Before a Nigerian business pays its first employee
The decisions and set-up a Nigerian business needs in Achekam before its first pay run: State of residence, pension, NHF, NSITF, the ITF and two people.
By Achekam · · 4 min read · For Running a business businesses in Nigeria
Hiring the first employee feels like the hard part. The interviews are done, the offer letter is signed, the start date is set. Then month end approaches and the questions arrive: which State gets this person's tax? Do we have to run a pension? What is the Housing Fund, and is it optional? Who checks the payroll if only one of us knows how to do it?
A Nigerian payroll has more moving parts than its size suggests, and several of them are decisions rather than calculations. Achekam will not run the first pay until some of those decisions are made. This article lists them in the order you will meet them, so that the first payday is not the day you find out.
Set up as an employer under Nigerian rules
In Achekam, a business sets itself up as an employer and chooses the country whose rules its payroll follows when it creates the employer. Choose Nigeria. Nigerian payroll then calculates PAYE on the Nigeria Tax Act 2025 bands, pension, the opt-in National Housing Fund, NSITF, the ITF levy, rent relief and the minimum-wage exemption.
Those calculations run from a tax table that a person confirms. Achekam ships its Nigeria 2026 payroll table pre-loaded but unconfirmed, and no pay run uses it until a named person at your business confirms your own copy. Confirming the Nigerian table also requires choosing the pension coverage threshold and giving a reason, which brings us to the first real decision.
Record each employee's State of residence
An employee's PAYE in Nigeria goes to the State where the employee lived on 1 January of the tax year, or on the day the employment started. It is the employee's home that decides, not where your office is. A Lagos business with a new hire who lives across the border in Ogun may be paying that person's PAYE to Ogun.
Achekam refuses to approve a Nigerian pay run while any employee's State of residence is unknown, even for an employee who owes no PAYE that month. Ask for the State of residence on the first day, and keep the evidence (a utility bill or tenancy agreement, for example) on the employee's file. The schedules Achekam prepares per State are explained in Nigerian PAYE by State, with the annual return.
Decide whether pension applies
Nigerian pension contributions are at least 18% of pensionable pay: 10% from the employer and 8% from the employee, or 20% if the employer bears all of it. The question for a small employer is whether the scheme applies to it at all, and that depends on the coverage threshold.
To confirm the 2026 payroll table, Achekam asks you to choose the pension coverage threshold, 15 or 3 employees, with a reason. A pay run then refuses until the employer has stated whether pension applies to it. Take this decision with your adviser, not by guesswork. The considerations are set out in the Nigerian pension coverage decision.
Decide on the National Housing Fund
The National Housing Fund contribution is 2.5% of pay from the employee, with no employer match, paid to the Federal Mortgage Bank of Nigeria (FMBN) within one month. In Achekam, NHF is opt-in per employer, and the employer states which pay it is calculated on. Decide both before the first run, and record why. The details are in National Housing Fund deductions.
NSITF and the ITF levy
Nigerian employers pay 1% of total payroll to the NSITF under the Employees' Compensation Act 2010. The monthly remittance date is uncertain in the research behind Achekam, so confirm it with the NSITF rather than assume one.
Achekam also calculates the ITF levy from the confirmed table and prepares the ITF annual return. These are employer costs, not deductions from staff pay, so budget for them when you set the salary.
The Pension Reform Act 2014 is the law behind the contributory scheme, and PenCom publishes it on its Pension Reform Act 2014 page. Read the coverage provisions with your adviser before you make the pension choice above.
State revenue services and their own channels
Achekam lists all 36 State Internal Revenue Services and the FCT-IRS. It gives a website only for the FCT-IRS and Kaduna (KADIRS), and it leaves every State filing and payment to the State's own channel. Before the first month end, find your employee's State revenue service, its portal or office, and how it expects employers to register and pay. Achekam prepares the schedules for the employer to file and pay; it does not file or pay them.
Two people for every pay run
In Achekam, a pay run is approved by someone other than the person who prepared it, nobody can approve a run that pays themselves, and an approved run is never recalculated. So a business needs at least two people in payroll roles to run payroll at all. For a founder-run business, that usually means the founder and a bookkeeper or the accountant. Settle who before payday, not on it.
Checklist before the first pay run
- Create the employer in Achekam under Nigerian rules.
- Read and confirm the Nigeria 2026 tax table, choosing the pension coverage threshold with a reason.
- State whether pension applies to the employer.
- Decide on NHF, and on which pay it is calculated.
- Record each employee's State of residence, with evidence.
- Find each State revenue service's channel for registering and paying.
- Confirm NSITF's remittance arrangements directly with the NSITF.
- Name the person who prepares payroll and the person who approves it.
With those settled, the first run is mostly arithmetic, which is the part Achekam is there to do.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
