How to Calculate Variable Pay PAYE in Nigeria (2026)

April 11, 2026

Payroll and People

How to Calculate Variable Pay PAYE in Nigeria (2026)

Nankyer Ndom

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Last updated: 7 July 2026. Facts checked against current Nigerian regulation at time of update.

How to Calculate Variable Pay PAYE in Nigeria (2026)

Quick answer: Variable pay PAYE Nigeria uses the cumulative basis method. Each month, you project annual income from year-to-date (YTD) earnings, calculate total annual PAYE using the NTA 2025 bands, then subtract what you have already deducted. The difference is this month’s PAYE. This stops wild over- and under-deductions when pay changes every month.

Time needed: 15-20 minutes per employee with variable pay.
What you need: Employee YTD gross income, YTD PAYE already deducted, this month’s total earnings, and the NTA 2025 tax bands.

What You Will Need

Item	Detail
Employee YTD gross income	From your payroll records
YTD PAYE already deducted	Running total from January
This month’s full earnings	Base salary plus all variable pay
NTA 2025 tax bands	See the band table below
Payroll software or calculator	Must support cumulative PAYE

The NTA 2025 Tax Bands (Current as of 2026)

The Nigeria Tax Act 2025 (NTA 2025) replaced the Personal Income Tax Act (PITA) effective 1 January 2026. The bands that apply to all PAYE calculations from 2026 onward are:

Annual Chargeable Income	Rate	Tax on This Band
First ₦800,000	0%	₦0
₦800,001 to ₦3,000,000	15%	Up to ₦330,000
₦3,000,001 to ₦12,000,000	18%	Up to ₦1,620,000
₦12,000,001 to ₦25,000,000	21%	Up to ₦2,730,000
₦25,000,001 to ₦50,000,000	23%	Up to ₦5,750,000
Above ₦50,000,000	25%	No cap

Important: If you are reaching for a 7%/11%/15%/19%/21%/24% band structure, stop. That is the old PITA regime and is no longer in effect.

Why the Cumulative Method Matters for Variable Pay PAYE Nigeria

The simple monthly method takes this month’s pay, multiplies by 12, finds the tax band, and divides by 12. That works fine when pay is the same every month.

For variable pay, it falls apart fast.

Say your sales rep earns ₦100,000 in January and ₦400,000 in February. The monthly method projects ₦1,200,000 in January and ₦4,800,000 in February. The tax deduction swings wildly. Your employee goes from almost no PAYE to a huge deduction in one month, even though their total income is perfectly reasonable.

The cumulative method fixes this. It looks at what has actually been earned so far this year, projects forward, and smooths the tax across the year.

Step 1: Gather Year-to-Date Totals

Start with everything the employee has earned from January to the current month, including base salary, commissions, bonuses, and overtime.

Example scenario: It is April 2026. Your sales manager’s monthly earnings are:

Month	Base	Commission	Total
January	₦200,000	₦100,000	₦300,000
February	₦200,000	₦50,000	₦250,000
March	₦200,000	₦150,000	₦350,000
April	₦200,000	₦80,000	₦280,000

YTD gross income: ₦1,180,000
YTD PAYE already deducted (Jan-Mar): ₦89,400

Step 2: Project Annual Income

Divide YTD income by the number of months elapsed, then multiply by 12.

Formula: (YTD Income / Months elapsed) x 12

Calculation: (₦1,180,000 / 4) x 12 = ₦3,540,000 projected annual income

Pro tip: For seasonal businesses, do not blindly project December’s peak earnings across 12 months. Use a rolling 3-month average for heavily seasonal roles.

Step 3: Calculate Annual PAYE on Projected Income

Apply the NTA 2025 bands to the ₦3,540,000 projection.

Band	Calculation	Tax
First ₦800,000 at 0%	₦800,000 x 0%	₦0
Next ₦2,200,000 at 15%	₦2,200,000 x 15%	₦330,000
Remaining ₦540,000 at 18%	₦540,000 x 18%	₦97,200
Total projected annual PAYE		₦427,200

Step 4: Find This Month’s PAYE Deduction

This is where the cumulative method is different from a simple monthly split.

