Employer PAYE Responsibilities: Deduction, Remittance and Deadlines

Every Nigerian employer’s PAYE obligation under the NTA 2025. Monthly deduction, 10-day remittance, annual returns, penalties, and the new dual filing rule explained.

As an employer in Nigeria, you are the government’s unpaid tax collector. PAYE is not your tax — it is your employees’ income tax, and you are legally obligated to deduct it correctly, remit it on time, and file returns that account for every naira. The Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025 have tightened these obligations, introduced stiffer penalties, and added a new requirement that many employers are unaware of: both the employer and each individual employee must now file separate annual returns. Getting any part of this wrong exposes you to penalties starting at ₦1,000,000 or up to three years in prison.

This guide covers every employer PAYE obligation in the order you encounter them — from computing the deduction to filing the annual return.

Your Role as a PAYE Withholding Agent

Under the NTA 2025, PAYE is the system through which employers deduct personal income tax from employees’ monthly salaries and remit it to the relevant tax authority. The employer acts as a withholding agent — you collect the tax on behalf of the government at the point the salary is paid, rather than the employee paying it later when they file a return.

This role comes with specific legal obligations. You must compute the PAYE correctly based on the NTA 2025 tax bands and each employee’s allowable deductions. You must deduct it from the employee’s gross pay before making the net payment. You must remit the deducted amount to the correct State Internal Revenue Service within the prescribed deadline. And you must file both monthly schedules and an annual return accounting for every deduction made.

The obligation applies to every employer — companies, sole proprietors, partnerships, NGOs, government agencies, and individuals who employ domestic staff. If you pay someone a salary, you are a PAYE withholding agent.

Obligation 1: Compute PAYE Correctly

The starting point for every employer PAYE obligation is getting the computation right. Under the NTA 2025, PAYE is calculated on each employee’s annual chargeable income using the six progressive tax bands:

Chargeable income is the employee’s gross annual income minus allowable deductions: pension contribution (8% of Basic + Housing + Transport), rent relief (20% of annual rent paid, capped at ₦500,000), NHF (2.5% of basic, where applicable), NHIS (where applicable), and qualifying life insurance premiums. The annual PAYE is divided by 12 to get the monthly deduction.

What You Must Include in Gross Income

The NTA 2025 defines employment income broadly. Your PAYE base must capture all forms of remuneration:

• Basic salary, housing allowance, and transport allowance
• All other allowances — utilities, leave, meal, entertainment, furniture
• Bonuses, 13th month payments, and performance incentives
• Overtime payments
• Benefits in kind — company car (5% of cost per year), rent-free accommodation (20% of gross income), employer-provided assets (5% of cost)
• Gratuity (now taxable under the NTA 2025)
• Salary arrears and back pay

If it arises from the employment relationship, it belongs in the PAYE base. The days of excluding certain allowances or benefits to reduce the tax bill are over — the NRS has digital tools to cross-reference payroll data, and under-deduction is a penalisable offence.

What You Must Deduct Before Applying the Tax Bands

Collect documentation from each employee and apply the following deductions to arrive at chargeable income:

• Pension: 8% of Basic + Housing + Transport. Only these three components are pensionable. Mandatory for employers with 15 or more employees.
• Rent relief: 20% of annual rent paid, capped at ₦500,000. Requires tenancy agreement, rent receipts, or bank transfer evidence from the employee. No documentation = no relief.
• NHF: 2.5% of basic salary, where the employer participates in the scheme.
• NHIS: Employee contribution under the National Health Insurance Scheme, where applicable.
• Life insurance: Actual premiums paid to a registered Nigerian insurer, with documentary evidence.

The old Consolidated Relief Allowance (CRA) — 20% of gross plus ₦200,000 — no longer exists. If your payroll system still applies CRA, every employee’s PAYE is being computed incorrectly. Update your system immediately.

Use our PAYE Calculator to verify individual computations before processing payroll.

