Thread by @hannytalker

Assuming you received an offer letter that states your monthly gross income as ₦250,000, and then what comes into your account is ₦220,833. What happened?

Usually, the gross salary on an employment contract differs from the monthly salary which an employee receives. This is

due to several statutory contributions (mandatory payment) such as: Pension, NHF, National Health Insurance Scheme
PAYE tax, ITF, NSITF.

I will use the breakdown of the salary to explain. Lets assume the basic salary is 100k, housing is 60k, transport – 40k, feeding – 50k.

Pension contribution: Companies are required to deduct as well as remit the employee’s and employer’s monthly contribution to the Pension Fund Administrator (PFA). An employee is required to open retirement savings account with an approved PFA. The due date for remitting pension

the contribution is seven working days after the payment of salaries. The employer contributes 10% while the employee contributes 8% of the employee’s monthly emolument as stated in the contract of employment. By emolument I mean the sum of the basic salary, housing and transport

Pension: 8% of BHT(100,000 + 60,000 + 40,000) =16,000

PAYE Tax: Tax rates in Nigeria are graduated across income bands, ranging from 7-24%. Income thresholds are as follows:

Up to 300,000 naira: 7%
Up to 600,000 naira: 11%
Up to 1,110,000 naira: 15%
Up to 1,600,000 naira: 19%

Up to 3,200,000 naira: 21%
Over 3,200,000 naira: 24%
The due date for remitting monthly PAYE tax to the relevant tax authority is within 10 days after the month of deduction.

The first thing to know is the yearly salary: 250,000*12 =3000000

Then calculate the consolidated

relief allowance. 20% of 3000000 +200000(this is constant) =800,000

The taxable income is now 3000000-800000=2200000

The govt will tax the 2200000. Using the tax rate above this person's tax will come to 24,232.

– (16,000 + 2,500 + 5,000) = 159,833. The tax will be 24,232

National Housing Fund (NHF): The main goal of NHF is to offer loans to Nigerians for developing, buying or renovating houses. Contributors of the Fund can get long term loans from Mortgage Institutions. Employers are

required to deduct NHF levy at the rate of 2.5% of employees’ monthly basic salary and remit the amount to the Federal Mortgage Bank of Nigeria within one month after the deduction of NHF.

Back to our calculation.
2.5% of Basic (100,000) = 2,500

National Health Insurance Scheme (NHIS): Employers contribute 10% of the monthly basic salary of an employee while an employee contributes 5%.

5% of basic (100,000) = 5,000

For Industrial Training Fund and Nigeria Social Insurance Trust Fund it is the employer that contributes.

At the end of the day, net pay will be Gross income – mandatory deductions = ₦202,268