What PAYE means
PAYE stands for Pay As You Earn. It is Nigeria's system for collecting income tax from employees at source, meaning the employer deducts the tax from each employee's salary before paying the net amount. The idea is straightforward: rather than asking individuals to save up and pay a lump sum at the end of the year, the government collects tax in smaller amounts each month, right when the income is earned.
The employer is responsible for computing the correct amount of PAYE on every payroll run. Once deducted, the employer must remit the total PAYE for all employees to the relevant State Internal Revenue Service (SIRS) by the 10th of the following month. The relevant state is the one where the employee is physically based for work, not necessarily where the company is registered.
PAYE applies to all forms of employment income, including basic salary, housing allowance, transport allowance, bonuses, and other regular payments. If someone earns income from employment in Nigeria, their employer is almost certainly required to operate PAYE on their behalf.
How PAYE is computed under the NTA 2025
The Nigeria Tax Act 2025 (NTA 2025) replaced the Personal Income Tax Act (PITA) with effect from January 2026. This was one of the most significant changes to Nigerian income tax in decades. Among other things, the NTA 2025 abolished the Consolidated Relief Allowance (CRA) that employers had used since 2011 and introduced a new Rent Relief in its place.
To compute PAYE under the new rules, you start with the employee's gross income for the period. From that gross figure, you deduct the employee's pension contribution, which is 8% of emoluments (basic salary plus housing and transport allowances). You then deduct the National Housing Fund (NHF) contribution at 2.5% of basic salary. These two deductions are mandatory and must be subtracted before you apply any relief.
Next, you apply the Rent Relief, if the employee pays rent and can document it. Under the NTA 2025, Rent Relief is 20% of the annual rent paid, capped at ₦500,000 per year. An employee who pays no rent, or cannot document it, gets no Rent Relief. After subtracting pension, NHF, and any Rent Relief from gross income, you arrive at the taxable income. This is the figure you run through the PAYE tax bands.
NTA 2025 PAYE tax bands
The NTA 2025 introduced a new set of graduated tax bands that differ significantly from the old PITA structure. The most notable change is the ₦800,000 zero-rate band at the bottom, which means low-income earners pay no income tax at all. The full table of annual bands is shown below.
| Taxable income band | 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% |
Source: Nigeria Tax Act 2025, Fourth Schedule.
These bands are cumulative. An employee with ₦5,000,000 in annual taxable income would pay 0% on the first ₦800,000, then 15% on the next ₦2,200,000 (₦330,000), and then 18% on the remaining ₦2,000,000 (₦360,000), for a total annual PAYE of ₦690,000. In practice, the employer divides this by 12 and deducts ₦57,500 per month.
The top marginal rate under the NTA 2025 is 25%, which applies only to taxable income above ₦50,000,000. That is one percentage point higher than the 24% top rate under the old PITA bands, but it starts at a much higher income, so only very high earners pay it.
What employers must do
Every employer operating payroll in Nigeria has three core PAYE obligations. First, you must compute PAYE correctly on every payroll run. This means applying the current tax bands, deducting the right reliefs, and arriving at the correct monthly deduction for each employee. Getting this wrong exposes the company to back-taxes and penalties on audit.
Second, you must remit the total PAYE deducted to the SIRS in the state where each employee works. The deadline is the 10th of the month following the payroll period. If your January payroll is processed on 28 January, the PAYE for that month must reach the SIRS by 10 February. Late remittance attracts penalties and interest, and persistent non-compliance can lead to enforcement action.
Third, you must file an annual PAYE return. This is a summary of all PAYE deducted and remitted during the tax year, broken down by employee. The annual return is typically due by 31 January of the following year, though some states set earlier deadlines. The return must reconcile with the monthly remittances already made, and any discrepancy will trigger queries from the SIRS.
How SpireSlip helps
SpireSlip computes PAYE automatically on every payroll run using the current NTA 2025 tax bands. When you add an employee and enter their salary structure, SpireSlip calculates pension, NHF, Rent Relief, and PAYE without any manual input. If the tax bands change in future legislation, SpireSlip updates them so your payroll stays compliant without you needing to reconfigure anything.
Beyond the computation itself, SpireSlip generates a monthly PAYE filing schedule that shows how much PAYE was deducted for each employee. This makes the remittance process simple: you know exactly what to pay, to whom, and by when. No more spreadsheets, no more manual band lookups, and no more last-minute scrambles before the 10th.