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We can all relate to that time of the month when all our hard work pays off—pun fully intended.

For some, it could be at the end of the month or the beginning of the next month. Either way, getting your paycheck makes the stress of the entire month—the unending tasks and everlasting meetings—worthwhile. 

What are statutory deductions, and how do they affect my paycheck?

Firstly, are you done reminiscing?

Now look at your last paycheck; you’ll notice some deductions, right? Popularly known as statutory deductions.

Do you know what they mean?

Generally, statutory deductions refer to the mandatory and legally enforceable deductions employers must make from their employees’ earnings. i.e., these deductions are taken on behalf of the employees to provide them with various benefits. Statutory deductions have traditionally served as a significant source of financing for many nations and, when used effectively, can greatly benefit the citizens of those nations.

These deductions are divided into two categories:

Statutory Deductions on Employees’ Paychecks

 Personal Income Tax, popularly known as “Pay As You Earn (PAYE), 

PAYE is an acronym for “Pay as You Earn.”. It is a method of collecting personal income tax from employees’ salaries and wages through deduction at source by an employer as provided by the relevant sections of the Personal Income Tax Act (PITA) (S.81 of Personal Income Tax Act, Cap P8 LFN 2011)

When remitting PAYE, it’s essential to note that the due date is always the same. For instance, if you deducted PAYE in January, the remittance due date would be the 10th of February. Staying on top of these deadlines is crucial to avoid penalties or fines for late remittances.

Pension Contribution 

Private companies pay at least 8% of the employee’s basic pay, housing allowance, and transport allowance to their preferred pension fund administrator.

National Housing Fund

Private organizations can contribute 2.5% of their monthly gross pay based on the Business Facilitation and Miscellaneous Act of 2023.

National Health Insurance Scheme

Likewise, for public servants, a 5% monthly basic salary is deducted by the organized private sector (OPS). As a result, these employees enjoy this as a perk of employment (no subtraction) as an HMO.

Statutory deductions from Employers

Also known as cost-to-company (CTC), they include:

 Industrial Training Fund (ITF)

In technical terms, a payment of one percent of the total annual gross pay is made before the 31st of March of the subsequent year.

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 Employee Compensation Scheme

 Payable to NSITF (National Statutory Industrial Training Fund), 1% of the annual gross pay and 1% of BHT (for NECA members)

Pension 

A total of 10% contribution to the preferred pension fund administrator (PFA) of an employee.

National Health Insurance Scheme (NHIS)

10% of the employee’s monthly basic contribution to the scheme

Group Life Assurance

As a result of the PENCOM Act of 2014, the dependents of a deceased breadwinner can be cared for, assisted financially, and offered support in times of need.

Frequently Asked Questions (FAQs)

Can I avoid paying statutory deductions? 

Sure. That is if you wish to go to jail.

Statutory deductions are compulsory without deviation or evasion, as non-compliance attracts penalties and jail sentences.

Do SMEs and NGOs also get deducted?

Yes, they do. Basically, all registered and resident organizations in Nigeria are required to pay statutory deductions for employment. These deductions generate revenue for the government, however, the Business Facilitation Act allows only the National Housing Fund to receive exemptions, while private organizations can choose to subscribe to the NHF.

How do we check that our employers are remitting tax on our behalf, and how can we ensure compliance?

You should request evidence of your remittance of taxes, which you can validate on the relevant authorities’ websites.

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