Employer of Record (EOR) Nigeria
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An Employer of Record assumes the role of the legal employer for workers in Nigeria. Often recognized as a Global Professional Employer Organization (Global PEO), this function entails comprehensive management of various employment aspects. Responsibilities encompass ensuring strict adherence to local labor laws and regulations, overseeing critical tasks like payroll, tax compliance, and statutory benefits, as well as formulating employment agreements.
Key responsibilities of the Employer of Record (EOR) include:
- Ensuring the worker’s employment aligns with the country’s legal requirements.
- Managing the local payroll procedures.
- Handling the filing of employment-related taxes and essential documentation.
- Providing the worker with accurate payslips.
- Disbursing the worker’s salary payments promptly.
Simplify your global expansion endeavors through our Global PEO services, offering a streamlined solution without the need for entity setup. As your Employer of Record (EOR) in Nigeria, we guarantee legal compliance, and Intellectual Property protection, freeing your business to concentrate on its core functions. With seamless facilitation of global mobility, work visas, and the establishment of a diverse and efficient global workforce, partner with Mercans for a compliant and efficient employment experience in Nigeria.
EOR Solutions in Nigeria
Employment Contracts in Nigeria
The contract of employment serves as the cornerstone in labor law, governed by the general principles of contract law. It is the written document that delineates the relationship between an employer and an employee, encapsulating the mutual needs for labor and wages. Just like any contract, a contract of employment must exhibit essential elements such as offer, acceptance, consideration, intention to create legal relations, capacity to contract, certainty, and legality. The offer in labor law represents the employer’s expression of a need for labor, while acceptance constitutes the employee’s unqualified assent to the terms offered. Consideration, often wages, underlines the reciprocal promises exchanged. The intention to create legal relations, capacity to contract, certainty in terms, and legality in object and manner of performance further solidify the contractual bond.
In Nigeria, the Labor Act (Cap 198) outlines the minimum terms that certain employment contracts must encompass. Express terms are those explicitly agreed upon, either orally or in writing, with Section 7 of the Labor Act mandating the recording of essential particulars. Implied terms, not expressly made but forming part of the contract, draw from common law, collective agreements, workplace notices, customs, practices, and statutory provisions. The understanding of these concepts illuminates the intricate landscape of contract employment in the Nigerian context, shaped by relevant legislations and the inherent dynamics of the labor market.
Probation Period
Within the initial three months of the employee commencing employment, akin to a probationary phase, the employer must comply with section 7 of labor law by furnishing the employee with a written statement of particulars or documents.
Nigerian staff may be required to serve a probationary period of three (3) to six (6) months, depending on their level of responsibility.
It is possible, however, that some organizations may extend a worker’s probation period to a year depending on their policies.
Notice Period
The duration of the notice period for terminating an employment contract is typically agreed upon by the parties involved. In situations where the employment contract does not specify a notice period, the Supreme Court, as seen in Idufueko v. Pfizer Products Limited (2014) 12 NWLR (Pt. 1420) page 96 at 119, implies a reasonable notice sufficient for termination. The determination of a reasonable notice considers factors such as the nature of employment, length of service, and provisions outlined in the Labour Act, 2004. An example is the case of Talo Tuwa Sunday v. Zenith Bank Plc. (2015) 56 N.L.L.R. (Pt. 192) 460, where one month was deemed reasonable for an employee with a service period of a year and 8 months.
In instances where there is no notice clause or a written contract, the statutory minimum notice period, as outlined in the Labour Act, 2004, is adopted. According to Section 11 (1) of the Labour Act, either party can terminate the contract with the following minimum notice periods:
- Three months or less One day
- More than three months but less than two years One week
- Two years but less than five years Two weeks
- Five years or more One month
While some argue that the Labour Act is limited to certain worker classes, the Supreme Court in Saraki v FRN (2016) 3 NWLR (pt 1500) 531 at 631 E emphasizes that the statute’s interpretation should consider all its parts together. In the case of Osuki v. Lubrik (NICN/YEN/49/2017), the National Industrial Court held that Section 20 of the Labour Act applies in cases without a written employment contract. Consequently, when parties fail to agree on the notice period, Section 11 (2) of the Labour Act becomes applicable.
Working Hours
The typical workweek duration in Nigeria is 48 hours, spread over 8 hours each day. Alternatively, a 40-hour workweek with 8 hours per day is widely accepted. While there is no specific legal requirement regarding the amount of overtime compensation, it is essential for the terms of overtime to be clearly specified in the employment contract.
