Your payslip explained! By Abimbola Abdur-rahman Lekki

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Again, there is an important distinction:

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A deduction from your salary is not necessarily an additional tax.

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Where the law recognises the deduction in determining chargeable income, it may reduce the amount of income on which your tax is calculated.

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Employees should therefore check their payslips and relevant remittance records to ensure that deductions described as NHF are properly accounted for.

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4. Health Insurance Contributions

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Qualifying contributions under the National Health Insurance Scheme and applicable health-insurance arrangements may also be relevant to an employee’s tax computation.

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The NTA expressly recognises qualifying contributions under the National Health Insurance Scheme among eligible deductions.

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This is another reason employees should not automatically assume:

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“Everything deducted from my salary makes me poorer.”

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Some deductions may provide a current or future financial benefit and may also receive tax recognition.

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5. What About NSITF?

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Here is another area where employees should pay attention.

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The Nigeria Social Insurance Trust Fund (NSITF) contribution is generally an employer obligation, rather than a deduction from the employee’s salary.

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Therefore, if an employee sees a deduction described as NSITF on a payslip, it is reasonable to ask the employer or payroll department to explain the basis for that deduction.

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This distinction matters because:

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An employer’s statutory contribution should not automatically be converted into an employee’s deduction.

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Employees should understand the difference between what their employer is required to pay on their behalf and what is lawfully deducted from their salary.

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6. Loan Repayments

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Now we enter the world of non-tax deductions.

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Suppose Chinedu obtained a staff loan from his employer.

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His payslip may show:

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Staff Loan Repayment — N100,000

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That is a deduction from his salary.

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But it is not PAYE.

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It is repayment of money he previously borrowed.

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This distinction is crucial.

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A payslip may therefore contain deductions that have absolutely nothing to do with taxation.

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7. Cooperative Contributions

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Many Nigerian workers belong to cooperative societies.

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A monthly deduction may therefore appear as:

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Cooperative — N20,000

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Again, this is not PAYE.

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It may represent the employee’s contribution to a cooperative society or savings scheme, subject to the relevant authorisation given by the employer.

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The employee should know whether the deduction is mandatory, voluntary or based on an agreement.

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8. Union Dues

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Where applicable and properly authorised, trade union dues may also appear on a payslip.

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Again:

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Union dues are not PAYE.

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They are a separate deduction with a different legal and institutional basis.

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9. Salary Advances

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Sometimes an employee receives part of his or her salary in advance.

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The subsequent repayment may appear as:

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Salary Advance — N50,000

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This reduces take-home pay but does not represent income tax.

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10. Insurance and Other Voluntary Deductions

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An employee may authorise deductions for:

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life insurance;

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health insurance;

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professional subscriptions;

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savings schemes;

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cooperative investments;

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employee welfare schemes;

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charitable contributions; or

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other approved workplace programmes.

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These deductions should not automatically be confused with statutory taxes.

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The golden rule is to ask: “Why is this money being deducted, and where is it going?”

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Statutory Versus Non-Statutory Deductions

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Let’s make this very simple.

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Deduction

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What it generally represents

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PAYE

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Personal income tax deducted through payroll

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Employee pension contribution

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Retirement savings under applicable pension arrangements

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NHF

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Housing fund contribution where applicable

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Qualifying health insurance/NHIS contribution

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Health insurance contribution

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Loan repayment

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Repayment of money borrowed

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Salary advance

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Recovery of salary paid in advance

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Cooperative contribution

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Employee savings/investment arrangement

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Union dues

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Trade union contribution where applicable

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Insurance contribution

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Insurance arrangement

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Other authorised deductions

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Depends on the employment arrangement

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The crucial point is that the existence of a deduction on your payslip does not make it a tax deduction for PAYE purposes.

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Tax treatment depends on what the law specifically allows.

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An Important Tax Secret: Some Deductions Can Reduce Your Tax

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This is perhaps the most important lesson for Nigerian workers.

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The Nigeria Tax Act provides for certain eligible deductions when determining an individual’s chargeable income.

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These include qualifying:

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National Housing Fund contributions;

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National Health Insurance Scheme contributions;

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pension contributions;

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interest on loans for developing an owner-occupied residential house;

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certain life assurance premiums or deferred annuity payments; and

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rent relief of 20% of annual rent paid, subject to a maximum of N500,000 and the statutory conditions.

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But there is an important distinction:

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Rent relief is not the same thing as a monthly payslip deduction.

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You do not necessarily see “Rent Relief” deducted from your salary every month.

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Rather, it is a statutory deduction used in determining chargeable income, subject to the conditions and claim requirements under the NTA.

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This is precisely why tax education matters.

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Your Payslip Is a Conversation With Your Employer

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Imagine that your payslip shows:

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Gross Earnings:N500,000

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PAYE: N35,000

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Pension: N40,000

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Cooperative: N20,000

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Loan Repayment: N50,000

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Your net salary will obviously be substantially lower than your gross salary.

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But these deductions do not all mean the same thing.

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N35,000 may represent your tax liability.

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N40,000 may be retirement savings.

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N20,000 may be your cooperative contribution.

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N50,000 may be repayment of money you borrowed.

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If you simply look at the final amount credited to your account, you miss the story.

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Your payslip tells that story.

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Why Employees Should Check Their Payslips Every Month

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Your payslip can help you answer five important questions:

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1. Did I receive the salary I was supposed to receive?

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2. Was my PAYE correctly calculated?

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3. Were my pension and other statutory contributions correctly deducted and remitted?

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4. Did my employer make any deduction that I do not understand or did not authorise?

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5. Does my payslip accurately reflect my financial records?

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