You negotiated a great salary, signed the offer letter, and eagerly waited for your first "alert". But when the notification pops up on your phone, the amount is... lower than you thought. Is there a mistake? Did HR underpay you?
Likely not. You just met the difference between Gross Salary and Net Salary.
The Illusion of "Gross Salary"
Gross Salary is the big number in your employment letter. It usually includes your Basic Salary, Housing Allowance, and Transport Allowance. It looks impressive, and it's the number used for negotiations.
However, you never actually see this full amount in your bank account. Before the money reaches you, the government and your Pension Fund Administrator (PFA) take their share.
Where Does the Money Go?
In Nigeria, the difference between your contract salary (Gross) and your take-home pay (Net) usually goes to three main places:
- Pension (RSA): By law (Pension Reform Act 2014), you must contribute 8% of your (Basic + Housing + Transport) to your Retirement Savings Account. Your employer adds another 10%. This money is saved for your future.
- PAYE Tax: This is the "Pay As You Earn" tax collected by the State Internal Revenue Service (e.g., LIRS in Lagos). It is calculated after deducting your pension and other reliefs.
- NHF (National Housing Fund): This is 2.5% of your Basic salary (optional in some private sectors, mandatory in public).
Why "Net Salary" is the Only Number That Matters
When planning your budget, saving for a car, or renting an apartment in Lagos or Abuja, Gross Salary is irrelevant. You cannot pay your landlord with money that was deducted for tax.
Net Salary is your real purchasing power. It's the actual cash that lands in your Kuda or GTBank account.
Example: The 50/30/20 Rule
If you are trying to follow the 50/30/20 Rule for budgeting, you must calculate these percentages based on your Net Salary. If you use your Gross Salary, you will constantly run out of money.
How to Calculate Your Real Take-Home Pay
Calculating your exact Net Salary in Nigeria can be confusing because of the "Consolidated Relief Allowance" (CRA) which reduces your tax.
Instead of doing the math manually, use our Nigeria Salary Calculator to see exactly where your money goes.
- Enter your Annual/Monthly Gross: The amount from your contract.
- Check Deductions: See how much goes to LIRS (Tax) and your PFA (Pension).
- See Your Net Pay: This is your real monthly income.
Note: Tax laws change. While our calculator provides accurate estimates based on the Personal Income Tax Amendment Act (PITA), always check your official payslip.
Written by Calc Labo Research Team