Obligation 2: Deduct PAYE From Each Employee’s Salary

Once PAYE is computed, deduct the monthly amount from each employee’s gross pay before making the net payment. The deduction must happen at the point of payment — you cannot pay the gross amount and collect the tax later.

The deduction should be shown clearly on the employee’s payslip as a separate line item. Best practice is to show gross pay, each statutory deduction (pension, PAYE, NHF, NHIS), and net pay — giving the employee full visibility of their tax position.

Employees Below the Tax Threshold

Employees whose annual chargeable income (after deductions) is ₦800,000 or less pay zero PAYE. This includes most minimum wage earners (₦70,000/month = ₦840,000/year gross, which falls below ₦800,000 after pension deduction) and NYSC corps members. You still include these employees in your payroll schedule and annual return — you just show zero PAYE deducted.

Employees earning at or below the national minimum wage are also explicitly exempt from PAYE and minimum tax under the NTA 2025.

Obligation 3: Remit PAYE to the Correct Authority Within 10 Days

This is the deadline that catches the most employers. PAYE deducted in any month must be remitted to the relevant State Internal Revenue Service within 10 days of the month following the deduction. January deductions are due by 10 February. February deductions by 10 March. And so on through the year.

Which State IRS?

PAYE is remitted to the State IRS of the state where the employee resides, not where the employer is located and not where the employee works. If your company is in Lagos but an employee lives in Ogun State, that employee’s PAYE goes to the Ogun State Internal Revenue Service.

For companies with employees across multiple states, this means maintaining separate remittance schedules for each State IRS. This is an operational burden, but it is the law — and State IRS offices actively reconcile employer remittances against employee residence records.

For specific categories (military officers, police officers, Nigerian Foreign Service officers), PAYE is remitted to the NRS instead of the State IRS.

How to Remit

Most State IRS offices now accept electronic payments. Lagos (LIRS) uses etax.lirs.net. Other states have their own e-tax portals or accept payments through Remita and designated banks. The payment must reference your employer TIN, the employee schedule, and the month of deduction. Keep the remittance receipt — it is your proof of timely payment and is required for the annual return.

The Penalty for Late or Non-Remittance

Failure to remit PAYE deducted at source is one of the most severely penalised offences under the NTAA 2025. Under Section 107:

• The full amount deducted but not remitted (you still owe the principal)
• An administrative penalty of 10% per annum of the unremitted amount
• Interest at the prevailing CBN Monetary Policy Rate

On conviction, the employer is liable to imprisonment of up to three years, or a fine of the principal amount plus up to 50% penalty, or both. PAYE deducted from employees is considered trust money — failing to hand it over is treated with the same severity as misappropriation of funds.

Obligation 4: Maintain Monthly PAYE Schedules

Each month, prepare and retain a detailed schedule of all PAYE deductions. The schedule must include:

• Each employee’s full name and Tax Identification Number
• Gross pay for the month
• Statutory deductions (pension, NHF, NHIS)
• Taxable income for the month
• PAYE deducted
• Net pay

Some State IRS offices require employers to submit the monthly schedule alongside the remittance. Others require it only with the annual return. Regardless of whether it is submitted monthly, you must prepare and keep it — the NRS and State IRS can request it at any time during an audit, and the NTAA requires records to be maintained for a minimum of six years.

Obligation 5: File the Annual Employer PAYE Return by 31 January

By 31 January of each year, employers must file an annual PAYE return summarising all employee deductions for the preceding calendar year. The 2026 annual return (covering January to December 2026) is due by 31 January 2027.

The annual return must include:

• A complete list of all employees who worked for you during the year (including those who joined or left mid-year)
• Each employee’s Tax ID, residential address, and state of residence
• Gross pay, statutory deductions, chargeable income, and annual PAYE for each employee
• Total PAYE deducted during the year
• Total PAYE remitted during the year (with evidence of remittance — receipts or portal confirmations)
• Reconciliation of any differences between deductions and remittances

The return is typically filed using Form H1 (or the equivalent electronic form on the State IRS portal). It must be signed by the employer or an accredited tax agent and submitted in compliance with the NTAA provisions.

