PAYE: what employers must deduct, remit and file

In short: PAYE is your employees' personal income tax, deducted from their salaries by you and remitted to the state internal revenue service, not to the federal authority. It is due monthly, with an annual return on top, and the deduction is only correct if you have applied the statutory reliefs and worked from the right definition of taxable pay.

Which authority, and why it matters

PAYE is a state tax. You remit to the internal revenue service of the state where each employee is resident, which is not necessarily where your office is.

This has real consequences:

• Staff working remotely from another state may need to be remitted there.
• A company with offices in several states may be filing with several authorities.
• Remitting to the wrong state means the correct state still considers you in default, and recovering a misdirected payment is slow.

Establish each employee's state of residence at onboarding and keep it current.

Registering as an employer

1. Register with the relevant state internal revenue service and obtain your employer PAYE identification.
2. Provide your certificate of incorporation, status report, Tax ID and business address.
3. Submit your initial employee schedule.
4. Confirm your filing channel. Most states now use an online portal.

Your company's federal tax registration does not cover this. It is a separate registration, and it is the most commonly missed obligation for a new employer.

Calculating the deduction

The mechanics, in order:

1. Establish gross emolument: salary plus allowances and taxable benefits. Benefits in kind and some allowances are taxable, so the base is usually wider than basic salary.
2. Deduct allowable reliefs and exempt items: statutory pension contributions, the national housing fund where applicable, national health contributions where applicable, and life assurance premiums are commonly relieved.
3. Apply the consolidated relief allowance as provided by law.
4. Apply the graduated tax bands to the remaining taxable income.
5. Divide into monthly instalments for deduction through payroll.

Two points to be careful about: relief for pension only applies to contributions actually made, and the definition of taxable emolument includes items payroll software will not classify for you. Configure the software, then check a sample calculation by hand.

Monthly and annual obligations

• Monthly: deduct from each salary and remit by the statutory due date, with a schedule showing each employee, gross pay and tax deducted.
• Annually: file the employer annual return listing all employees and total remuneration and tax for the year.
• On request: issue each employee their tax deduction card or equivalent statement, which they need for their own tax affairs and for visa and loan applications.

The annual return is a separate obligation from the twelve monthly remittances. Employers who remitted faithfully all year still fall into default by not filing it.

Contractors, consultants and the classification risk

Paying someone as a consultant does not by itself put them outside PAYE. Authorities look at the substance of the relationship: control over how the work is done, working hours, exclusivity, whether they use your tools, whether they carry their own business risk.

If a contractor is in substance an employee, the authority can reassess you for the PAYE that should have been deducted, with penalties and interest, and the liability sits with you rather than the individual. Review any long-running consultant arrangement against the actual working reality.

Records to keep

• Payroll registers for every month.
• Remittance schedules and receipts, by month and by state.
• Employee records including state of residence.
• Evidence of pension, housing fund and health contributions claimed as relief.
• Annual returns and their filing acknowledgements.

What employees will ask you for

Employees need evidence of tax paid for mortgages, visas and their own filings. If your remittance records are incomplete, they find out at the moment it matters most to them, and it becomes your problem. Keep the schedules clean and issue statements without being chased.

Common mistakes

• Never registering for PAYE, on the assumption federal registration covered it.
• Remitting to the state where the office is, when staff are resident elsewhere.
• Calculating on basic salary and ignoring taxable allowances and benefits.
• Claiming pension relief where contributions were deducted but never remitted.
• Remitting monthly but never filing the annual return.
• Treating long-term consultants as outside PAYE without testing the relationship.
• Deducting but remitting late. The deduction is held on trust; late remittance attracts interest and penalties.

Verify before you rely on this

Tax bands, the consolidated relief allowance, relievable items, filing deadlines, penalties and each state's procedures all change, and Nigeria's tax legislation was substantially reformed in 2025 with effect from 2026. Confirm the current position with the relevant state internal revenue service or a qualified tax adviser before you calculate or remit. This guide is not tax advice.