16 Oct The Impact of the National Minimum Wage (Amendment) Act 2024 on PAYE in Nigeria

Introduction

The National Minimum Wage (Amendment) Act 2024 marks a major step toward fair labor practices in Nigeria. Effective July 29, 2024, the Act raises the minimum wage to ₦70,000 and shortens the wage review period from five years to three years. This article highlights the key provisions of the Amendment Act, explores its implications on Pay-As-You-Earn (PAYE), and provides actionable tips for employers.

New National Minimum Wage Overview

The National Minimum Wage sets the minimum monthly amount an employer must pay the lowest-paid worker. Under the new Amendment Act, employers must comply with the ₦70,000 minimum wage, ensuring fair compensation amid rising inflation and economic challenges.

Employer Responsibilities Under the 2024 Minimum Wage Act

To ensure compliance, employers must:

1. Identify employees currently earning below the new wage.
2. Review and adjust wage structures for affected staff.
3. Update payroll systems to reflect the new minimum wage.
4. Review statutory deductions and PAYE taxes to ensure accurate withholding.
5. Document wage increases and employment records for audits. These records must be kept for three years after the relevant period.

Penalties for Non-Compliance

The 2024 Amendment Act retains previous penalties for non-compliance:

• Failure to pay the minimum wage:
• Fine of up to 5% of the offender’s monthly wage.
• Payment of arrears owed to workers.
• Additional penalty at the CBN lending rate for each month of violation.
• Failure to maintain records:
• Fine of ₦75,000.
• ₦10,000 for each day the offense continues.

Understanding Pay-As-You-Earn (PAYE) in Nigeria

PAYE is Nigeria’s income tax withholding system, governed by the Personal Income Tax Act (PITA) and administered by federal and state tax authorities. Employers deduct taxes from employees’ wages and remit them to the government.

PIT Rates and Tax Brackets in Nigeria

• 7%: First ₦300,000
• 11%: Next ₦300,000
• 15%: Next ₦500,000
• 19%: Next ₦500,000
• 21%: Next ₦1,600,000
• 24%: Above ₦3,200,000

Implications of the Minimum Wage on PAYE

Under Section 37 of the 2020 Finance Act (as amended), employees earning the minimum wage or less (₦70,000) are exempt from Personal Income Tax (PIT). This exemption ensures that low-income earners are not further burdened by taxes. Employers must adjust payroll systems to reflect this exemption and ensure compliance with tax laws.

Practical Tips for Employers

• Audit payrolls regularly to identify underpaid staff.
• Update deductions and ensure proper documentation of wage adjustments.
• Consult tax professionals to align payroll practices with PAYE and tax regulations.
• Communicate with employees regarding changes in wages and deductions.

Contact Us

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