The Penalty for Late Filing

Under NTAA Section 101, late filing of the annual return attracts ₦100,000 for the first month and ₦50,000 for each subsequent month of default. Under Section 127, any employer who contravenes the PAYE provisions of the NTAA faces an administrative penalty of ₦1,000,000 or, on conviction, imprisonment for a term not exceeding three years, or a fine, or both.

Obligation 6: Inform Employees of the Dual Filing Requirement

This is the new obligation that most employers — and most employees — are unaware of. Under the NTAA 2025, both the employer and the individual employee must file annual returns. The employer files the annual PAYE return (Form H1) by 31 January. Each employee must file their own individual PIT annual return by 31 March, declaring all income from all sources (including but not limited to their employment income).

The employer’s return and the employee’s return must reconcile. If your Form H1 shows ₦450,000 in PAYE deducted for Employee X, and Employee X’s individual return shows ₦300,000, the State IRS will query the discrepancy. Both parties face exposure.

As an employer, your obligation is to:

• Inform employees that they are required to file their own annual return
• Provide each employee with an annual tax deduction summary (showing gross pay, deductions, and PAYE for the year) that they can use when filing their individual return
• Ensure the figures on the employee’s summary match the figures on your Form H1

You are not responsible for filing the employee’s individual return — that is their obligation. But you are responsible for giving them the information they need and ensuring consistency between the two filings.

Obligation 7: Issue Tax Deduction Cards and Employment Records

Employers must maintain a tax deduction card for each employee, recording all monthly deductions throughout the year. When an employee leaves your employment, you must provide them with a statement of income earned and tax deducted during their period of service. This enables the employee (and their next employer) to compute PAYE correctly for the remainder of the year.

If a new employee joins mid-year and provides a tax deduction statement from their previous employer, you must factor the previous income and PAYE into your annual computation to avoid double-counting or under-deduction.

Obligation 8: Handle Benefits in Kind Correctly

The NTA 2025 introduces defined valuation rules for employer-provided benefits that must be included in the employee’s taxable income:

These values must be added to the employee’s gross income before computing PAYE. An employee earning ₦10,000,000 in cash salary who also receives a company car valued at ₦15,000,000 has an additional ₦750,000 (5% × ₦15,000,000) added to their taxable income. Ignoring benefits in kind under-states the employee’s income and under-deducts PAYE — both of which are penalisable.

Note that employees receiving rent-free accommodation cannot claim rent relief. The accommodation value is added to income, and no offsetting deduction is available.

Obligation 9: Register All Employees for Tax

Every employee must have a Tax Identification Number. Under the NTAA 2025, the employer is obligated to ensure that all employees are tax-registered. In practice, this means verifying each employee’s 13-digit Tax ID at taxid.nrs.gov.ng during onboarding and including the Tax ID on all PAYE schedules and returns.

If an employee does not have a Tax ID, assist them in obtaining one (their NIN now serves as the individual Tax ID). Do not process payroll without a valid Tax ID for each employee — the monthly PAYE schedule requires it, the annual return requires it, and filing with missing Tax IDs can result in the return being treated as incomplete.

What Happens During a PAYE Audit

The NRS and State IRS conduct employer PAYE audits — sometimes routinely, sometimes triggered by discrepancies between your filings and employee returns, or by tips from employees who believe they have been over- or under-taxed. Here is what auditors typically examine:

• Completeness of employee records. Are all employees captured in the PAYE schedule, including directors, part-time staff, and contract workers who should be on payroll?
• Accuracy of gross income. Are all components included — allowances, bonuses, benefits in kind, overtime? Exclusions are a common finding.
• Correctness of deductions. Is pension computed on the right base (Basic + Housing + Transport only)? Is rent relief supported by documentation? Is CRA still being applied (it should not be)?
• Application of correct tax bands. Are the NTA 2025 bands (0% to 25%) being used, or is the system still running on the old PITA bands (7% to 24%)?
• Timeliness of remittances. Were all monthly remittances made within 10 days? Late remittance attracts 10% per annum plus CBN rate interest.
• Reconciliation between deductions and remittances. Does the total PAYE deducted across all payslips match the total amount remitted to the State IRS?
• Annual return filing. Was Form H1 filed by 31 January? Is it complete, signed, and consistent with monthly schedules?

