calculated in Nigeria in 2026?
Subtract reliefs (pension, NHF, NHIS, rent relief) from annual gross pay, apply the Nigeria Tax Act 2025 bands, then divide by 12.
Is NHF compulsory for private sector workers?
Not since the NHF Act was amended by the Business Facilitation Act; it is compulsory for public-sector employees at or above minimum wage and the self-employed.
What percentage is pension deduction in Nigeria?
At least 8% from the employee and 10% from the employer, of basic, housing and transport combined.
Why is my net pay lower than my offer?
Your offer is usually gross. Pension, NHF, health insurance and PAYE come off before you are paid.
Sources
- BusinessDay: Nigeria Tax Act 2025 personal income tax bands explained (12 Jan 2026) · accessed Oct 2026
- Mondaq (S.P.A. Ajibade & Co.): Taxation of employees' income under the tax reform Acts (10 Nov 2025) · accessed Oct 2026
- KPMG Nigeria: Pension Reform Act 2014 summary (Jul 2014) · accessed Oct 2026
- Templars: Amendment of the National Housing Fund Act (Apr 2023) · accessed Oct 2026
- NHIA: Frequently asked questions · accessed Oct 2026
- Labour Act, Cap L1 LFN 2004 (PLAC Laws of Nigeria) · 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.