How to Calculate PAYE on Salary (Simple Guide for 2025)

Learning how to calculate PAYE on salary in Nigeria is essential for every employee and business owner who wants to understand how income tax affects take-home pay. Many Nigerians see “PAYE” on their pay-slip but have no idea how the figure is calculated. In this guide, we’ll explain what PAYE means, the latest 2025 tax rates, and a simple step-by-step method to calculate your monthly deduction, plus how Zaccheus can help you automate it effortlessly.

WHAT IS PAYE?

PAYE (Pay As You Earn) is Nigeria’s system for collecting income tax from employees through their employers.

The employer deducts tax from each employee’s salary monthly and remits it to the Federal Inland Revenue Service (FIRS) or the State Internal Revenue Service (SIRS), depending on where the employee works.

This system ensures taxes are paid gradually throughout the year rather than in one lump sum.

For Nigerian employees, PAYE determines how much of your salary you take home each month. For employers, it ensures compliance with tax laws under the Personal Income Tax Act (PITA).

In this guide, you’ll learn how to calculate PAYE on salary in Nigeria step-by-step.

How PAYE Works on Nigerian Salaries

Every employee’s salary consists of:

• Gross Pay: Total income before deductions.

• Allowable Deductions: Pension, NHF, and NHIS contributions.

• Tax Reliefs: Personal and consolidated reliefs under Nigerian tax law.

• Taxable Income: The amount left after applying reliefs and deductions.

Once the taxable income is known, you apply Nigeria’s PAYE tax bands to calculate the monthly or annual PAYE due.

Suggested read: Consolidated Relief Allowance (CRA) in Nigeria: The Simple Tax Relief Everyone Should Understand

Step-by-Step Guide: How to Calculate PAYE on Salary in Nigeria

The easiest way to understand how to calculate PAYE on salary in Nigeria is by following the five steps below.

Step 1: Determine Gross Income

Include:

• Basic salary

• Housing allowance

• Transport allowance

• Bonuses or other benefits

Step 2: Subtract Statutory Deductions

These include:

• Pension (8%)

• National Housing Fund (2.5%)

• National Health Insurance Scheme (NHIS) if applicable

Step 3: Apply Tax Reliefs

Under the Personal Income Tax Act (PITA), you are entitled to:

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• ₦200,000 or 1% of gross income (whichever is higher), plus

• 20% of gross income as consolidated relief.

Step 4: Determine Taxable Income

Taxable Income = Gross Income – (Reliefs + Deductions)

Step 5: Apply PAYE Tax Bands

Use Nigeria’s progressive PAYE tax rates to calculate the annual or monthly tax due (see below).

Business owners can easily learn how to calculate PAYE on salary in Nigeria using this simple breakdown.

Current PAYE Tax Rates in Nigeria (2025)

Note: Anyone earning ₦30,000 or less monthly (₦360,000 annually) is exempt from PAYE tax.

PAYE Calculation Example in Naira

Let’s calculate PAYE for a Nigerian employee earning ₦300,000 per month.

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Step 1: Gross Income = ₦300,000 × 12 = ₦3,600,000 per year

Step 2: Pension (8%) = ₦24,000 × 12 = ₦288,000
NHF (2.5%) = ₦7,500 × 12 = ₦90,000

Step 3: Total Deductions = ₦378,000

Step 4: Apply Reliefs:
₦200,000 + 20% of ₦3,600,000 = ₦200,000 + ₦720,000 = ₦920,000

Step 5:
Taxable Income = ₦3,600,000 – (₦378,000 + ₦920,000) = ₦2,302,000

Now apply PAYE tax rates:

Step 6:
Monthly PAYE = ₦371,420 ÷ 12 = ₦30,951.67

. Final Take-Home Pay = ₦300,000 – ₦30,952 – ₦24,000 – ₦7,500 = ₦237,548

Common PAYE Deductions in Nigeria

Challenges of Manual PAYE Calculation

Many Nigerian SMEs still use spreadsheets to calculate PAYE. This often leads to:

• Wrong application of reliefs or tax bands.

• Late remittance penalties from tax authorities.

• Poor record-keeping during audits.

• Frustrated employees due to inconsistent deductions.

Manual systems are error-prone, time-consuming, and non-compliant.

Suggested read: The Real Cost of Ignoring Tax Compliance in Nigeria

Automate PAYE with Zaccheus

At Zaccheus, we make PAYE and payroll management in Nigeria effortless.

Our AI-powered CFO platform automatically calculates PAYE, pension, NHF, and health deductions based on Nigerian tax laws.

• With Zaccheus, you can:
  1. Automate payroll and PAYE calculations
  2. Generate payslips instantly
  3. Ensure FIRS and SIRS compliance
  4. Access real-time financial analytics

Zaccheus saves Nigerian business owners hours of manual work while ensuring 100% accuracy and compliance.

Frequently Asked Questions

1. What is the meaning of PAYE in Nigeria?
PAYE means “Pay As You Earn.” It’s the personal income tax system where employers deduct tax from employees’ salaries and remit it to FIRS or SIRS monthly.

2. What percentage is PAYE in Nigeria?
PAYE on salary in Nigeria ranges from 7% to 24%, depending on your annual income band.

3. How do I know if my PAYE was remitted?
Ask your employer for a PAYE receipt or Tax Identification Number (TIN) record, or check with your State Internal Revenue Service.

Suggested read: Mastering Income Tax in Nigeria: A Simple Guide for Entrepreneurs and Employees

4. Who pays PAYE tax?
All salaried employees earning above ₦30,000 per month are required to pay PAYE under Nigerian tax law.

5. How does Zaccheus help with PAYE?
Zaccheus automates PAYE computation, reporting, and payment schedules, ensuring you stay compliant with minimal effort.

Conclusion: Simplify PAYE in Nigeria with Automation

Calculating PAYE on salary in Nigeria doesn’t have to be confusing. By understanding reliefs, deductions, and tax bands, you can estimate your take-home pay accurately.

But to save time and avoid mistakes, let Zaccheus handle it for you.
Our AI CFO platform automates payroll, PAYE, and compliance, so you can focus on what matters most: growing your business.