The consequences of audit findings include additional assessments (the tax authority computes the correct amount and demands the shortfall), penalties (40% on amounts not deducted; 10% per annum on amounts deducted but not remitted), compound interest on all unpaid amounts, and in serious cases, criminal prosecution of the employer’s officers.

Practical Compliance Checklist for Employers

1. Update your payroll system. Ensure it uses the NTA 2025 tax bands (0% to 25%), computes pension on Basic + Housing + Transport only, applies rent relief based on employee documentation (not CRA), and includes benefits in kind at the defined valuation rates.
2. Collect employee documentation annually. Send a circular in January requesting rent receipts, pension statements, life insurance certificates, and NHF/NHIS contribution evidence from all employees. Employees who do not provide documentation receive no relief — and pay higher PAYE as a result.
3. Verify every employee’s Tax ID. Check at taxid.nrs.gov.ng during onboarding. Update records when employees change their names or details.
4. Process PAYE monthly by the 5th. Give yourself five days’ buffer before the 10th remittance deadline. Compute deductions, prepare the monthly schedule, process the payment, and file with the State IRS.
5. Remit to the correct State IRS. Each employee’s PAYE goes to the state where they reside. For multi-state workforces, maintain separate remittance schedules per state.
6. Keep remittance receipts. Store electronic receipts and payment confirmations for at least six years. You will need them for the annual return and for audit defence.
7. Reconcile monthly. At the end of each month, compare total PAYE deducted (from payroll) against total PAYE remitted (from payment receipts). Investigate any discrepancy immediately.
8. File the annual return by 31 January. Use Form H1 or the State IRS electronic equivalent. Include all employees, all income components, all deductions, and all remittance evidence. Have it signed by the employer or an accredited tax agent.
9. Provide annual summaries to employees. Before 31 January, give each employee a statement of their total income and PAYE deducted for the year. They need this to file their own individual return by 31 March.
10. Communicate the dual filing obligation. Tell your employees — in writing — that they must file their own individual PIT return by 31 March. Many employees do not know this. A brief internal memo or email saves everyone from penalties and queries.

Common Employer PAYE Mistakes

• Still using the old PITA tax bands. The 7%/11%/15%/19%/21%/24% structure has not applied since 31 December 2025. Every PAYE computation from January 2026 must use the NTA 2025 bands. If your payroll software has not been updated, every employee’s PAYE is wrong.
• Still applying CRA. The Consolidated Relief Allowance was abolished by the NTA 2025. If your payslips still show a CRA deduction, your taxable income and PAYE figures are both incorrect.
• Computing pension on gross salary. Pension is 8% of Basic + Housing + Transport only. Including bonuses, leave allowance, utilities, or overtime in the pension base produces an incorrect deduction — overstating pension and understating PAYE.
• Applying rent relief without documentation. If an employee has not provided a tenancy agreement, rent receipts, or bank transfer evidence, you must compute PAYE with zero rent relief. Applying it without proof creates audit exposure.
• Remitting all PAYE to one State IRS. PAYE goes to the state where each employee resides. If you remit everyone’s PAYE to Lagos LIRS but some employees live in Ogun, Oyo, or FCT, those employees’ PAYE has been sent to the wrong authority.
• Missing the 10-day remittance window. The deadline is within 10 days of the following month — not the 21st (that is for VAT and WHT). Confusing these deadlines is a common and costly mistake.
• Not filing the annual return because monthly remittances were made. Monthly remittance and annual filing are separate obligations. Paying on time every month does not excuse you from filing Form H1 by 31 January. The filing penalty accrues independently.
• Not informing employees about their individual filing obligation. Under the NTAA 2025, employees must file their own annual return. If they do not — and the State IRS queries the discrepancy with your employer return — it creates problems for both parties.

