Nigeria payroll runs on a split system: personal income tax on employees is collected as PAYE by the internal revenue service of the state where the employee resides, while pensions and other statutory schemes are regulated federally. Lagos State's collector, LIRS, describes itself as the operational arm of the Lagos State Government responsible for the collection of taxes and other revenues, and its equivalents do the same job in each other state. Nigeria's income tax law has recently been rewritten, with new bands and a full exemption at the bottom of the scale, so figures from before the reform are stale. The rates below follow PwC's Nigeria tax summaries, which track the new law; the regulators themselves are PenCom for pensions and the state services for PAYE.
PAYE under the new tax bands
Under the reformed law as summarised by PwC, annual taxable income is taxed progressively: the first NGN 800,000 at 0%, the next NGN 2,200,000 at 15%, the next NGN 9,000,000 at 18%, the next NGN 13,000,000 at 21%, the next NGN 25,000,000 at 23%, and income above NGN 50,000,000 at 25%. Employees earning no more than the national minimum wage of NGN 70,000 a month are no longer liable to tax or monthly PAYE deduction, and the old minimum tax rule has effectively been replaced by the expanded 0% band. The employer computes and withholds PAYE each month and remits it to the internal revenue service of the state where each employee resides, which for a distributed workforce can mean filing with several states at once.
Pensions: the biggest on-cost, federally regulated
The Contributory Pension Scheme, regulated by the National Pension Commission (PenCom), is the main statutory on-cost. Per PwC's summary of the Pension Reform Act, the employer contributes a minimum of 10% of monthly emolument and the employee 8%, deducted through payroll into the employee's retirement savings account with a pension fund administrator of the employee's choosing; an employer that wants to bear the whole cost alone must contribute at least 20%. The scheme is mandatory for employers with 15 or more employees. Employers must also maintain group life insurance cover for employees of at least three times annual emolument. PenCom operates compliance certificates and publishes lists of employers with uncredited contributions, so non-remittance is visible.
The smaller schemes and the practical cycle
The National Housing Fund takes 2.5% of monthly income, deducted by the employer; per PwC it is mandatory for public sector employees and voluntary for the private sector. Depending on sector and size, employers also meet industrial training and employee compensation obligations. The monthly rhythm is: compute gross pay, apply the statutory reliefs the law allows, withhold PAYE for each employee's state of residence, deduct the employee pension share, add the employer pension share, and remit each amount to its own destination, state revenue service, pension fund custodians via the PFA, and the housing fund where applicable. Annual employer returns to the state services close the loop, and Lagos in particular enforces filing actively.
How foreign companies run Nigeria payroll
A foreign company employing in Nigeria needs either its own registered entity, with tax registration and pension compliance in place, or an employer of record whose Nigerian entity already holds those registrations and files with the right state service for each hire. Given that PAYE is state-by-state and the pension system requires registered participation, the EOR route is the usual answer for the first few Nigerian hires, and the fee should be compared against local entity running costs as headcount grows. Rates and thresholds here reflect the sources below as read at authoring time; Nigeria's tax law has just been overhauled, so verify current figures before payroll is run, and nothing on this page is tax or legal advice.
Questions people ask about nigeria payroll
Who collects PAYE in Nigeria?
The internal revenue service of the state where the employee resides, not the federal tax authority; LIRS performs this role for Lagos State. An employer with staff in several states remits to each state's service separately.
What are the pension contribution rates in Nigeria?
A minimum of 10% of monthly emolument from the employer and 8% from the employee under the Contributory Pension Scheme regulated by PenCom, per PwC's summary of the Pension Reform Act; an employer bearing the full cost alone must pay at least 20%. It is mandatory for employers with 15 or more employees.
Are low earners exempt from Nigerian PAYE?
Yes. Under the reformed law, employees earning not more than the national minimum wage of NGN 70,000 a month are not liable to tax or monthly PAYE deduction, and the first NGN 800,000 of annual taxable income sits in a 0% band.
What insurance must a Nigerian employer maintain for staff?
Group life cover of at least three times each employee's annual emolument, alongside pension compliance; PenCom's compliance regime covers both, and compliance certificates are required for many contracts.