You do not divide the remaining tax by the remaining months. You calculate what should have been paid YTD in total, then subtract what was actually paid.

YTD PAYE that should have been paid:

(₦427,200 / 12) x 4 months = ₦142,400

YTD PAYE actually paid:

₦89,400

April PAYE deduction:

₦142,400 – ₦89,400 = ₦53,000

That ₦53,000 is the PAYE you deduct from the April salary and remit to FIRS by the 10th of May.

Full Worked Example: Marketing Manager (January to April 2026)

Employee: Marketing manager. Base salary ₦300,000 per month plus variable performance bonuses.

Month 1 (January 2026):

Gross income: ₦300,000 (base only)
YTD gross: ₦300,000
Projected annual: ₦3,600,000
Annual PAYE on ₦3,600,000: ₦486,000
Should have paid YTD (1/12 of ₦486,000): ₦40,500
Actually paid YTD: ₦0
January PAYE: ₦40,500

Month 2 (February 2026):

Gross income: ₦450,000 (₦300,000 base + ₦150,000 bonus)
YTD gross: ₦750,000
Projected annual: ₦4,500,000
Annual PAYE on ₦4,500,000: ₦756,000
Should have paid YTD (2/12 of ₦756,000): ₦126,000
Actually paid YTD: ₦40,500
February PAYE: ₦85,500

Month 3 (March 2026):

Gross income: ₦320,000 (₦300,000 base + ₦20,000 bonus)
YTD gross: ₦1,070,000
Projected annual: ₦4,280,000
Annual PAYE on ₦4,280,000: ₦716,400
Should have paid YTD (3/12 of ₦716,400): ₦179,100
Actually paid YTD: ₦126,000
March PAYE: ₦53,100

Month 4 (April 2026):

Gross income: ₦380,000 (₦300,000 base + ₦80,000 bonus)
YTD gross: ₦1,450,000
Projected annual: ₦4,350,000
Annual PAYE on ₦4,350,000: ₦744,000
Should have paid YTD (4/12 of ₦744,000): ₦248,000
Actually paid YTD: ₦179,100
April PAYE: ₦68,900

Each month adjusts based on actual earnings. No wild swings.

How to Handle Specific Variable Pay Scenarios

Commissions (Sales Reps, Agents, Brokers)

Commission income is fully taxable under NTA 2025. No special treatment.

Some businesses try to record commissions as “business expenses” to reduce PAYE. This is wrong. Commission payments are employment income and go through the full PAYE calculation.

Overtime Pay

Overtime is taxable. Include it in the cumulative PAYE calculation the same way you would include any other payment.

Example: A security guard earns ₦80,000 base and works 30 hours overtime. Regular hourly rate is ₦500. Overtime rate is time-and-a-half, so ₦750 per hour.

Overtime pay: 30 x ₦750 = ₦22,500
Total monthly income: ₦80,000 + ₦22,500 = ₦102,500

Run ₦102,500 through the cumulative method as normal.

Year-End Bonuses and 13th-Month Salary

December bonuses cause the most PAYE errors. If you pay a ₦500,000 Christmas bonus and use the monthly method, it projects ₦6,000,000 annual income for December alone. That creates a massive, incorrect deduction.

The fix: add the bonus to the employee’s actual YTD income. Calculate annual PAYE on the real total. Subtract YTD PAYE already paid. Deduct the remainder.

13th-month salaries follow the same rule. They are taxable employment income.

Rent Relief Under NTA 2025

Employees can claim 20% of annual rent paid, up to ₦500,000 per year. This replaces the Consolidated Relief Allowance (CRA), which was eliminated under NTA 2025. The employee files for relief and the employer applies it to the PAYE computation.

For variable pay workers, collect rent documentation upfront. The relief reduces annual chargeable income (what the tax bands are applied to), which lowers PAYE each month.

The CRA (formerly ₦200,000 + 20% of gross income) does NOT apply from 2026 onward. Do not include CRA in any PAYE calculation from 2026 onward.

Pension and NHF on Variable Pay

Variable pay affects pension contributions too. Pension contributions are calculated on Basic + Housing + Transport (not gross salary). The employee rate is 8% and the employer rate is 10%.