Final Thoughts

Employer PAYE compliance under the NTA 2025 comes down to nine obligations: compute correctly, deduct at source, remit within 10 days to the right State IRS, maintain monthly schedules, file the annual return by 31 January, inform employees of their dual filing obligation, register all employees for tax, handle benefits in kind properly, and issue annual deduction summaries. None of these is complicated individually. What makes them challenging is their frequency (monthly) and their cumulative penalty exposure when even one is missed.

The NRS and State IRS offices are enforcing more aggressively than ever, with digital tools that make discrepancies easy to spot. The cost of non-compliance — ₦1,000,000 administrative penalties, 40% surcharges on non-deduction, 10% per annum on non-remittance, compound interest, and potential criminal prosecution — dwarfs the cost of a properly configured payroll system and a disciplined monthly process.

Verify your PAYE computations with our free PAYE Calculator. Explore the Salary Optimizer to structure employee compensation packages for maximum tax efficiency. If your payroll is complex — multiple states, expatriates, benefits in kind, or mid-year joiners and leavers — consult a specialist from our Tax Professional Directory. For the latest NRS and State IRS guidance on employer PAYE, visit nrs.gov.ng.

FAQs About Employer PAYE Responsibilities

When must employers remit PAYE?

Within 10 days of the month following the deduction. January PAYE is due by 10 February. This is a tighter deadline than VAT and WHT (which are due by the 21st). Failure to remit attracts the full amount owed plus 10% per annum plus interest at the CBN rate, and criminal prosecution is possible for persistent non-remittance.

Which State IRS do I remit to?

The State Internal Revenue Service of the state where each employee resides — not where the employer is located or where the employee works. If your workforce spans multiple states, you must maintain separate remittance schedules for each state and remit to each relevant State IRS.

Do I need to file an annual PAYE return if I remit monthly?

Yes. Monthly remittance and annual filing are separate obligations. The annual employer PAYE return (Form H1) must be filed by 31 January of the following year, summarising all employees, all deductions, and all remittances for the year. The filing penalty (₦100,000 first month, ₦50,000 each month after) applies even if every monthly remittance was made on time.

Do employees also need to file their own return?

Yes. The NTAA 2025 introduces a dual filing obligation. The employer files the annual PAYE return (Form H1) by 31 January. Each individual employee must file their own PIT annual return by 31 March, declaring all sources of income. The two returns must reconcile. Employers should provide each employee with an annual deduction summary to facilitate their individual filing.

What is the penalty for not deducting PAYE?

Under NTAA Section 105, the penalty for failure to deduct tax at source is 40% of the amount not deducted. This falls on the employer, not the employee. Additionally, under Section 127, an employer who contravenes the PAYE provisions is liable to an administrative penalty of ₦1,000,000 or, on conviction, imprisonment for up to three years, or both.

Is the 13th month salary subject to employer PAYE obligations?

Yes. Bonuses, 13th month payments, and all other forms of remuneration are taxable employment income. The employer must include them in the PAYE computation, deduct the additional tax, and remit it. The correct approach is to recalculate annual PAYE including the bonus and deduct the difference in the bonus month. Bonuses are not pensionable — pension remains at 8% of Basic + Housing + Transport only.

What happens during a PAYE audit?

The State IRS or NRS examines your employee records, gross income components, deduction calculations, tax band application, remittance timeliness, and reconciliation between deductions and remittances. Findings can result in additional assessments, 40% penalties on under-deductions, 10% per annum on late remittances, compound interest, and criminal prosecution in serious cases. Maintain complete records for at least six years.