PAYE and pension contributions — explained against a real example payslip.
Nigeria’s payroll rules changed substantially with the Nigeria Tax Act 2025, effective 1 January 2026 — so a payslip today can look different from one a couple of years ago even at the same salary. Here’s how it works now, using a real example.
The scenario
On a gross salary of ₦500,000/month (₦6,000,000/year), here’s the full breakdown this calculator produces:
- Gross Salary
- ₦500,000/mo₦6,000,000/yr
- PAYE Income Tax
- ₦65,300/mo₦783,600/yr
- Pension (PenCom, employee)
- ₦40,000/mo₦480,000/yr
- Effective Tax Rate
- 21.1%
Employer pays
Total fund contribution
Line by line
PAYE. Taxed under the Nigeria Tax Act 2025’s progressive bands. One rule worth knowing on its own: anyone earning the National Minimum Wage (currently ₦70,000 a month) or less is fully exempt from PAYE entirely, regardless of the bands — not just taxed at a lower rate, but exempt outright.
Pension contribution. A mandatory 8% of gross salary comes out of your pay toward your retirement, and your employer adds a further 10% on top. As with similar schemes elsewhere, the employer’s 10% never touches your take-home pay — it’s shown above purely to reflect the full amount being saved on your behalf.
What’s not included here
Rent relief — 20% of annual rent paid, capped at ₦500,000 — can lower PAYE further for anyone who pays rent, but it requires rent details this calculator doesn’t collect, so it isn’t modelled. If you pay rent, your actual tax bill may come in below this example. Local government levies aren’t included either; this breakdown focuses on the federal PAYE and pension deductions that apply nationally.