Employees vs Independent Contractors in Nigeria
| Criteria | Employee | Independent Contractor |
|---|---|---|
| Definition | Works for the employer on a regular basis. | Self-employed person providing services for a fee. |
| Control and Independence | Gives up elements of control and independence. | Free from control or influence of the company. |
| Contract Type | Contract of employment (Master-servant). | Service/Independent Contractor Agreement. |
| Control of Work | Employer controls time, tools, and manner of work. | Independent contractor controls how work is done. |
| Work Tools and Equipment | Uses tools and equipment provided by the employer. | Provides own work tools and equipment. |
| Business Operation | Generally operates as an individual. | May operate as a sole proprietor, partner, or company. |
| Marketing Services | Usually restricted due to employment contracts. | Openly markets services as they are in control of their business. |
| Industry Expertise | May receive training for the job. | Brings specialized expertise to the work. |
| Tax Responsibilities | Taxes withheld and remitted by the employer. | Responsible for filing personal income tax returns and remitting taxes. |
| Payment Control | Receives a specified salary at regular intervals. | Compensated for services provided, usually after issuing an invoice. |
| Employment Duration | Usually works for an indefinite period. | Typically engaged for specific projects for a shorter duration. |
| Subcontracting/Delegating Work | Generally does not subcontract work. | May subcontract or delegate work as they control how work is done. |
Payroll in Nigeria
- PIT/PAYE: Employers are obligated to remit PAYE tax to the relevant tax authorities by the 10th of the month following salary payments. They must also file annual PAYE tax returns by January 31 each year. Failure to comply with these timelines can result in significant penalties, including fines and interest on unpaid amounts, emphasizing the importance of timely and accurate tax management.
- National Housing Fund (NHF): Employers must ensure that NHF contributions are deducted from employees’ salaries and remitted within one month. Non-compliance can lead to penalties, including fines for employers who fail to make necessary deductions or timely remittances. This requirement underscores the importance of supporting housing finance for employees.
- Employees’ Compensation Fund (ECF): Employers must remit ECF contributions to the NSITF monthly, reflecting their commitment to employee welfare. Non-compliance can result in fines or imprisonment, with escalating penalties for repeated offenses, highlighting the government’s focus on ensuring workplace safety and support for injured workers.
- Industrial Training Fund (ITF): ITF contributions must be submitted by April 1 each year, along with annual returns detailing employee training programs. Delays in remittance can incur penalties of 5% for each month of non-compliance, further incentivizing employers to invest in skill development and adhere to regulatory requirements.
- National Health Insurance Scheme (NHIS): Employers and employees are required to adhere to contribution schedules set by their respective state health insurance councils. Prompt remittance of contributions is essential to maintain continuous healthcare coverage for employees and their families.
- Registration Requirements: All employers in both the public and private sectors with at least three employees are mandated to register under the Contributory Pension Scheme (CPS). This includes self-employed individuals who wish to participate under the micro-pension option. The National Pension Commission (PENCOM) oversees the administration and compliance of the CPS, ensuring that employees have access to retirement benefits.
- Contributory Pension Scheme (CPS): Under the CPS, employers are required to contribute a minimum of 10% of employees’ monthly emoluments, while employees contribute at least 8%. Contributions must be remitted within seven working days of salary payment, promoting timely savings for retirement. Non-compliance can lead to penalties from PENCOM, ensuring that employers uphold their obligations to employee retirement security.
- Employment Obligations: Nigerian labor laws, particularly the Labor Act of 2004, outline employers’ responsibilities to provide safe working conditions, fair compensation, and adherence to employee rights. This includes compliance with minimum wage regulations, provisions for sick leave, maternity leave, and holiday entitlements. Employers must prioritize these obligations to foster a positive work environment and avoid legal repercussions.
- Payroll Requirements: Salaries must be paid at least once a month and in legal tender. Employers can disburse payments via cash, checks, or electronic transfers. It is essential for payroll processes to be accurate and timely to maintain employee satisfaction and compliance with labor laws.
- Banking Requirements Related to Payroll: In Nigeria, all employees must obtain a Bank Verification Number (BVN) to receive payments. This requirement enhances security in financial transactions and ensures accountability. Additionally, employers must navigate foreign exchange controls when engaging in international transactions, adhering to regulations set by the Central Bank of Nigeria to manage currency stability.
Minimum Wages
As of January 2024, the prevailing minimum wage in Nigeria stands at NGN65,000.00 per month, and this rate has been in effect since September 1, 2023. All figures are denoted in Nigerian Naira.
