Running payroll in Nigeria: a practical guide for foreign employers

Nigeria is one of Africa’s largest talent markets, and foreign companies are increasingly hiring there to access skilled professionals across tech, finance, and professional services. But running payroll compliantly in Nigeria means navigating a layered system of contributions, a reformed income tax structure, and state-level remittance requirements. This guide covers everything a foreign employer needs to know.

Nigeria payroll basics

Payroll in Nigeria operates in Nigerian Naira (NGN), and salaries are paid monthly. The standard pay date is the last working day of the month, and the standard working week runs Monday to Friday at 40 hours.

The Federal Inland Revenue Service (FIRS) is Nigeria’s central tax authority, but Pay As You Earn (PAYE) income tax is remitted at the state level to the relevant State Internal Revenue Service (SIRS) in whichever state the employee works. Foreign employers need to account for this distinction early, since different states may have varying administrative processes.

VAT in Nigeria stands at 7.5%, though this is typically more relevant for service procurement than payroll itself.

Minimum wage

Nigeria’s federal minimum wage is NGN 70,000 per month, established in July 2024. This is a federal floor, and some states set higher rates. The rate is under active review in 2026, but NGN 70,000 remains the confirmed current figure.

Employees earning at or below the minimum wage are fully exempt from PAYE income tax.

Employment contracts

Every employee in Nigeria must have a written contract that covers: full name and ID number, job title, start date, contract duration, working hours, probation and notice conditions, termination provisions, and full compensation details. Fixed-term contracts automatically renew unless expressly terminated before the end of the term. Probation periods of up to six months are common practice.

Employer payroll contributions

Nigeria’s payroll system involves several mandatory employer contributions beyond gross salary. The table below summarises the employer-side obligations.

Pension (contributory pension scheme)

The Contributory Pension Scheme is mandatory for employers with 15 or more employees. Employers contribute 10% of each employee’s monthly emoluments, and employees contribute 8%. These combined contributions are remitted to the employee’s Retirement Savings Account (RSA) held with a licensed Pension Fund Administrator (PFA).

Employers are responsible for registering employees with a PFA before payroll begins.

Nhia (national health insurance authority)

The NHIA Act 2022 made health insurance contributions mandatory for private sector employers. Employers contribute 10% of each employee’s basic salary, and employees contribute 5%. Benefits are delivered through licensed Health Maintenance Organisations (HMOs), and employers must enrol staff with an approved HMO.

Nhf (national housing fund)

The NHF is an employee-only contribution of 2.5% of basic salary, remitted to the Federal Mortgage Bank of Nigeria. There is no employer contribution to the NHF, but the employer is responsible for withholding and remitting the deduction on the employee’s behalf.

Itf (industrial training fund)

The ITF levy is 1% of annual payroll and applies to employers with 25 or more employees or an annual turnover above NGN 50 million. It funds vocational and technical training nationally.

Employee deductions

Employers must withhold the following deductions from employee pay and remit them to the relevant authorities.

Paye income tax

Nigeria’s income tax framework was significantly updated by the Nigeria Tax Act 2025, effective January 1, 2026. The new brackets apply to annual taxable income after approved pre-tax deductions.

Pre-tax deductions

Before calculating PAYE, the following deductions are applied to gross income:

• Pension contribution: 8% of monthly emoluments
• NHF contribution: 2.5% of basic salary
• NHIA contribution: 5% of basic salary
• Rent relief: 20% of gross income, capped at NGN 500,000 per year

Tax brackets (effective january 1, 2026)

Employees whose monthly gross income is at or below NGN 70,000 are fully exempt from PAYE. A minimum tax rule applies: if the calculated PAYE falls below 1% of gross income, the employee pays 1% of gross income instead. PAYE is remitted monthly to the State Internal Revenue Service in the state where the employee is based.

Statutory bonuses and 13th-month pay

There is no statutory requirement for a 13th-month salary or any mandatory annual bonus in Nigeria. Any bonus arrangements are contractual and should be clearly documented in the employment agreement.

Annual leave

Workers covered by the labour act

Employees classified as “workers” under the Labour Act are entitled to a minimum of six paid working days of annual leave per 12 months of continuous service. Leave timing is agreed between the employer and employee based on operational needs.

Professional and management staff

Employees outside the Labour Act’s “worker” definition are not covered by the statutory minimum. This typically includes professional, technical, and management staff. Twenty days of paid annual leave per year is common practice for this category and is usually specified in the employment contract.

Public holidays

Nigeria observes 11 mandatory public holidays per year. Three are tied to the Gregorian calendar, two follow the solar calendar with variable dates (Good Friday and Easter Monday), and three follow the Islamic lunar calendar.

Good Friday and Easter Monday shift each year based on the ecclesiastical calendar. The three Islamic holidays shift annually with the lunar calendar, and exact dates are typically confirmed closer to the time.

How foreign companies run payroll in nigeria

Foreign companies without a registered Nigerian entity can’t run payroll directly. They need a local legal structure to employ workers, withhold taxes, and remit contributions. The standard approach is to engage an Employer of Record (EOR), which employs workers on the foreign company’s behalf and handles all payroll compliance in-country.

An EOR takes on employer responsibilities including pension registration with a PFA, PAYE remittance to the relevant state authority, NHIA enrolment, NHF deductions, and ITF contributions where applicable. This removes the need to set up a Nigerian entity before hiring.

Nigeria supports expat hiring through the EOR model. Employers must notify the Nigeria Immigration Service (NIS) of any changes to an expat employee’s status, and the EOR can help coordinate these notifications as part of the onboarding process.

Companies that engage Nigerian freelancers rather than employees can use contractors arrangements, though it’s important to ensure the working relationship genuinely reflects an independent contractor structure to avoid misclassification risk.

Summary of employer obligations at a glance

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