If you’re like most Nigerian business owners or CFOs, payroll is probably your biggest monthly expense and ironically, the one you understand the least.

Every month, the amount leaves your account. Salaries are paid. Everyone moves on.

But these pondering questions remain:

Do you actually know why your payroll cost went up this month?

Or why you suddenly have ₦600k more in allowances?

Or whether LIRS is about to send you one of those famous “PAYE Adjustment” letters?

Most Nigerian companies don’t do payroll analysis. They just run payroll and that’s exactly why money keeps leaking. The payroll system holds some of the clearest signals about financial waste, fraud, and risk inside a company. Once those numbers are examined with the right lens, patterns begin to appear. These patterns expose leaks that quietly drain profit.

Payroll analysis is the process of reading your numbers like a diagnostic report. Every line of data reveals something about how your business really operates. In Nigeria, where compliance rules shift, staff movement is high, and overtime habits grow fast, this analysis serves as a full business health check.

Think of payroll analysis as your business going for an MRI scan. With the right payroll analytics, you can finally answer questions like:

Who is inflating my overtime?

Where are ghost workers hiding?

Why is HR over budget again?

Are my statutory deductions accurate?

Which department has the worst staff turnover?

In this guide, I’ll show you the 5 essential payroll analysis checks every Nigerian business should run and the hidden costs you’ll uncover in the process.

Let’s get into it.

5 Critical Health Checks Your Payroll Analysis Can Answer

1. The Ghost Worker Check

Are you paying people who no longer work for you?

Let’s be honest, this one happens more often than most founders admit. 

Ghost workers appear in many forms:

• A resigned staff who wasn’t removed from payroll.

• Duplicate names because someone copied the previous month’s sheet.
• A staff on suspension who still gets full salary.
• A “friend” of a supervisor who mysteriously keeps getting paid.

In Excel, it’s embarrassingly easy for this to slip through. In several Nigerian organisations, this turns into a fraud pattern that runs for months.

With your payroll analytics, you can run a report comparing your active employee count in your payroll system against the count in the HR/Attendance system. A mismatch is an immediate red flag. Scrutinise all new hires or terminated staff over the last six months. Does the termination date in the system match the last payment date? Ghost workers are often kept on the payroll for one or two extra cycles.

Any organisation that handles exits manually is at risk of this leak.

2. The Overtime Leak Check

Which department is abusing overtime and why?

Overtime is a necessary cost but it is one of the most common places where money quietly disappears. Nigerian companies approve overtime to maintain operations, especially in retail, hospitality, logistics and manufacturing. The problem begins when the overtime increases even though output has not changed.

If one department, such as Customer Service or Operations, is consistently double the company average, it requires strategic investigation to determine the cause. The question isn’t whether the hours are being abused, but whether the business should be hiring more staff, restructuring shifts, or investing in automation to manage that necessary workload more cost-effectively. You should also identify employees who consistently rely on overtime to boost their take-home pay; are they genuinely overloaded, or are they deliberately underperforming during regular hours? Finally, comparing overtime spikes month-over-month and year-over-year reveals if a systemic problem, like poor resource allocation, needs to be addressed.

3. The Compliance Red Flag Check

Are your PAYE, Pension, NHF, and NSITF figures correct?

PAYE, pension, NHF, NSITF and ITF all follow strict rules, and many businesses only discover errors when a government agency issues a demand letter. Most penalties come from payroll calculation mistakes, not deliberate violations. A minor discrepancy in remittances can trigger major, compounding penalties from the Nigeria Revenue Service or your State Internal Revenue Service, leading to punitive fines, back-interest on under-remitted amounts, and the heavy cost of time spent auditing.

Other common issues include wrong PAYE tax bands, pension deductions not matching remittances, missing pension PINs, NHF applied inconsistently, incorrect taxable income calculation, allowances mistakenly taxed or untaxed. One broken formula in Excel equals one penalty letter.

To diagnose compliance errors, everything starts with remittance reconciliation. You need to compare the statutory deductions your payroll system calculated for the month (PAYE, Pension, NHF) against the actual remittance receipts submitted to the relevant government bodies. These figures must match perfectly as even small discrepancies can trigger audit flags or penalty letters.