Payroll Cycle
In Nigeria, payroll can occur on a monthly, bi-weekly, or weekly basis, and salary disbursements must be made at least once every month.
Mercans’ Payroll Capabilities in Nigeria
- Payroll Frequencies: Mercans offers flexible payroll frequencies, including monthly, bi-weekly, or weekly, catering to the diverse needs of businesses operating in Nigeria.
- Timely Disbursements: Our payroll services guarantee timely and accurate salary payments, adhering to the regulatory requirement of at least once a month.
- Compliance Assurance: Mercans ensures strict compliance with Nigerian payroll regulations, handling tasks such as tax calculations, benefit administration, and adherence to labor laws.
- Experienced Team: With a team of experienced professionals, Mercans provides tailored payroll solutions, addressing the unique requirements of businesses in Nigeria.
- Error-Free Processing: Our streamlined payroll processes aim at minimizing errors, offering a reliable and efficient system for managing payroll operations.
- Multi-Currency Payments: Mercans facilitates multi-currency payments, allowing businesses to operate seamlessly in a global environment, ensuring flexibility in handling diverse currencies as needed.
- Focus on Core Business: Partnering with Mercans enables businesses to focus on their core activities, confident in the knowledge that their payroll operations are handled with precision and efficiency.
Social Security in Nigeria
The Employees’ Compensation Act (ECA) 2010 establishes provisions for compensating workers or their dependents in cases of death, injury, disease, or disability occurring during employment.
Applicable to both public and private sectors, the Nigeria Social Insurance Trust Fund (NSITF) covers all employers and employees, with the exception of members of the Armed Forces of the Federal Republic of Nigeria. Employers are mandated to contribute 1% of their employees’ monthly payroll to the NSITF.
It is important to note that this contribution is not deducted from the employees’ monthly salary; instead, it is a statutory obligation imposed on the employer. Payment must be remitted by the employer before the 16th day of the succeeding month following the salary payment. Failure to comply may result in a penalty of 10% for late or unremitted 1% of the monthly payroll.
- Established by Act 3 of 1992, NHF provides loans for housing development.
- Employers contribute 2.5% of employees’ monthly basic salary to NHF.
- Late remittance incurs a ₦50,000 penalty.
- Expats and those earning below ₦3,000 are exempt.
- Aims to provide affordable healthcare for Nigerians.
- Employers contribute 10%, and employees contribute 5% of the basic monthly salary.
- Covers contributor, spouse, and four children under 18.
- Every employer with ten or more employees must contribute.
- Governed by the Personal Income Tax Amendment Act 2011 and Finance Act 2020.
- Employees pay tax based on residency and work location.
- Tax rates progress from 7% to 24% of taxable income.
- Minimum tax applies to low-income earners, exempting those earning the National Minimum Wage.
- Governed by the 2004 Pension Reform Act.
- Minimum contributions of 10% (employer) and 8% (employee) of monthly compensation.
- Employers must remit contributions to a Pension Fund Administrator.
- Penalty for non-compliance is at least 2% of the unpaid amount.
- Aims to develop industrial and commercial skills in Nigeria.
- Employers with at least five employees or ₦50 million turnover contribute 1% of annual payroll.
- Employers can claim a refund if employees receive appropriate training.
- Late payment incurs a penalty of an extra 5% of the unpaid sum.
- Employees’ Compensation Act (ECA) 2010 provides compensation for work-related incidents.
- Employers contribute 1% of monthly payroll.
- Payment is made by the employer before the 16th day of the succeeding month.
- Penalties of 10% for late or un-remitted contributions.
Employee Hiring Cost in Nigeria
Let’s consider a scenario where an employer in Nigeria decides to hire an employee with a gross annual salary of NGN 9,999.96. In addition to the gross salary, there are various employer costs associated with the employment.
Gross Annual Salary: NGN 9,999.96
This represents the total amount the employee will receive before any deductions.
Total Annual Employer Costs: NGN 1,389.96
This includes additional costs that the employer bears beyond the gross salary. It encompasses various factors such as statutory contributions, benefits, and other expenses related to the employment relationship.
Total Annual Cost: NGN 11,389.92
The total annual cost is the sum of the gross annual salary and the total annual employer costs. This amount reflects the overall financial commitment the employer needs to make for the employment arrangement.
In this hypothetical example, the employer is not only responsible for the employee’s salary but also incurs additional expenses associated with maintaining the employment relationship. These costs may include contributions to social security schemes, health insurance, and other benefits, contributing to the total annual employer costs.
