Understanding Payslip Calculations

Welcome to your 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.

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

Gross Pay = Basic Salary + Reimbursements + Other Allowances Gross Pay = ₦400,000 + ₦50,000 + ₦50,000 = ₦500,000

2. Taxable Income

Taxable Income is the portion of your income that is subject to taxes. It is calculated from your gross pay minus certain allowances.

3. Consolidated Relief Allowance (CRA)

Consolidated Relief Allowance (CRA) is a relief provided by the government to reduce your taxable income. It is the higher of a fixed amount or a percentage of your gross pay plus an additional percentage of your gross pay.

Example:

If your annualized gross pay is ₦2,000,000:

• Fixed CRA: ₦200,000

• Variable CRA: 1% of ₦2,000,000 + 20% of ₦2,000,000 = ₦20,000 + ₦400,000 = ₦420,000

Annual CRA = Higher of Fixed CRA and Variable CRA Annual CRA = Higher of ₦200,000 and ₦420,000 = ₦420,000

To get the CRA for the pay period, it is prorated based on your pay frequency.

4. Personal Income Tax (PIT)

Personal Income Tax is the tax deducted from your salary based on the government’s tax brackets. The tax rate increases as your income increases.

Example:

If your taxable income after CRA adjustment is ₦900,000:

• First ₦300,000 @ 7% = ₦21,000

• Next ₦300,000 @ 11% = ₦33,000

• Remaining ₦300,000 @ 15% = ₦45,000

Total PIT = ₦21,000 + ₦33,000 + ₦45,000 = ₦99,000

5. National Housing Fund (NHF) Contribution

NHF Contribution is 2.5% of your basic salary, which is used to support housing schemes.

Example:

If your basic salary is ₦200,000:

• NHF Contribution = ₦200,000 * 2.5% = ₦5,000

6. National Health Insurance Scheme (NHIS) Contribution

NHIS Contribution is deducted for health insurance. It is 5% of your gross salary from your side and 10% from your employer.

Example:

If your gross salary is ₦500,000:

• Employee NHIS = ₦500,000 * 5% = ₦25,000

• Employer NHIS = ₦500,000 * 10% = ₦50,000

7. Industrial Training Fund (ITF) Contribution

ITF Contribution is 1% of your gross salary, used for industrial training programs.

Example:

If your gross salary is ₦500,000:

• ITF Contribution = ₦500,000 * 1% = ₦5,000

8. National Social Insurance Trust Fund (NSITF) Contribution

NSITF Contribution is 1% of your gross salary, used for social insurance.

Example:

If your gross salary is ₦500,000:

• NSITF Contribution = ₦500,000 * 1% = ₦5,000

9. Development Levy

Development Levy is a fixed annual fee used for local development projects.

Example:

• Development Levy = ₦100 per year

10. Other Deductions

These can include various local government taxes, union dues, cooperative contributions, charitable donations, and loan repayments.

Examples:

• Union Dues = 1% of Gross Pay

• Cooperative Contributions = 5% of Gross Pay

• Charitable Donations = 2% of Gross Pay

11. Net Pay

Net Pay is the amount you take home after all deductions have been made from your gross pay.

Example:

• Gross Pay = ₦500,000

• Total Deductions = ₦150,000

Net Pay = Gross Pay - Total Deductions Net Pay = ₦500,000 - ₦150,000 = ₦350,000

Summary of a Sample Payslip

Here is an example to illustrate how everything comes together in your payslip:

Example Details:

• Basic Salary: ₦400,000

• Reimbursements: ₦50,000

• Other Allowances: ₦50,000

• Gross Pay: ₦500,000

Deductions:

• Personal Income Tax (PIT): ₦99,000

• NHF Contribution: ₦5,000

• NHIS Contribution: ₦25,000 (Employee) + ₦50,000 (Employer)

• ITF Contribution: ₦5,000

• NSITF Contribution: ₦5,000

• Development Levy: ₦100

• Union Dues: ₦5,000

• Cooperative Contributions: ₦25,000

• Charitable Donations: ₦10,000

Total Deductions:

• PIT: ₦99,000

• NHF: ₦5,000

• NHIS: ₦25,000

• ITF: ₦5,000

• NSITF: ₦5,000

• Development Levy: ₦100

• Union Dues: ₦5,000

• Cooperative Contributions: ₦25,000

• Charitable Donations: ₦10,000

Total Deductions = ₦179,100

Net Pay Calculation:

• Gross Pay: ₦500,000

• Total Deductions: ₦179,100

Net Pay = Gross Pay - Total Deductions Net Pay = ₦500,000 - ₦179,100 = ₦320,900

Conclusion

Your payslip breaks down your earnings and deductions clearly, so you can see exactly where your money is going. If you have any questions, feel free to reach out to your HR or payroll department.