“What is net pay? What is gross pay?” These two questions used to have straightforward answers in Nigeria. They still sound simple, but the rules behind them have changed.

If your salary stayed the same but your monthly net pay changed in January 2026, you are not alone.

Across Nigeria, employees are noticing differences between gross pay and net pay, even when their role, grade, and compensation package remain unchanged. This is not a payroll mistake.

The Nigeria Tax Act (NTA) 2025, which took effect on January 1, 2026, has fundamentally changed how net salary is calculated.

This article is your guide to the new meaning of gross pay and net pay in Nigeria, and why this shift matters to every employee, HR manager, and finance leader.

We will explain:

• What gross pay and net pay really mean under the new law
• What is the difference between gross pay and net pay in 2026
• Why your monthly net pay may rise or fall
• How the new Rent Relief Allowance works in practice
• Who now pays 0% PAYE tax
• Why manual payroll calculations are now a compliance risk

What Is Net pay and Gross Pay?

What Is Gross Pay?

Gross pay is the total amount your employer agrees to pay you before any deductions are applied.

In Nigeria, gross pay typically includes:

• Basic salary
• Housing allowance
• Transport allowance
• Other fixed or contractual allowances

This definition has not changed under the NTA 2025.

If your offer letter states an annual salary of ₦5,000,000, that figure remains your gross pay in 2026.

Gross pay has always been different from taxable pay. What changed in 2026 is the bridge between the two.

Your gross salary may look the same on your payslip, but the deductions and reliefs that convert it into taxable income now follow a new set of rules.

What Is Net Pay?

Net pay, also called net salary or take-home pay, is the amount that actually reaches your bank account after all deductions have been applied.

Net pay is not a separate type of salary. It is simply what remains after required and voluntary deductions are removed from your gross pay.

To truly understand what is net pay in 2026, you need to understand what is deducted before the money hits your account. These deductions fall into three main categories.

1. Statutory Deductions (The Non-Negotiables)

These are deductions mandated by the Federal Government of Nigeria.

A. Pension (8%)
Calculated based on the sum of your Basic, Housing, and Transport (BHT). This is your long-term retirement contribution.

B. National Housing Fund (NHF)
Typically 2.5% of basic salary. While application varies across sectors, the NTA 2025 clarifies how NHF applies, particularly for employees seeking access to government-backed mortgage benefits.

C. National Health Insurance Scheme (NHIS)
Usually applied to employees in the formal sector, commonly calculated as a percentage of basic salary, depending on the employer’s scheme.

D. PAYE (Pay-As-You-Earn)
This is your income tax, and it is where the most significant changes under the NTA 2025 have occurred.

2. Voluntary Deductions

These are deductions you choose to make, often through your employer:

• Cooperative contributions
• Loan repayments or salary advances
• Union dues

3. Reliefs

Before PAYE tax is calculated, the government allows certain reliefs to be deducted from income. In 2026, the primary relief is the Rent Relief Allowance (RRA), which replaces the old Consolidated Relief Allowance.

Historically, net pay in Nigeria followed a predictable structure:

Net Pay = Gross Pay – (PAYE Tax + Statutory Deductions + Voluntary Deductions)

That formula still exists. What has changed are the rules governing PAYE tax.

This is why two employees earning the same gross salary may now receive different net pay amounts in 2026, depending on income level and relief eligibility.

What Is the Difference Between Gross Pay and Net Pay?

The difference between gross pay and net pay is simple in principle: Gross pay is what your employer pays, while Net pay is what you receive.

Gross pay represents your full compensation before anything is removed. Net pay is the amount left after all applicable taxes and deductions have been applied.

The main change in 2026 is how much of your gross pay becomes taxable before deductions are applied. To understand why net pay now behaves differently even when gross pay stays the same, we need to look at what the law removed and what replaced it.

The Great Net Pay Reset: What Changed in 2026?

The NTA 2025 introduced a structural reset in how employee income is taxed. Two changes have the biggest impact on net salary.

The End of the Consolidated Relief Allowance (CRA)

For over a decade, Nigerian employees benefited from the Consolidated Relief Allowance (CRA). Under the old system, every employee automatically received:

• ₦200,000, plus
• 20% of gross pay

This relief significantly reduced taxable income and made net pay relatively predictable.

As of January 1, 2026, the CRA no longer exists. Any explanation of net pay that still references it is outdated.

The Introduction of the Rent Relief Allowance (RRA)

The CRA has been replaced with a new concept: the Rent Relief Allowance (RRA). This change explains much of the confusion employees are experiencing today.

Under the NTA 2025, employees may deduct rent relief from income before tax is calculated. Employees are entitled to the lower of 20% of gross pay, or ₦500,000 per year

Why this matters

• Low- and mid-income earners may benefit
• Higher-income earners may receive less relief than before
• Net pay outcomes now vary more sharply by income level

Taxable vs. Non-Taxable Pay

One subtle but important change in 2026 is the clearer separation between:

• Gross pay (what your employer pays), and
• Taxable income (what the government can tax)

Under the old CRA system, most employees rarely thought about this distinction. In 2026, it matters.

In practice, taxable income is now calculated only after accounting for:

• Statutory deductions
• Rent Relief Allowance
• New tax-free thresholds

This is why gross pay alone no longer tells the full story of your take-home pay.

The ₦800,000 Tax-Free Band

One of the most significant changes under the NTA 2025 is the introduction of a 0% PAYE tax band.

Employees earning ₦800,000 or less per year now pay 0% PAYE tax.

What this means in practice

• Gross pay equals net pay (for tax purposes)
• No PAYE deductions
• Clearer, simpler payslips

What Is Monthly Net Pay Now?

Your monthly net pay now depends on your annual gross pay, whether 20% exceeds the ₦500,000 RRA cap and your placement within the new progressive tax bands

This is why January 2026 payslips feel confusing because the logic changed, not the salary.

What Employees Should Check on Their Payslip in 2026

If your net pay changed, review:

• Gross pay (did it actually change?)
• Rent Relief applied
• Tax band used
• PAYE amount
• Pension deductions

Asking these questions is staying informed.

Why Manual Payroll Is a Compliance Risk

To calculate net pay correctly in 2026, HR teams must:

• Apply Rent Relief caps accurately
• Track the ₦800,000 threshold
• Apply progressive tax bands correctly
• Avoid PAYE under- or over-remittance

Attempting this on spreadsheets increases the risk of payroll errors, regulatory penalties, and employee trust breakdowns.

Modern payroll systems like PaidHR are already updated to automatically apply Rent Relief Allowance, handle new tax bands, show clear gross-to-net breakdowns, and reduce compliance risk. In 2026, payroll accuracy is no longer optional.

Frequently Asked Questions (FAQs)

What is net pay in Nigeria?

Net pay is the amount you receive after tax and deductions. Under the NTA 2025, it depends on income level, rent relief, and new tax bands.

What is gross pay?

Gross pay is your total salary before deductions, including basic, housing, and transport allowances.

What is the difference between net pay and gross pay?

The difference is made up of taxes and deductions applied to gross pay before you receive your salary. In 2026, the taxable portion of gross pay has changed.

Why did my net pay change in January 2026?

Because the Consolidated Relief Allowance was removed and replaced with Rent Relief, and new tax thresholds now apply.

Is net salary the same as take-home pay?

Yes. Net salary, net pay, and take-home pay mean the same thing.

Who benefits most from the new law?

Low-income earners earning ₦800,000 or less per year benefit the most due to the 0% tax band.