It is crucial for employers to consider these comprehensive costs when budgeting and planning for hiring in order to have a clear understanding of the financial implications associated with each employee.
| Employee Hiring Cost in Nigeria | |
|---|---|
| Gross Annual Salary | USD 9,999.96 |
| Total Annual Employer Costs | USD 1,389.96 |
| National Pension Fund | USD 999.96 |
| National Social Insurance Trust | USD 99.96 |
| Industrial Training Fund | USD 110.04 |
| Life insurance (GPA) | USD 180.00 |
| Total Annual Cost | USD 11,389.92 |
Personal Income Tax
Individuals residing in Nigeria are subject to taxation on their global income. In the context of employment, non-resident individuals become liable for taxation in Nigeria if their employment duties are wholly or partially performed within the country. However, exemptions apply when the duties are carried out on behalf of a foreign employer, the employee’s remuneration is not borne by the employer’s fixed base in Nigeria, and the employee’s remuneration is subject to tax in another country under a Double Taxation Treaty (DTT) with that country. Foreign individuals earning business profits in Nigeria are taxed under Section 6 of the PITA when a fixed base or taxable presence is established, subject to existing treaties.
The introduction of Section 6(A) of the PITA incorporates Significant Economic Presence (SEP) rules for the taxation of non-resident individuals, executors, or trustees engaged in a trade or business involving technical, professional management, or consultancy services for residents in Nigeria. The definition of SEP is yet to be specified by the Ministry of Finance.
Personal income tax rates are outlined in the table below, summarizing taxable income tax bands and applicable rates on an annual basis. Employees earning up to the national minimum wage (currently NGN 30,000) are exempt from tax or monthly PAYE deductions.
| Annual Income (NGN) | Personal Income Tax (PIT) Rate (%) |
|---|---|
| First 300,000 | 7 |
| Next 300,000 | 11 |
| Next 500,000 | 15 |
| Next 500,000 | 19 |
| Next 1,600,000 | 21 |
| Above 3,200,000 | 24 |
A minimum income tax of 1% of total income is payable when a taxpayer has no taxable income due to personal reliefs, allowances, or when the total income results in a tax lower than the minimum tax
Employee Benefits in Nigeria
In compliance with Nigerian employment regulations, certain employee benefits are statutorily mandated, while others are considered common practice. Here’s an overview of both:
Statutory Employee Benefits
- Employers are obligated to provide a minimum of 12 sick days annually, with the provision that employees must furnish proof of sickness from a licensed medical practitioner.
- All employees are entitled to six days of statutory leave after completing 12 months of employment.
- Employers must grant a minimum of 12 weeks of maternity leave, beginning up to six weeks before childbirth. During this period, the employee is entitled to receive at least 50% of their regular salary.
- While there is no federal regulation for paternity leave, certain states like Lagos and Enugu provide for two and three weeks of paternity leave, respectively.
- Employers must grant a minimum of 12 weeks of maternity leave, beginning up to six weeks before childbirth. During this period, the employee is entitled to receive at least 50% of their regular salary.
- While there is no federal regulation for paternity leave, certain states like Lagos and Enugu provide for two and three weeks of paternity leave, respectively.
Pension Plans
As per the Pension Reform Act 2014, both employers and employees are required to contribute to the Nigerian pension fund. Employers contribute 10%, while employees contribute 8%, contributing to the employees’ retirement savings accounts.
Working Hours and Overtime
- The standard Nigerian workday is eight hours, with a mandatory one-hour break for employees working more than six hours.
- The workweek is set at 48 hours, and employees are entitled to one paid rest day weekly. Overtime pay should be provided for work beyond these thresholds, with the rate specified in the employment contract.
Insurances
- Under the Employee Compensation Act 2010, employers must contribute 1% of their monthly payroll to the Employee Compensation fund, managed by the Nigerian Social Insurance Trust Fund. This federal insurance covers work-related injury, disability, disease, or death.
- Employers are required to purchase group life insurance for Nigeria-based employees, with coverage valued at least three times their annual salary.
Minimum Wage
The minimum wage in Nigeria, effective 2023, is ₦30,000 (approximately $75) per month, and all payments must be converted to nairas for legitimacy.
Public Holidays
There are 11 government-declared public holidays in Nigeria, and employees must be compensated for these days.
