If you’re an employee, knowing how much your annual salary is has several benefits. With the knowledge of how to calculate annual salary in Nigeria, you can easily perform PAYE computations, among other things. If you don’t know how to calculate your annual salary, you’re in luck because as you read this article to the end, you’ll learn how to do so. In addition, we’ll also discuss what the annual salary is and other related information.
How to calculate annual salary in Nigeria would be discussed below
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What is Annual Salary?
Before going ahead to discuss how annual salary is calculated in Nigeria, you’d want to know what annual salary is. Annual salary is defined as the total amount an employee receives from his employer in exchange for the job done in a year – from January to December. In Nigeria, the most common way employees receive their earnings is monthly.
Although employees in Nigeria are mostly paid their salaries monthly, some organizations pay their staff on a weekly or bi-weekly basis. Therefore, annual salary, in this case, refers to the total of all the fixed weekly or biweekly income an employee earns while working for an organization from January to December. So whether an employee in Nigeria earns a fixed income weekly, biweekly, or monthly, the annual salary is the total amount of money earned from a job in a year.
Note that annual salary in Nigeria does not include bonuses and commissions an employee receives in a year in addition to his annual base salary. Annual base salary refers to the minimum amount an employee receives as compensation for a job done. This (that is, annual base salary) is usually received through regular paychecks throughout the year. When the annual base pay is added with bonuses, commissions, and additional income an employee earns in a year, the total is the annual income.
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How to Calculate Annual Salary in Nigeria
This section of this salary deals with explaining how annual salary in Nigeria is calculated. We should reiterate that an annual salary does not include the bonuses and commissions an employee earns in a year in addition to his annual base salary.
If an employee receives his regular fixed payment for work done every month, calculating his annual income simply entails multiplying the value of his regular monthly paycheck by 12 (which is the number of months in a year). So, for example, if your monthly base pay is N50,000, your annual salary would be (N50,000 × 12), which equals N600,000. N600,000 gotten in this example is your gross annual salary.
If the employee gets paid by his employer every week, calculating his annual salary simply involves multiplying his weekly earnings by 52 (a year has 52 weeks plus 1 day. One calendar year has 365 days, which are divided into 7-day weeks). In the case of bi-weekly payments, calculating an employee’s annual salary is simply multiplying such employee’s bi-weekly wage by 26.
In Nigeria, there are some statutory contributions usually deducted from the salaries of employees. The statutory deductions are Pension Fund, National Housing Fund contribution, National Health Insurance Scheme contribution, and Personal Income Tax. After these deductions have been removed from the gross annual salary, the remainder is the net annual salary.
It is therefore important to indicate the rates at which the above-mentioned statutory contributions are deducted from the salaries of employees in Nigeria. The National Housing Fund (NHF) contribution is 2.5% of an employee’s basic pay, while the National Health Insurance Scheme (NHIS) is 5% of the employee’s basic salary.
The Pension Fund, another statutory contribution, requires employees in Nigeria to contribute at least 8% of their monthly salary as part of their retirement savings. Personal Income Tax is yet another deduction from the monthly salaries of employees in Nigeria earning more than the national minimum wage. Personal Income Tax (PIT) in Nigeria is processed using the Pay-As-You-Earn (PAYE) system which imposes a tax rate of 7% to 24% on taxable income.
N/B: Taxable income refers to an employee’s total income less relief and exemptions like the National Housing Fund contribution, National Health Insurance Scheme (NHIS) contribution, Consolidated Relief Allowances, Pension fund, and Life Assurance Premiums.
It is also worthwhile to note that whenever an employee has no taxable income or when the PAYE race of the employee is less than a minimum tax, a minimum tax of 1% of the employee’s gross income would be deducted.
Now that we’ve seen what would be deducted from an employee’s gross annual salary to get the net annual salary, let’s use an illustration to help you understand better.
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Illustration on How to Calculate Net Annual Salary in Nigeria
Assuming, you are a teacher with the Rivers State Government, and your annual gross emoluments is N1,400,000.00. You make contributions to the National Housing Fund, Pension Fund, and National Housing Insurance Scheme and are also entitled to Consolidated Relief Allowances. What would your net annual salary be?
Solution
First, we would make the statutory deductions which include contributions to Pension Fund, National Housing Fund, and National Health Insurance Scheme.
For Pension Fund contribution @ 8% of your annual gross emoluments 8% × N1,400,000.00
= N112,000.00
For National Housing Fund contribution @ 2.5% of your annual gross emoluments = 2.5% × N1,400,000.00
= N35,000.00
For National Health Insurance Scheme contribution @ 5% of your gross emoluments = 5% × N1,400,000.00
= N70,000.00
The total of the statutory contributions above = N112,000.00 + N35,000.00 + N70,000.00
= N217,000.00
Gross income = Gross emoluments – the sum of all statutory reliefs above
= N1,400,000 – N217,000
= N1,183,000.00.
To calculate Consolidated Relief Allowance, N1,183,000.00, which is the value of gross emoluments minus the sum of statutory contributions is referred to as gross income.
The calculation for Consolidated Relief Allowance = N200,000 (since N200,000.00 is higher than N14,000, which is 1% of N1,400,000.00) + 20% of the gross income of N1,183,000.00
= 200,000 + 236,600
= N436,000.00
So, Consolidated Relief Allowance is N436,000.00.
The total value of relief and statutory contributions = N217,000.00 + N436,000.00
= N653,600.00
To get the total taxable income which would be subject to Personal Income Tax, we would have to deduct the relief and exemptions from the gross emoluments
Taxable income = N1,400,000.00 – N653,600.00
= N746,000
Having gotten the total taxable income to be N746,000.00, let’s find the PAYE tax according to the PAYE Tax rate below:
| Annual Income | PAYE Tax Rate |
| First N300,000 | 7% |
| Next N300,000 | 11% |
| Next N500,000 | 15% |
| Next N500,000 | 19% |
| Next N1,600,000 | 21% |
| Above N3,200,000 | 24% |
1st N300,000@7% = N21,000 (remaining N446,000)
Next N300,000@11%= N33,000 (remaining N146,000)
Next N500,000@15%= N146,000 × 15% = N21,900
The total PAYE tax payable per annum= N21,000 + N33,000 + N21,900 = N75,900
Therefore, N75,900 is the Personal Income Tax payable on N746,000.00.
Annual Net Salary = N746,000.00 – N75,900
= N670,100.
The annual net salary is N670,100.00, which translates to a monthly net salary of approximately N55,841.67