Payroll deductions are an essential aspect of every employee’s salary in Nigeria. In this article, we will discuss the significance of these deductions, focusing on pensions, tax deductions, National Health Insurance Scheme (NHIS), National Housing Fund (NHF), and Health Maintenance Organizations (HMOs).

What are Payroll Deductions?

Payroll deductions are amounts taken out of an employee’s salary by their employer. These deductions are used to cover various expenses, such as taxes, health insurance, and pension contributions. In Nigeria, some of the most common payroll deductions include:

1. Pensions
2. Tax deductions
3. National Health Insurance Scheme (NHIS)
4. National Housing Fund (NHF)
5. Health Maintenance Organization (HMO)

Let’s discuss each of these deductions in more detail.

1. Pensions 

The Pension Reform Act 2014 holds immense significance in Nigeria because it helps people save up enough money for when they retire. It ensures that both employers and employees save a certain amount of money from their salaries in a Retirement Savings Account (RSA). This way, employees can build up a fund that will give them an income after they stop working. It helps them maintain their lifestyle and pay for their needs when they’re older.

There are various pension companies operating in Nigeria that facilitate pension payments and manage the RSAs on behalf of the employees and employers. These pension companies play a crucial role in the efficient administration and disbursement of pension funds. They handle the investment and management of the accumulated contributions, ensuring that the funds grow over time and provide substantial returns for the retirees. 

The amount of money taken for the pension is usually a percentage of the employee’s basic salary, housing allowance, and transport allowance. This way, it’s a fair contribution from both the employer and the employee. The minimum rate to be deducted from employee salary is 8%, while the employer has to contribute another 10%.

2. Tax Deductions 

Tax deductions serve as a crucial financial mechanism for both employees and employers, helping to manage their tax liabilities more effectively. 

These deductions are specific amounts subtracted from an individual’s taxable income, thereby reducing the overall tax owed. The deduction process considers various factors, such as income level, exemptions, and allowances, to determine the amount of tax to be deducted. 

By allowing individuals and businesses to make smaller, regular tax payments, tax deductions alleviate the burden of making large lump sum payments and ensure compliance with tax laws. This system promotes financial stability and fosters a healthy economic environment.

You can experience effortless payroll management with the Ropay app’s Reverse Payroll feature, which automatically calculates and breaks down tax, pension, and allowance deductions from your gross pay, providing complete transparency and eliminating tax concerns.

3. The National Health Insurance Scheme (NHIS)  

The National Health Insurance Scheme (NHIS) is a government initiative aimed at providing accessible and affordable healthcare to all Nigerians, regardless of their financial status. Employers play a vital role in this scheme by registering their employees and making regular contributions on their behalf. The NHIS offers numerous benefits, including access to quality healthcare services and financial protection against unforeseen medical expenses. By participating in this program, individuals can safeguard their health and well-being, ensuring access to essential healthcare services when needed. It is highly recommended that Nigerians take advantage of the NHIS to secure a healthier future for themselves and their families.   

4. National Housing Funding (NHF)

National Housing Funding (NHF) is a Federal Government scheme established to cater to the housing needs of Nigerians above the age of 21, and in paid employment. This scheme was established by the NHF Act 3 of 1992. 2.5% of an employee’s basic salary is deducted for this purpose. Based on new laws, private sector employees now have the option of opting out of the scheme.

5. Health Maintenance Organizations (HMOs):

Health Maintenance Organizations (HMOs) are private entities that provide health insurance coverage for employees. They partner with employers to offer cost-effective and streamlined healthcare services as part of employee benefits packages. HMOs offer various insurance plans, each with different coverage levels and deductibles, catering to diverse healthcare needs.

HMO deductions, taken from an employee’s salary or paid by the employer, cover the cost of health insurance plans, ensuring access to essential healthcare services. When choosing an HMO, it’s crucial to research the provider’s reputation and understand its network of healthcare providers to ensure the best possible coverage and care for employees. Overall, HMOs play a significant role in providing health insurance coverage and maintaining employee well-being.

Exciting Update- HMO on the roPay App. Thanks to roPay’s partnership with a profound HMO aggregator, roHealth, HMO is now live on the roPay app. This means that employees can easily access and manage their HMO plans directly through the app, making it more convenient than ever to stay on top of their health insurance coverage. Try it out now!

As an employer, it is essential to communicate all salary deductions with your employees through payslips. Transparent payslips are crucial for fostering trust, enabling employees to understand their earnings and deductions accurately. This promotes informed financial decision-making and contributes to a positive work culture.

How To Print Payslips from the roPay App

To help your employees access their monthly salary payslips and review the deductions section for accuracy and understanding, follow these steps using the Ropay app:

• Open the Ropay app and log in to your account.
• Ensure you are in the Payroll Management section, located at the extreme top right of the app.
• Select “Employees” from the drop-down menu, and when their profiles open, click on “Print payslips.”
• Encourage your employees to review their salary payslips regularly and to contact you if they have any questions or concerns about the information provided. By doing so, you can foster transparency and trust within your organization while ensuring payroll deductions are accurate and understood.

Understanding payroll deductions as an employer is crucial for accurate processing, compliance, and maintaining trust with your employees. By staying knowledgeable about pensions, tax deductions, the National Health Insurance Scheme (NHIS), National Housing Funding (NHF), and Health Maintenance Organization (HMO), you can effectively manage your budget, address employee concerns, and ensure financial stability for your business. Invest in understanding these payroll deductions to streamline your processes and foster a transparent and harmonious work environment.