Do you want to know how you can calculate what your take-home salary would be from your gross income? There are many people just like you who don’t know how to calculate their net salary in Nigeria. In this article, we’d discuss what statutory deductions are taken out of your gross income and provide illustrations to help you understand how you can calculate your net salary by yourself. Keep on reading to learn how to do so.
How to calculate net salary in Nigeria would be discussed below:
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What is Net Salary?
Net salary, also referred to as take-home pay, is what remains from an employee’s gross income after statutory contributions have been deducted. In Nigeria, the statutory deductions include National Housing Fund (NHF) contribution, National Health Insurance Scheme (NHIS) contribution, Pension fund, and Personal Income Tax.
Before we proceed to discuss how net salary in Nigeria can be calculated, we’d briefly discuss what each of these statutory contributions entails and the rate at which they are deducted from your gross income.
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National Housing Fund (NHF) Contribution
One of the statutory deductions from the gross income of employees in Nigeria is the National Housing Fund (NHF) contribution. This contribution is 2.5% of an employee’s monthly basic pay. So, for example, if your basic salary is N120,000.00, your NHF contribution would be N3,000.00. However, employees with an annual income of less than N3,000.00 are exempt from making NHF contributions.
The NHF contribution helps employees access loans to develop, buy, and renovate houses. In addition, employees who make contributions to the National Housing Fund will be able to get long-term loans from Mortgage institutions in Nigeria.
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National Health Insurance Scheme (NHIS) Contribution
The National Health Insurance Scheme (NHIS) is another statutory contribution employees in Nigeria are expected to make from their monthly basic salary. This contribution is usually 5% of an employee’s salary.
The reason for NHIS contributions is to make employees access to health insurance in Nigeria. Normally, making contributions grants the contributor, his or her spouse, and four children access to health insurance. If you have a family larger than six, you can always add additional persons as dependent(s).
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Personal Income Tax (PIT)
Personal Income Tax is another compulsory deduction taken out of every employee’s monthly salary in Nigeria. The Personal Income Tax Amendment Act of 2011 and the Finance Act of 2020 are the legislations governing the administration of Personal Income Tax in Nigeria.
This tax applies to employees working partially or fully in Nigeria, employees whose employers are in Nigeria, and employees whose employers have a fixed base in Nigeria. This tax is processed using the Pay-As-You-Earn (PAYE) system which imposes a tax rate of 7% to 24% on the taxable income and ranges from N300,000.00 to above N3.2 million in a year.
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.
In situations where an employee has no taxable income or when the PAYE tax of the employee is less than the minimum tax, a minimum tax of 1% of such employee’s gross income would be deducted.
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Pension Fund Contribution
Employees in Nigeria are mandated by law, particularly the 2004 Pension Reform Act, to contribute at least 8% of their monthly emoluments as part of their retirement savings. Employers are equally mandated by law to contribute at least 10% of each of their employees’ monthly salaries to their respective Retirement Saving Accounts (RSAs).
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How to Calculate Net Salary in Nigeria
After we have seen what statutory contributions are deducted from the gross emoluments of employees in Nigeria, let’s go ahead to explain how net salary is calculated. We’d be using an illustration to drive home the point better.
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. Let’s determine what your take-home pay, or net salary, per annum, would 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.
To get the 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.