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. Which state you register with depends on where your business operates:
If you operate in multiple states, you register in each one where you have employees.
How to register: Visit your state's Internal Revenue Service office (or their website if available) and apply for an Employer Tax Identification Number (ETIN). You will fill in a form with your business name, CAC registration number, and details of your employees. Registration is free.
Emeka, whose shop is in Abuja, registered with the FCT-IRS. He now has an employer number he includes on every PAYE remittance.
Under the Nigeria Tax Act 2025 (which took effect for the 2026 tax year), employees with an annual income of ₦1,200,000 or less pay zero personal income tax. That covers any employee earning up to ₦100,000 per month.
Employees earning above ₦1.2 million per year pay tax on the excess at graduated rates:
The tax is calculated on taxable income — not raw salary. Before applying these bands, you subtract two allowances:
These deductions reduce the amount of income that gets taxed.
Let us follow Emeka's most experienced employee, Chinyere, who earns ₦250,000 per month (₦3,000,000 per year).
₦250,000 × 12 = ₦3,000,000
₦3,000,000 − ₦1,040,000 = ₦1,960,000
Taxable income above the ₦1.2M exempt threshold: ₦1,960,000 − ₦1,200,000 = ₦760,000
₦59,600 ÷ 12 = ₦4,967 per month
Emeka deducts ₦4,967 from Chinyere's salary every month. She takes home ₦245,033 instead of ₦250,000.
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, referencing your Employer Tax Identification 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. 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 collected ₦4,967 from Chinyere, ₦2,100 from his second employee (who earns ₦180,000/month), and nothing from his driver who earns ₦90,000/month (below the ₦100,000 exemption threshold). He remitted ₦7,067 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: 10% penalty on the amount owed, plus interest at the Central Bank of Nigeria (CBN) lending rate, per annum.
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.
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, that ₦200,000 is their take-home pay. The PAYE deduction comes out of the ₦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 January 31st 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 Calculator covers Nigerian personal income tax calculations — including the 2026 exemption threshold and graduated bands. 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 Education Tax — 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