Written by Perpetual Badejo (ACA, ACTI, FMVA®
Bsc. Accounting(1st Class Hons🎖) | Tax specialist | Financial Analyst | Intrapreneur | Safety supervisor

Dear Professionals,

Before you accept that GROSS Salary offer, please take a minute to compute your actual NET PAY to avoid funny surprises by month end.

As a professional one of the greatest mistake you can make is to accept a Gross salary offer thinking that would be your actual net pay by month end, that’s a serious recipe for heartbreak.

To avoid making this mistake it is important that you understand that there is a difference between GROSS PAY (which is the total amount you earn before any deduction is made) and NET PAY (which is the amount you earn after all deductions have been made, i.e the actual amount paid to your account) and always do your maths before acceping any offer.

And here is a quick tutorial to always help with that:

👉So let’s assume you recently got an offer with a gross pay of N100,000 monthly and you want to know how much your net pay would be, then use the steps below:

🔘Step 1: Start by computing your Annual gross income because this will serve as the basis for all your computations. In this case that will N1,200,000 (N100,000 x 12).

🔘Step 2: Proceed to calculate your PAYE (Pay as you earn tax) using the steps below:

i) Identify your Annual Gross income, which in this case is N1,200,000 as calculated above.

ii) Then proceed to calculate your pension which is 8% of Basic, Housing and Transport Allowance. In this case that will be N96,000 (8% of N1,200,000) per annum and N8,000 per month.

iii. Proceed to deduct your pension from your Gross income to get your “Gross income 2”. In this case that will be N1,104,000 (N1,200,000 - 96,000)

iv. Next, we calculate the Consolidated Relief Allowance which is: a) Higher of N200,000 or 1% of Gross income + b) 20% of “gross income 2”.

In this case that will be:
a) N200,000 (because N200k is greater than 1% of N1,200,000); +
b) 20% of N1,104,000, which is N220,800.
Total CRF: 200,000 + N220,800 = N420,800.

v. Deduct the total CRF from “Gross income 2” to arrive at the Taxable income. In this case that would be N683,200 (N1,104,000 - N420,800).

vi. Proceed to compute the tax payable using the graduated tax table.
In this case that would be:
300k @ 7% = N21,000;
300k @ 11% = 33,000
83k (The bal from the 683k)@ 15% = N12,450.
Tax payable is N66,450 per annum and N5,538/month.

vi. Calculate your minimum tax payable which is 1% of your “Gross income 2” and compare with your tax payable computed above, make sure to pick the highest. In this case the highest is N66,450 which is now your PAYE.

🔘 Final step: Now that you have your pension and PAYE calculated, deduct the figures from your Gross pay to arrive at net pay.

In this case that would be N100,000 - N8,000(pension) - N5,538 (PAYE) = N86,642.

📌So the Net pay for the 100k monthly Gross salary will be N86,642 assuming there is no NHF or NHIS deduction.

I hope this helps.

Found this insightful? Please comment and share so others can learn.

braine:
This one is a long thing.

I just calculate 20% of the gross for the deductions.

The remaining 80% is the take home. This works almost all the time.

Zadicuszuranda:
i got confused from point iii

correctyourself:
From all the pay slip i have seen, your narration is confusing (back & forth). though you tried, i will score you C.

Zadicuszuranda:
i got confused from point iii

braine:
This one is a long thing.

I just calculate 20% of the gross for the deductions.

The remaining 80% is the take home. This works almost all the time.

correctyourself:
From all the pay slip i have seen, your narration is confusing (back & forth). though you tried, i will score you C.

Oyindamolah:

AntiWailer:
Just ask for your NET.


Dont do any crappy calculations.

Some people put some of ur pay in non taxable benefits , some are not wise to do that.

Two people can collect Gross of 500K and the Net will be very different.

chatinent:
Company wey go pay you ₦200k in Nigeria without connection will using you like your personal lord and saviour.😌 Now imagine the one paying some ₦3m.


Normally, if you don find job for like two years, you won't have time to calculate whether to accept or reject.

Reject kee? You bi weapon fashioned against me?

mrphysics:

Everything she wrote is very clear and correct. The computation of PAYE was right.