PAYE

PAYE is the income tax an employer deducts from pay each month and pays to the state tax authority. Cadre calculates it in every payroll run under current Nigerian law: the Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025. This page explains the basis Cadre uses, so you can check a figure and explain it to an employee.

Who can see PAYE in payroll runs: Owner, Payroll admin, Payroll approver.

What PAYE is charged on

Each month, a person’s chargeable income is:

their taxable pay for the month: earnings with the statutory role basic salary, housing, transport or other taxable pay, plus any taxable final payment;
plus the taxable value of their benefits in kind for the month, which are taxed but never paid;
less their deductions: their own pension contribution, their NHF contribution and any voluntary pension contribution;
less a twelfth of their yearly reliefs: rent relief (a share of the rent they pay, up to a cap), NHIS contributions, life assurance premiums paid in the previous year, and interest on a loan to develop an owner-occupied home.

Non-taxable pay isn’t included. The reliefs come from the person’s tax profile. See Set up pay.

The PAYE bands, the rent relief share and cap, and the other figures are set in law. Cadre holds them in dated rate sets and applies them for you.

Worked out on the tax year to date

The tax year is the calendar year. Cadre uses the cumulative method, because the law requires the tax deducted over the year to add up to the tax due for the year. Each month:

This month’s chargeable income is added to the year so far with this legal employer.
The tax due to date is worked out through the PAYE bands, scaled to the months so far.
This month’s PAYE is the tax due to date, less the PAYE already deducted in earlier locked runs this year.

At a steady salary this gives the same PAYE every month. When pay changes, or someone joins part-way through the year, the year’s tax is corrected over the remaining months instead of being over- or under-deducted. If more tax was deducted earlier than is due to date, the month’s PAYE is a refund, and the line shows a warning.

A first month with no history

If Cadre has no earlier months for a person this year, their first month is taxed as a twelfth of the year. Cadre never assumes they earned nothing before.

If they were paid earlier in the year, by your previous payroll or a previous employer, enter those months on their tax profile: Months paid before Cadre, Opening chargeable income and Opening PAYE deducted. Cadre then carries on from there.

Minimum wage exemption

A month in which a person’s full-time gross pay is at or below the national minimum wage carries no PAYE, and it adds nothing to the year’s chargeable income. The test uses the full-time monthly pay, not a part month’s, and it counts benefits in kind and taxable final payments.

Part months, unpaid leave and absence

Someone who joins or leaves during the month is paid for the calendar days employed. Approved unpaid leave and unexcused absence on approved timesheets come off the days paid. The law sets no rule for either, so these are Cadre’s choices. PAYE is then worked out on what is actually paid.

Voluntary pension

A voluntary pension contribution above the statutory one reduces chargeable income. Enter it as Monthly voluntary pension on the tax profile.

Final payments

Pay for unused leave and other final payments are taxed as ordinary pay. Compensation for loss of office is tax-free up to ₦50 million per person, and only the excess is taxed, in the month it’s paid. A gratuity is tax-free only when paid under the Pension Reform Act. See Exit payments.

Which state PAYE goes to

PAYE is paid to the state where the person lived on 1 January of the tax year, or when they joined. If they have more than one home, it’s the one nearest their work. It stays the same for the whole year. Record it as Tax state on the person’s tax profile.

If no tax state is recorded, the PAYE schedule uses the state of residence on the person’s record. If neither is recorded, the person is listed as an exception with the state unknown, and you must record it before filing.

Each locked run produces one PAYE schedule for each state. It shows the legal employer’s TIN, RC number and PAYE tax ID with that state, and each person’s TIN, gross pay, PAYE and benefits in kind. A missing TIN or state registration is listed as an exception to put right before filing. See Remittances.

Checking a figure

Open the person’s line in the run’s register. How it was calculated shows every step: gross income, benefits in kind, each deduction and relief, chargeable income this month and to date, the tax due to date, the tax already deducted, and this month’s PAYE.