This guide explains why a payroll template built for the old rules now gives wrong answers, why spreadsheets fail even when the rules are right, what a good 2026 template must contain, and how to test yours in ten minutes.
Why your old payroll template is wrong in 2026
For years, Nigerian PAYE calculations started with the Consolidated Relief Allowance, which was the higher of ₦200,000 or 1% of gross income, plus 20% of gross income. Taxable income was what remained, and it was taxed on bands that ran from 7% to 24%. A payroll template built around that logic has those numbers written into its formulas.
The Nigeria Tax Act 2025 replaced all of it. The Consolidated Relief Allowance and the 1% minimum tax are gone, the first ₦800,000 of annual income is taxed at 0%, and the bands above that run from 15% to 25%. Rent relief of 20% of rent paid, capped at ₦500,000, now applies, but only when the employee claims it in writing. A payroll template that still uses the old structure is calculating the wrong tax with complete confidence, and legal commentators have warned that every payslip generated from a system not updated since 1 January 2026 is based on outdated rules.
You can spot an outdated payroll template quickly. Open the formulas and look for a column called CRA or “consolidated relief”, a fixed ₦200,000 figure, or a first band of ₦300,000 taxed at 7%. If you find any of them, the file needs replacing, not patching.
Why a payroll template fails even when the rules are right
Updating the formulas fixes one problem. The structural problems with spreadsheets remain.
That figure comes from Raymond Panko’s review of spreadsheet field audits, and it covers spreadsheets in general rather than payroll specifically. The studies are also older than the new Nigerian rules. We include it because the mechanisms it describes apply to any payroll template: a formula copied down a column but not to the last row, a hard-coded number typed over a formula, a new employee inserted outside the range that the totals cover.
Four weaknesses show up repeatedly in a payroll template:
- No audit trail. A spreadsheet does not record who changed a cell or when. If last month’s PAYE was right and this month’s is wrong, nothing shows what moved.
- Version confusion. Files named “Payroll_final_v2_corrected” multiply by email, and the wrong version gets approved.
- Dependence on one person. Only the author understands the hidden columns and the workaround for the intern who joined mid-month.
- No link to remittances. The template calculates tax but does not track whether PAYE and pension were paid, or when.
None of these is a reason to panic. They are reasons to know what your payroll template cannot do, and to add controls around it.
What a good payroll template must include in 2026
A payroll template that follows the current rules needs these columns at a minimum:
| Column | Why it is there |
|---|---|
| Employee ID, name and Tax ID | Matches each employee to tax filings and the annual return |
| State of residence | PAYE goes to the state where the employee lives, not where the company is based |
| Pension administrator and RSA number | Pension is remitted to each employee’s own administrator |
| Basic, housing and transport | These three together are the pension base |
| Other allowances and bonuses | Taxable, but not always pensionable |
| Gross pay | The starting point for every deduction |
| Employee pension (8%) | Deducted before tax |
| NHF opt-in flag and NHF (2.5%) | Voluntary for private-sector staff, so deduct only with consent |
| Annual rent paid and evidence flag | Rent relief needs written evidence, such as a receipt, lease or approved declaration |
| Rent relief (20%, cap ₦500,000) | Reduces taxable income only when claimed |
| Taxable income | Gross less pension, NHF and relief |
| PAYE (2026 bands) | Calculated from the band table, not typed in |
| Net pay | What the employee receives |
| Employer pension (10%) and total cost | Shows the true cost of each employee |
| Year-to-date pay and tax | Needed for joiners, leavers and extra pay dates |
Keep the bands and rates on a separate settings sheet, not buried inside formulas. When a rate changes, you edit one cell and every calculation follows.
How to check a free payroll template before you trust it
Search results are full of free files, and most are written for another country or an earlier year. Before you use any payroll template you did not build yourself, ask five questions:
- What year are the rates from? The file should name the Nigeria Tax Act 2025 or show the 0% first band of ₦800,000. If it mentions CRA, it is out of date.
- Where does the pension base come from? It should use basic, housing and transport together, with 8% from the employee and 10% from the employer.
- Is rent relief handled? There should be a place to record rent and a flag showing that written evidence is on file.
- Can you see the formulas? A protected sheet with hidden formulas is a payroll template you cannot verify.
- Does it produce a record? A payslip for each employee and a summary for approval turn a calculator into a payroll document.
Most free files fail at least two of these. We have not audited the free templates circulating online, so treat this list as a way to test any file in front of you and not as a verdict on all of them. A short test with the three salary cases above will show you within minutes whether a payroll template can be trusted.
A PAYE formula you can check
If you build your own payroll template, the 2026 PAYE calculation can be written in one line. With annual taxable income in cell A2, this formula adds the tax from each band in turn:
=15%*MAX(0,MIN(A2,3000000)-800000)+18%*MAX(0,MIN(A2,12000000)-3000000)+21%*MAX(0,MIN(A2,25000000)-12000000)+23%*MAX(0,MIN(A2,50000000)-25000000)+25%*MAX(0,A2-50000000)
For annual taxable income of ₦5,520,000, it returns ₦783,600, which is ₦65,300 a month. That matches the example in our guide to PAYE in Nigeria.
Test your payroll template against these three cases. All assume no rent relief and that the whole salary is basic, housing and transport:
| Monthly gross pay (₦) | Employee pension 8% (₦) | Monthly PAYE (₦) | Net pay (₦) |
|---|---|---|---|
| 150,000 | 12,000 | 10,700 | 127,300 |
| 500,000 | 40,000 | 65,300 | 394,700 |
| 1,500,000 | 120,000 | 242,300 | 1,137,700 |
If any figure in your file differs, find out why before the next payroll run. The usual causes are an old CRA formula, pension calculated on basic salary alone, or PAYE applied to gross pay without deducting pension first.
Download a payroll template that follows the 2026 rules
We built a free file that follows the layout above, with a settings sheet for the bands, a payroll sheet with the calculations, and a voucher sheet that totals each run for approval. Download the 2026 payroll template and enter your own figures. Replace the three sample employees with your staff, check the test cases first, and use the voucher sheet to produce the approval record we describe in our guide on the payroll voucher.
The file uses the annualised PAYE method, which is accurate for staff on steady monthly pay. It is less accurate for one-off bonuses, for people who join or leave mid-year, and in years with an extra pay date. If your team has many of those, a cumulative year-to-date calculation is safer.
When to retire the payroll template
A payroll template is a reasonable tool for a small team with steady pay. These signs suggest it is time to move on:
- Staff in more than one state. Each state needs its own remittance, and a template does not track them.
- More than about fifteen employees. Pension coverage thresholds apply, and a proposed Pension Reform Bill 2026 would lower the mandatory threshold from 15 employees to three and raise the employer rate to 12%.
- Frequent changes. Bonuses, loans, salary reviews and mid-month joiners multiply the chances of a formula error.
- One person holds all the knowledge. If they leave, you lose the payroll.
- You cannot show proof of remittance. Auditors will ask for it, and a spreadsheet cannot supply it.
Moving to software does not need to be dramatic. Run the template and the software side by side for one month, compare the figures, then switch. Our guide on what payroll software actually does describes what to expect, and who does payroll in a company covers who should own the process once it moves.
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