Pension and NHF deductions are where a lot of SMEs actually run into trouble, and where the penalties have been the most aggressively enforced over the past year. But it seems PAYE gets most of the attention when people talk about payroll compliance in Nigeria. Both are simpler on paper than PAYE. Both are more commonly gotten wrong in practice.

The pension contribution, and where it goes wrong

Under the Pension Reform Act, the minimum pension contribution is 8% from the employee and 10% from the employer, for a combined 18%. The mistake that comes up most often isn’t the percentage itself. It’s the base it’s calculated against.

The contribution is meant to apply to basic salary, housing allowance, and transport allowance combined, not basic salary alone. A business calculating pension on basic salary only is under-remitting every single month, often without realizing it, because the arithmetic feels correct even though the base is wrong.

The second common mistake is remitting only the employee’s 8% and treating the employer’s 10% as optional or deferrable. It isn’t either. Both portions are due together, within seven working days of salary payment, to the Pension Fund Custodian associated with the employee’s chosen Pension Fund Administrator.

Missing that seven-day window is the third recurring issue, usually not out of neglect but because payroll and cash flow get handled by the same person, and pension remittance is the deduction most likely to get quietly delayed during a tight month. If contributions haven’t reached the Pension Fund Administrator within 14 days of salary payment, the Administrator is required to report the employer to the National Pension Commission directly.

What pension non-compliance actually costs

This is where pension and NHF deductions diverge sharply from a minor administrative slip. The penalty for late or unpaid pension contributions is a minimum of 2% of the outstanding amount for every month, or part of a month, that the default continues, on top of the principal still owed.

The scale of what’s being recovered nationally gives a sense of how seriously this is now enforced. The National Pension Commission has recovered ₦32.75 billion from defaulting employers to date, and more than half of that figure, ₦16.63 billion, was penalties rather than the contributions themselves. In one recent quarter, 49 employers paid a combined ₦2.06 billion, and the penalty portion actually exceeded the unpaid principal. That’s not an unusual outlier. It’s what happens when a default sits unresolved for several months while the 2% monthly penalty compounds.

In 2025, the Commission signed a formal partnership with Nigeria’s anti-corruption agency specifically to strengthen recovery from defaulting employers, and by mid-2026 the two bodies had jointly recovered more than ₦3 billion from one sector alone. This isn’t distant regulatory theory. It’s active, ongoing collection.

NHF: simpler in theory, still frequently mishandled

The National Housing Fund contribution is 2.5%, and the most important fact about it is one that a surprising number of 2026-dated articles still get wrong: NHF became voluntary for private-sector employees back in February 2023, not as part of this year’s tax reform. It remains mandatory for public-sector employees earning at or above the national minimum wage.

The mistakes here tend to run in both directions. Some employers continue deducting NHF from private-sector staff who never opted in, which amounts to an unauthorized deduction from their pay. Others stop remitting for employees who did opt in, sometimes after a change in payroll staff or a system migration where the opt-in status wasn’t carried over correctly.

Failure to deduct or remit NHF correctly carries a fine of ₦50,000 for the company on conviction, plus a separate penalty for the individual responsible for the failure. A conviction doesn’t cancel the underlying debt either; the contribution is still owed on top of the fine.

Why these Pension and NHF Deduction mistakes are so common

Neither pension nor NHF gets the same attention as PAYE, partly because the percentages feel small and partly because the rules genuinely have shifted more than once in the past few years, the 2023 NHF amendment and the broader 2025/2026 tax overhaul both landing within a relatively short window. A payroll process that was correct in 2022 could easily be wrong on both counts by now without anyone having deliberately changed anything.

The other pattern worth naming directly: deducting from an employee’s pay and simply not remitting it is the worst version of this problem, and it does happen, sometimes through a provider or platform holding the money rather than the employer directly. It’s worth being able to independently verify, through the relevant Pension Fund Administrator or the FMBN, that money deducted from staff has actually reached where it’s supposed to go, rather than trusting a payslip alone as proof.

Getting the base right

If there’s one fix that resolves most of what goes wrong with Pension and NHF deductions, it’s recalculating pension against the correct base, basic salary plus housing plus transport, rather than basic salary alone, and confirming NHF status is actually current for each employee rather than assumed. Both are quick to check and expensive to get wrong for months at a time without noticing.

Curious how these Pension and NHF deductions connect to Nigeria’s wider enforcement picture? Our state of payroll compliance report covers what regulators are actually recovering, and from whom.