Emeka owns a printing and branding shop in Abuja. He has three employees. Every month he pays their salaries, and for two years he never thought about PAYE.
Then he received a query letter from the FCT Internal Revenue Service.
PAYE, Pay As You Earn, is not optional. The moment you pay even one person a salary, you become a tax collector. The Nigerian government expects you to deduct the correct amount from each employee's pay every month, hold it, and send it to the tax authority by the 10th of the following month.
If you have employees and you are not doing this, this guide is for you.
PAYE stands for Pay As You Earn. It is the personal income tax that every employee in Nigeria must pay on their salary.
The key word is employee. PAYE is not a tax on your business: it is a tax on each individual worker. But Nigerian law puts the obligation on you, the employer, to:
The money is never yours. You collect it on behalf of the government.
The rule that catches most MSME owners off guard: If you pay someone a salary (even a full-time cleaner, a security guard, or a sales rep) you are legally required to deduct and remit their PAYE. There is no minimum number of employees. One person is enough.
PAYE is collected by state governments, not the federal government. It goes to the state where each employee lives, which is usually, but not always, the state where your business operates:
If your employees live in different states, you register with and remit to each of those states.
How to register: Visit your state's Internal Revenue Service office (or their website if available) and register as an employer. You will fill in a form with your business name, CAC registration number, and details of your employees. Registration is free.
Emeka's employees all live in Abuja, so he registered with the FCT-IRS. He now has an employer number he includes on every PAYE remittance.
From 1 January 2026 the Nigeria Tax Act 2025 replaced the old Personal Income Tax Act. Two changes matter most for employers:
Chargeable income is the employee's gross annual pay minus the deductions the Act allows (section 30):
Who pays nothing? Employees earning the national minimum wage or less are exempt. And anyone whose chargeable income is ₦800,000 or less pays nothing, because that slice is taxed at 0%.
You may have seen the government's summary that "annual gross income up to ₦1,200,000" is exempt. That figure assumes typical deductions bring ₦1.2 million of gross pay down to about ₦800,000 of chargeable income. Always run the calculation: an employee on ₦1.2 million with no deductions does owe some tax.
Let us follow Emeka's most experienced employee, Chinyere, who earns ₦250,000 per month and pays ₦600,000 a year in rent.
₦250,000 × 12 = ₦3,000,000
₦3,000,000 − ₦360,000 = ₦2,640,000
₦276,000 ÷ 12 = ₦23,000 per month
Emeka deducts ₦23,000 from Chinyere's salary every month. She takes home ₦227,000 before her pension deduction.
Deadline: You must remit the total PAYE collected from all employees by the 10th of the following month.
So for January salaries, you remit by 10 February. For March salaries, by 10 April. And so on.
How to remit:
① Generate a PAYE schedule: a list showing each employee's name, salary, and tax deducted
② Pay the total into your state IRS's designated bank account or e-payment portal, referencing your employer number
③ Submit the payment evidence and the PAYE schedule to the IRS (most states now accept electronic submission or email)
④ File your Annual PAYE Return by 31 January of the following year (or the date your state sets). This is a summary of everything you remitted for the entire year, with a breakdown per employee.
Emeka's shop has three employees. In December he deducted ₦23,000 from Chinyere, ₦14,840 from his second employee (₦180,000 a month, with only the 8% pension deducted), and ₦2,420 from his driver (₦90,000 a month: above the minimum wage, so a small amount of tax is due). He remitted ₦40,260 in total to the FCT-IRS by 10 January.
The FCT-IRS and state revenue services have been stepping up enforcement since the Nigeria Tax Administration Act 2025 took effect.
Late remittance: penalties and interest apply on PAYE that is remitted late, under the Nigeria Tax Administration Act 2025 and your state's rules.
Late filing of returns: ₦100,000 for the first month and ₦50,000 for each month after that the return is outstanding.
Failure to register: Assessment by the IRS based on estimated payroll, often higher than what you would have owed, plus penalties.
Non-deduction: If the IRS discovers you paid salaries without deducting PAYE, you (the employer) become personally liable for the full amount that should have been deducted, plus penalties. You cannot go back and collect from employees after the fact.
Query letter: Like the one Emeka received. This is usually the first step: a formal notice asking you to explain your PAYE filing status for previous years and pay any outstanding amounts.
PAYE only applies to employees: people on a regular salary with a defined working relationship. Freelancers, contractors, and service providers you pay per job are handled differently (usually via Withholding Tax at 5% or 10%). If you are unsure which category someone falls into, ask a tax adviser before you make assumptions.
Many payroll spreadsheets still deduct the Consolidated Relief Allowance. It was abolished from 1 January 2026. Using it under-deducts tax, and you, the employer, are liable for the shortfall.
The 10th-of-the-month deadline is firm. Setting a recurring calendar reminder is the simplest fix. Many MSME owners who fall behind on PAYE do so simply because there was no reminder, not because they intended to evade.
If you agree to pay an employee ₦200,000 gross, the PAYE deduction comes out of that ₦200,000: it does not increase your cost. But you do need to build the remittance admin into your monthly routine. Some employers also voluntarily gross up salaries to cushion employees, which changes the calculation.
Monthly remittance is not the end. The annual return is a separate obligation. Missing it invites a penalty even if all monthly remittances were on time.
If calculating PAYE for multiple employees every month feels like a spreadsheet nightmare, Lucrive's Tax Compliance Centre estimates your monthly PAYE on the 2026 bands, and the Tax Calculator covers personal income tax with every section 30 deduction. You can also ask Lex, Lucrive's AI tax assistant, any question about PAYE, deductible allowances, or filing deadlines at lucrive.io.
And if you want to read a full breakdown of the other business taxes, Company Income Tax (CIT) and the Development Levy, alongside PAYE, see our guide: Nigerian Business Tax Explained: CIT, PAYE, and Education Tax.
PAYE is one of those obligations that feels complicated until you have done it twice. The calculation is the same formula every month. The deadline is always the 10th. Once you set up the system, it becomes routine.
Emeka now runs the calculation in about 20 minutes on the last working day of each month. His employees' taxes are filed, his employer number is in good standing, and he has not received another query letter.
Start by registering with your state's Internal Revenue Service this week. Everything else follows from there.
This article is for general information. Tax law changes regularly: confirm current rates and deadlines with your state IRS or a qualified tax adviser.
Ready to manage your business taxes without a spreadsheet? Try Lucrive free at lucrive.io and ask Lex any PAYE question you have right now.
Sources & further reading
People and businesses in our examples are illustrative, not real Lucrive customers. Figures are worked examples: confirm your own position with a qualified tax adviser.