How to Run Payroll for a Small Team in Nigeria Without an Accountant

Running payroll for a team of five, ten, or fifteen people in Nigeria is not as complicated as it is often made to seem — but it does require precision. A single calculation error or missed remittance deadline can trigger penalties, employee disputes, or a tax authority audit.

This guide is for founders, business owners, and operations managers who need to run payroll correctly without a dedicated HR or finance team.

What "Running Payroll" Actually Involves

Payroll in Nigeria is not just paying salaries. It involves:

1. Calculating each employee's gross pay for the month
2. Deducting statutory contributions (pension, NHF, NHIS where applicable)
3. Calculating PAYE (income tax) on the taxable portion of income
4. Paying net salaries to employees
5. Remitting statutory deductions to the relevant authorities
6. Maintaining records for annual returns

Each of these steps has rules, deadlines, and penalties for non-compliance. Missing any one of them creates a liability.

The Key Numbers You Need Before You Start

Before you can calculate payroll, you need to have the following in place for each employee:

Salary structure. This includes the breakdown of basic salary and allowances. Nigerian salary structures typically include some combination of basic salary, housing allowance, transport allowance, and leave allowance. The split matters because it affects how PAYE is calculated.

Pension details. You need the employee's Retirement Savings Account (RSA) number and their chosen Pension Fund Administrator (PFA). Employer contribution is 10% of the employee's monthly emolument; employee contribution is 8%.

Tax Identification Number (TIN). You need a TIN for each employee to process PAYE. If employees do not have one, they can obtain it at their State Internal Revenue Service or via the Joint Tax Board portal.

Bank account details. For salary payment.

Step-by-Step: Running Monthly Payroll

Step 1: Calculate Gross Monthly Pay

For each employee, add up all components of their monthly compensation:

Basic salary + Housing allowance + Transport allowance + Leave allowance + Any other regular payments

Example:

• Basic salary: N180,000
• Housing: N90,000
• Transport: N45,000
• Leave: N22,500
• Gross monthly pay: N337,500

Step 2: Calculate Pension Deductions

Employee pension contribution: 8% of monthly emolument Employer pension contribution: 10% of monthly emolument

Using the example above:

• Employee contribution: N337,500 x 8% = N27,000 (deducted from employee pay)
• Employer contribution: N337,500 x 10% = N33,750 (paid by employer, not deducted from employee)

Step 3: Calculate NHF Contribution

The National Housing Fund contribution is 2.5% of basic salary only (not total emolument).

NHF: N180,000 x 2.5% = N4,500 (deducted from employee pay)

Step 4: Calculate Taxable Income for PAYE

Start with gross annual income, then deduct:

• Annual pension contribution (employee portion)
• Consolidated Relief Allowance (CRA): higher of N200,000 or 1% of gross annual income, plus 20% of gross annual income
• NHF contributions
• Any other approved reliefs

Apply the graduated PAYE tax table to the result.

For the example employee:

• Gross annual income: N337,500 x 12 = N4,050,000
• Annual pension: N27,000 x 12 = N324,000
• CRA: N200,000 + (20% x N4,050,000) = N1,010,000
• NHF annual: N4,500 x 12 = N54,000
• Taxable income: N4,050,000 - N324,000 - N1,010,000 - N54,000 = N2,662,000

Apply tax bands to N2,662,000 and divide the result by 12 for monthly PAYE.

Step 5: Calculate Net Pay

Net pay = Gross pay - Employee pension contribution - NHF contribution - Monthly PAYE

Using the example:

• Gross: N337,500
• Less employee pension: N27,000
• Less NHF: N4,500
• Less monthly PAYE (calculated above, approximately N33,000 for this income level)
• Net pay: approximately N273,000

Step 6: Process Salary Payments

Pay net salaries to employee bank accounts. Keep a payslip record for each employee showing gross pay, deductions, and net pay.

Remittance Deadlines

This is where many small businesses fall down. Calculating payroll correctly is not enough — you also need to remit the deductions to the right bodies on time.

Missing these deadlines triggers penalties. PAYE penalties are 10% of unpaid amount plus CBN lending rate interest. Pension penalties can include criminal prosecution of directors under the Pension Reform Act.

Records You Must Keep

Nigerian tax law requires employers to maintain payroll records that can be produced in the event of an audit. These include:

• Monthly payslips for each employee
• Records of all statutory remittances with evidence of payment
• Annual Form H1 tax returns (due 31 January each year)
• Employee TIN numbers and tax deduction cards
• Pension schedules showing employee and employer contributions

Keep these records for a minimum of six years.

The Excel Approach vs Payroll Software

Many Nigerian small businesses run payroll in Excel. This works up to a point — perhaps five to eight employees — before it becomes error-prone and time-consuming.

Common problems with spreadsheet payroll:

• Formula errors that compound month over month
• No automatic update when tax rates or reliefs change
• Time-consuming to maintain as the team grows
• No built-in remittance reminders or compliance calendar
• Audit trail is weak

Payroll software designed for Nigeria — like the payroll module in BetternshipHR — automates the calculation for every employee, updates automatically when regulatory changes occur, reminds you of upcoming remittance deadlines, and maintains a clean audit trail. For a team of ten employees, the time saved is typically three to five hours per month.

Summary

Running payroll correctly in Nigeria requires:

1. Accurate gross pay calculation including all allowances
2. Correct deduction of employee pension (8%), NHF (2.5% of basic), and PAYE
3. Employer pension contribution (10%) processed separately
4. Timely remittance of all deductions to the correct authorities
5. Proper record-keeping for at least six years

None of this requires a full-time accountant. But it does require a systematic process or software that handles the calculations automatically. The cost of errors — in penalties, back-payments, and management time — is significantly higher than the cost of getting it right the first time.

BetternshipHR automates payroll, PAYE, pension, and NHF for Nigerian teams of any size. Start free at employer.betternship.com.