Beyond matching amounts, payroll analysis also means confirming the accuracy of employee identifiers, such as PENCOM PINs and NHF numbers, to ensure every remittance is traceable to the right staff. It also requires recalculating PAYE tax bands manually for spot-checking, especially in organisations that rely on Excel. Finally, review your payroll to ensure every salary complies with the applicable national or state minimum wage laws, because non-compliance here attracts some of the harshest fines.

4. The Staff Turnover Cost Check

Which team is losing people the fastest and what is it costing you?

Employee turnover is a HR problem as well as a financial one. Every resignation costs the business more than most people realise. Beyond the obvious recruitment and onboarding, you also lose productive hours, disrupt team stability, and spend time retraining replacements. When you add it all up, the true cost of losing an employee is often 1.5 to 2 times their annual salary, once you factor in hiring, training, transition delays, and lost productivity.

When turnover is concentrated in one department, that’s a major warning sign. Payroll analysis helps you uncover these patterns long before they become a crisis. By breaking down your staff turnover rate by department, manager, or branch, you can immediately see which units are losing people the fastest; a strong indicator of culture issues, management gaps, operational overload, or pay dissatisfaction.

A proper payroll analysis should examine:

• Exit trends by department or location
• How many replacements were hired in the same team within a short period
• Differences in pay between departing staff and their replacements
• Allowances or benefits that suddenly increase when new hires join
• Patterns linking high exits to specific managers or shifts

When you run a turnover rate report this way, you can identify the problem areas and also quantify their financial impact. Calculating the time-to-hire, onboarding delays, and recruitment agency fees for these high-turnover roles gives leadership a hard number that’s impossible to ignore. It clearly shows that the cost of poor retention is far higher than the cost of fixing team conditions.

5. Unexplained Salary and Allowance Increases

Why is your actual payroll never matching your budget?

Payroll budget overruns are one of the biggest blind spots for Nigerian businesses and most founders only notice halfway through the year. Payroll rarely blows up because “salaries are too high.” It happens because small, undocumented changes pile up quietly.

Budgets drift when:

• New hires are added informally
• Salary increases aren’t documented
• Allowances change mid-year
• Overtime spikes unexpectedly
• Commissions are paid out of cycle
• FX fluctuations affect USD-linked allowances

Without structured payroll analysis, these shifts go unnoticed until the variance becomes too large to ignore.

Payroll analysis fixes this by helping you:

• Compare budgeted payroll vs. actual payroll every month
• Break down cost categories (basic salary, allowances, overtime, commissions)
• Track year-to-date salary growth
• Spot departments where salary totals rise despite no new hires
• Identify staff whose earnings change without a documented promotion or review
• Flag irregular “one-time” payments that mysteriously repeat
• Understand the pattern behind rising costs

One major source of hidden inflation is allowances. In Nigeria, housing, transport, and utility allowances often make up a large portion of total compensation and over time, they quietly creep upward. Some become outdated, overly generous, or misallocated. Others no longer align with the actual cost of living or productivity expectations.

How to diagnose allowance creep:

• Analyse the ratio of Total Allowances to Total Basic Salary across the company
• Investigate allowance categories that suddenly spike
• Conduct a benchmark review to compare allowance structures with industry standards
• Check departments with rising allowance totals despite stable headcount

Why Your Payroll Analysis Needs More Than Excel

Excel is great for basic calculations, but it offers very little accountability. One incorrect formula can distort every deduction. Copy-pasting creates duplicates. There is no audit trail, no alerts for unusual activity, and no real-time visibility. Each manual correction introduces a new risk. When you attempt to analyse 12 months of payroll spreadsheets, you are not reviewing your payroll; you are excavating it.

This is exactly why Nigerian businesses struggle to detect leaks early. As headcount grows, payroll data becomes fragmented across multiple sheets. Different departments track information in different ways. Approvals get lost in emails. Key changes go undocumented. In a compliance environment as sensitive as Nigeria’s, relying on manual tools almost guarantees missed errors or penalties.

The truth is that running a proper payroll health check is nearly impossible in Excel. It is slow, imprecise, and prone to distortion. Payroll  is a financial signal of everything happening inside your organisation. To understand your true costs, spot risks early, and keep your payroll clean, you need a modern payroll and HRtech software as PaidHR that brings salary structures, remittances, and approvals into one place and turns them into clear, usable insights. That shift from scattered spreadsheets to structured analysis is what gives business owners real control over their numbers.