Understanding Payslip Calculations
Welcome to your comprehensive guide on understanding your payslip! This document will help you navigate through all the calculations and deductions shown on your payslip, making it easier for you to understand how your salary is calculated according to Nigerian tax regulations.
1. Gross Pay
Gross Pay is the total amount of money you earn before any deductions are made. It includes your basic salary, reimbursements, and other allowances.
Example:
Basic Salary: ₦400,000
Reimbursements: ₦50,000
Other Allowances: ₦50,000
Calculation:
Gross Pay = Basic Salary + Reimbursements + Other Allowances
Gross Pay = ₦400,000 + ₦50,000 + ₦50,000 = ₦500,0002. Statutory Deductions (Pre-CRA Calculation)
Before calculating your tax relief (CRA), certain statutory deductions are first subtracted from your gross pay as per Nigerian Finance Act 2020:
Pension Contribution (Employee)
Rate: 8% of gross pay
Example: ₦500,000 × 8% = ₦40,000
National Housing Fund (NHF) Contribution
Rate: 2.5% of basic salary
Requirement: Mandatory for employees earning ₦3,000+ annually
Exemption: Expatriates are exempt
Example: ₦400,000 × 2.5% = ₦10,000
National Health Insurance Scheme (NHIS) Contribution (Employee)
Rate: 5% of basic salary (10% for employer)
Federal Employees: 1.75% employee, 3.25% employer
Example: ₦400,000 × 5% = ₦20,000
3. Consolidated Relief Allowance (CRA) - Enhanced Calculation
The CRA is a tax relief provided by the government to reduce your taxable income. According to the Nigerian Finance Act 2020, CRA is calculated on "adjusted gross income" (after deducting pension, NHF, and NHIS contributions).
Formula: CRA = Higher of Fixed Amount OR Variable Amount
Fixed CRA: ₦200,000 annually
Variable CRA: 21% of adjusted gross income (1% + 20%)
Example Calculation:
Gross Pay: ₦500,000
Less: Pension (8%): ₦40,000
Less: NHF (2.5% of basic): ₦10,000
Less: NHIS (5% of basic): ₦20,000
Adjusted Gross Income: ₦430,000
Annual Adjusted Gross: ₦430,000 × 12 = ₦5,160,000
Variable CRA: ₦5,160,000 × 21% = ₦1,083,600
Annual CRA = Higher of ₦200,000 and ₦1,083,600 = ₦1,083,600
Monthly CRA = ₦1,083,600 ÷ 12 = ₦90,3004. Taxable Income (After CRA)
Your taxable income is calculated after applying the CRA relief:
Taxable Income = Adjusted Gross Income - CRA
Taxable Income = ₦430,000 - ₦90,300 = ₦339,7005. Personal Income Tax (PIT) - Pay As You Earn (PAYE)
Important: Tax is calculated on annualized income, then prorated back to your pay period.
Nigerian Tax Brackets (Annual):
First ₦300,000: 7%
Next ₦300,000: 11%
Next ₦500,000: 15%
Next ₦500,000: 19%
Next ₦1,600,000: 21%
Above ₦3,200,000: 24%
Minimum Tax Rule: 1% of total income if calculated tax is lower
Example:
Annual Taxable Income: ₦339,700 × 12 = ₦4,076,400
Tax Calculation:
- First ₦300,000 @ 7% = ₦21,000
- Next ₦300,000 @ 11% = ₦33,000
- Next ₦500,000 @ 15% = ₦75,000
- Next ₦500,000 @ 19% = ₦95,000
- Next ₦1,600,000 @ 21% = ₦336,000
- Remaining ₦876,400 @ 24% = ₦210,336
Annual Tax = ₦770,336
Monthly Tax = ₦770,336 ÷ 12 = ₦64,195Exemption: Employees earning below ₦70,000 annually are exempt from PAYE.