Contributions must be remitted within 7 working days of salary payment.

For NHF: the rate is 2.5% of gross monthly salary. Under the Business Facilitation Act 2022, private-sector employees can opt out of NHF. Treat it as opt-in per employee, not a default deduction.

Common Variable Pay PAYE Mistakes

1. Calculating bonus PAYE in isolation

Wrong: calculate PAYE on the bonus separately from regular salary.

Right: add the bonus to YTD income and run the full cumulative calculation.

2. Locking in a fixed monthly PAYE for variable workers

Wrong: set a salesperson’s PAYE at ₦25,000 per month regardless of commission.

Right: recalculate every month using the cumulative method.

3. Ignoring negative adjustments

Sometimes the cumulative calculation shows you have over-deducted. Do not ignore it.

Example: You deducted ₦50,000 in January based on strong commissions. In February, commissions drop. The cumulative calculation shows YTD PAYE should be ₦35,000, but you have already deducted ₦50,000.

February PAYE: ₦0. You carry the ₦15,000 over-deduction forward.

4. Computing pension on gross salary

Pensionable emoluments are Basic + Housing + Transport, not gross salary. Computing on full gross inflates both the employee and employer pension contributions.

5. Using a bad annual projection

If your rep had a terrible February at ₦50,000, projecting across 12 months gives ₦600,000 annual income, which is almost certainly too low. Use a rolling 3-month average, or set a minimum projection threshold based on the job role.

PAYE Remittance Deadlines

PAYE must be remitted by the 10th day of the month following the month of deduction. For April deductions, that means by 10 May.

Employer returns (Form H1) are due 31 January for the prior tax year.

What About Payroll Software?

Manual cumulative PAYE is error-prone, especially with weekly payrolls or large teams. Most basic spreadsheet tools do not handle cumulative PAYE correctly for variable earners.

Lint’s Smart Payroll covers PAYE computation, pension, NHF, payslip generation, and remittance for ₦500 per employee per month. The ₦50 disbursement fee is waived on Smart Payroll.

For businesses that just need disbursement without tax computation, Simple Payroll costs ₦50 per user, though you would handle the PAYE calculations separately.

Try Smart Payroll on Lint

FAQs

Q: What is the cumulative basis method for PAYE?

The cumulative method calculates how much PAYE should have been paid from January to the current month, then subtracts what has already been deducted. The difference is the current month’s deduction. This smooths tax for workers with variable income.

Q: Are commissions subject to PAYE in Nigeria?

Yes. Commission income is employment income under NTA 2025 and is fully subject to PAYE.

Q: What is the tax-free threshold under NTA 2025?

The first ₦800,000 of annual chargeable income is taxed at 0%.

Q: How do bonuses affect PAYE?

Add the bonus to the employee’s YTD income, project annual income from the new YTD total, recalculate annual PAYE, subtract what has been paid, and deduct the rest. Never calculate bonus PAYE in isolation.

Q: Can I use the same PAYE amount each month for a commission-based employee?

No. A fixed monthly PAYE figure will create under-deductions in high-earning months and over-deductions in low months. Recalculate each month using the cumulative method.

Q: When is PAYE due for variable pay employees?

The same deadline as all PAYE: the 10th day of the month following the month of deduction.

Q: Does NHF apply to commissions and bonuses?

NHF is 2.5% of gross monthly salary. If commissions and bonuses form part of gross salary, they are included in the NHF base. Confirm your employment contract definition of “gross salary” with your accountant.

Q: What replaced the Consolidated Relief Allowance?

The CRA was replaced by a tax-free threshold of the first ₦800,000 at 0%, and a rent relief of 20% of annual rent up to ₦500,000.

Related Tools

PAYE Calculator for Nigerian Employers — run NTA 2025 calculations instantly
FIRS official tax guidelines — authoritative source for current rates and filing requirements

Author: Lint Content Team
Reviewed by: [Tax reviewer placeholder]
Published: July 2026
Sources: Nigeria Tax Act 2025 (Sixth Schedule), Pension Reform Act 2014, National Housing Fund Act, FIRS