Gross vs. Net: A Simple Guide to Understanding Your First Nigerian Payslip

You did it. You negotiated your salary, signed the employment letter, and worked your first full month. You were expecting, say, ₦150,000 to hit your bank account. But when the alert finally comes in, it's ₦135,000. Your heart sinks a little. Where did the rest of the money go?

Welcome to the confusing world of payslip deductions. Your "Gross Salary" (the big number you were offered) is not the same as your "Net Salary" (the actual amount that lands in your bank account, also known as "take-home pay").

Understanding the difference is the first step to true financial literacy. It helps you budget effectively and ensures you know exactly where your hard-earned money is going. Let's break down the most common deductions you'll see on a typical Nigerian payslip.

1. Gross Salary: The Starting Point

This is the total amount of money your employer has agreed to pay you before any deductions are made. It's the headline figure in your employment letter. This amount is usually broken down into "Basic Salary" and various "Allowances" (like housing, transport, etc.).

2. Statutory Deductions: The Legal Requirements

These are deductions that your employer is required by law to make on your behalf. They are non-negotiable.

a) The Pension Contribution

• What It Is: This is your mandatory savings for retirement, governed by the Nigerian Pension Reform Act. It's a joint contribution.

• How It's Calculated: You contribute a minimum of 8% of your monthly emoluments (Basic + Housing + Transport), and your employer contributes a minimum of 10%. That's a total of 18% of your salary being saved for your future every single month!

• Where It Goes: This money is paid into a Retirement Savings Account (RSA) which you open with a Pension Fund Administrator (PFA) of your choice.

b) PAYE (Pay As You Earn) Tax

• What It Is: This is the personal income tax you pay to the government. Your employer deducts it from your salary and remits it to the State Internal Revenue Service (like LIRS in Lagos).

• How It's Calculated: This is the most complex part. It's calculated on your taxable income after certain reliefs (like your pension contribution) have been deducted. The rate is progressive, meaning the more you earn, the higher the percentage you pay.

• The Key Takeaway: This is usually the largest deduction from your salary.

c) National Housing Fund (NHF)

• What It Is: A federal government scheme designed to help Nigerians access affordable housing loans.

• How It's Calculated: It is 2.5% of your monthly basic salary.

• Who It Applies To: This is mandatory for all employees earning above a certain threshold.

d) Employee Compensation Scheme (NSITF)

• What It Is: This is an insurance fund that provides compensation to employees who suffer from occupational diseases or injuries in the course of employment.

• How It's Calculated: This is actually paid by your employer, who contributes 1% of the total employee payroll. While you might see it mentioned, it's not typically a deduction from your salary.

3. Other Potential Deductions (Company Specific)

Some companies may have other deductions based on their internal policies.

• Company Cooperatives: If you join your office's cooperative society for savings or loans.

• Pay-As-You-Go Lunch: Some companies provide subsidized lunch and deduct it from your pay.

Putting It All Together: A Simple Example

Let's say your Gross Salary is ₦150,000 (broken down into Basic, Housing, and Transport).

• Pension (8%): - ₦12,000

• PAYE Tax (example): - ₦8,000

• NHF (2.5% of Basic): - ₦1,500

• Total Deductions: ₦21,500

Net Salary (Take-Home Pay): ₦150,000 - ₦21,500 = ₦128,500

This is the amount that will be credited to your bank account.

Why This Matters

Your payslip is your financial report card. Don't just look at the final number. Take the time to read through it each month. Understand where your money is going. Knowing the difference between your gross and net pay allows you to create a realistic budget based on what you actually have, setting you on a path to financial stability and success.