6. Employer Contributions (Not Deducted from Employee)
Pension Contribution (Employer)
Rate: 10% of gross pay
Example: ₦500,000 × 10% = ₦50,000
NHIS Contribution (Employer)
Rate: 10% of basic salary (1.75% for federal employees)
Example: ₦400,000 × 10% = ₦40,000
Industrial Training Fund (ITF)
Rate: 1% of annual payroll (employer-only)
Requirement: Companies with 5+ employees OR ₦50M+ annual turnover
Refund: Up to 50% refund available for employee training
Example: ₦500,000 × 12 × 1% ÷ 12 = ₦5,000/month
National Social Insurance Trust Fund (NSITF)
Rate: 1% of monthly payroll (employer-only)
Duration: First 2 years of employment
Exemption: Armed Forces personnel
Example: ₦500,000 × 1% = ₦5,000
7. Additional Deductions
Development Levy
Type: Fixed annual fee for local development
Rate: Typically ₦100 per year (₦8.33 per month)
Other Deductions
These may include:
Union Dues: Typically 1% of gross pay
Cooperative Contributions: Typically 5% of gross pay
Charitable Donations: Typically 2% of gross pay
Loan Repayments: As per loan agreement
8. Net Pay Calculation
Your Net Pay is the final amount you receive after all deductions:
Net Pay = Gross Pay - Total Employee DeductionsImportant: Net pay is clamped to zero (never negative) if deductions exceed gross pay.
Enhanced Sample Payslip Breakdown
Employee Details:
Basic Salary: ₦400,000
Reimbursements: ₦50,000
Other Allowances: ₦50,000
Payment Frequency: Monthly
Earnings Section:
Basic Salary: ₦400,000.00
Reimbursements: ₦50,000.00
Other Allowances: ₦50,000.00
─────────────────────────────────
Gross Pay: ₦500,000.00Tax Calculation Section:
Gross Pay: ₦500,000.00
Less: Pension (8%): ₦40,000.00
Less: NHF (2.5%): ₦10,000.00
Less: NHIS (5%): ₦20,000.00
─────────────────────────────────
Adjusted Gross: ₦430,000.00
CRA Allowance: ₦90,300.00
─────────────────────────────────
Taxable Income: ₦339,700.00
PAYE Tax Withheld: ₦64,195.00Employee Deductions:
PAYE Tax: ₦64,195.00
Pension (8%): ₦40,000.00
NHF (2.5%): ₦10,000.00
NHIS (5%): ₦20,000.00
Development Levy: ₦8.33
Union Dues (1%): ₦5,000.00
Other Deductions: ₦10,000.00
─────────────────────────────────
Total Deductions: ₦149,203.33Final Calculation:
Gross Pay: ₦500,000.00
Total Deductions: ₦149,203.33
─────────────────────────────────
Net Pay: ₦350,796.67Employer Contributions (Not Affecting Employee Net Pay):
Pension (10%): ₦50,000.00
NHIS (10%): ₦40,000.00
ITF (1% annual): ₦5,000.00
NSITF (1%): ₦5,000.00
─────────────────────────────────
Total Employer Cost: ₦100,000.00Key Changes in 2024/2025
✅ Enhanced Compliance Features:
CRA calculated on adjusted gross income (after pension/NHF/NHIS deductions)
Proper tax annualization - tax calculated on annual income, then prorated
Minimum tax rule - ensures 1% minimum tax on total income
Automatic exemptions - expatriates, armed forces, low earners
Precise rounding - all amounts rounded to 2 decimal places
Net pay protection - never shows negative take-home pay
📊 New Fields on Payslip:
CRA Allowance: Shows your tax relief amount
Taxable Income (After CRA): Shows what tax is calculated on
Total Deductions: Summary of all employee deductions
Enhanced PDF: Detailed tax calculation breakdown
Compliance Notes
All calculations follow Nigerian Finance Act 2020
Tax brackets are automatically updated for inflation
Statutory contributions are calculated per FIRS guidelines
Employer contributions are tracked separately for compliance reporting
Support
For questions about your payslip calculations or tax deductions, contact your HR department or reach out to [email protected]. Our system ensures full compliance with Nigerian tax regulations and provides detailed breakdowns for transparency.
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