Common Employee Benefits
Termination Policy in Nigeria
When navigating the process of employee termination in Nigeria, employers must carefully address the following aspects:
Termination Letter
- Employers are obligated to issue a termination letter to the employee, explicitly stating the reason for termination. In cases involving policy breaches and disciplinary hearings, the allegations and findings should be clearly outlined.
- The termination letter should specify whether the termination is immediate or subject to notice, the effective termination date, details of any payments in lieu of notice, and the procedure for the return of company assets, including ID cards.
Payments to the Employee
- Alongside the termination letter, employers must ensure the prompt settlement of outstanding benefits. This includes the payment of the employee’s salary for the worked period.
- In cases of immediate termination, unless due to gross misconduct, the employer is required to provide the employee with the salary in lieu of notice, as stipulated in the employment contract.
- Other earned entitlements such as bonuses and allowances should also be disbursed to the employee within a reasonable timeframe following termination.
International Best Practices
- Employers must adhere to international labor best practices when executing termination or dismissal procedures. The National Industrial Court of Nigeria emphasizes compliance beyond local laws and contractual provisions, insisting on alignment with global standards.
- Traditionally, terminations in Nigeria might have simply stated that an employee’s services were ‘no longer required.’ However, recent legal precedents mandate that employers provide a clear reason for termination.
- To ensure a fair and legally sound termination, employers should look beyond the confines of employment contracts and local laws, considering the broader spectrum of international labor standards.
In conclusion, a thorough and compliant termination process not only safeguards the employer against legal challenges but also upholds the principles of fairness and transparency, aligning with evolving international labor norms recognized by the National Industrial Court of Nigeria.
Work Permit in Nigeria
As of March 2023, individuals seeking entry into Nigeria for various purposes can avail themselves of three primary types of visas:
- Short Trip Visa: Valid for a three-month period.
- Temporary Residence Visa
- Offers varying sub-categories.
- Valid for up to two years.
- Permanent Residence Visa: Designed for long-term residency.
Employment, Temporary Residence Visa and CERPAC
Foreign nationals intending to work in Nigeria must obtain a Temporary Residence Visa, although this alone does not confer the right to work. To work legally, individuals also need a Combined Expatriate Residence Permit and Aliens Card (CERPAC), a comprehensive permit covering residency and work privileges.
Requirements for Temporary Residence Visa
- Formal application from the sponsoring Nigerian employer.
- Passport with a minimum of two blank pages and six months’ validity.
- Proof of sufficient financial means.
- Two valid passport-size photos.
- Completed visa application form.
- Job offer letter from a Nigerian company and an acceptance letter from the employee.
- Copy of the employee’s CV and relevant educational qualifications.
- Expatriate quota approval.
Requirements for CERPAC Card
- Application letter from the Nigerian employer accepting Immigration Responsibility.
- Letter of employment and acceptance of the job offer.
- Completed application form.
- Proof of expatriate quota approval.
- Three passport photos.
- Applicant’s passport with temporary residence visa endorsement.
- Business permit.
- Proof of payment for applicable fees.
Application Process
- Sign an employment contract with a Nigerian company.
- Complete an online application for a temporary residence visa through the Nigerian Immigration Service.
- Submit relevant paperwork to the Nigerian embassy, including proof of fee payment.
- Apply for regularization.
- Apply for a CERPAC card at the National Immigration Service.
- Obtain an Aliens Registration Card.
- The CERPAC card is initially issued for two years, renewable upon expiry.
- Renewal requires submission of the expiring card, a valid passport, proof of quota approval, and a renewal request from the employer
Top Skills In demand in Nigeria
- Graphic Design Creative professionals crafting visual content.
- 3D Modelling and Animation Specialists creating dynamic visual experiences.
- Video Editing Experts refining and enhancing video content.
- Cloud Computing Technologists managing and optimizing cloud resources.
- Programming & Coding Skilled coders developing software applications.
- Web Development Web architects constructing dynamic and responsive sites.
- Digital Marketing Marketing strategists leveraging online platforms.
- Cybersecurity Professionals safeguarding digital systems.
- Data Science & Analytics Analysts interpreting and deriving insights from data.
- Artificial Intelligence (AI) AI specialists creating smart, automated systems.
- Mobile App Development Developers crafting applications for mobile platforms.
- UI/UX Design Designers focusing on user interface and experience.
- Content Creation Creators generating engaging digital content.
- Project Management Skilled managers overseeing successful project execution.
- Blockchain Development Developers working on decentralized applications.
- E-commerce Management Professionals driving online business strategies.
- Network Administration Administrators ensuring efficient data network operations.
- UI/UX Design Designers enhancing user interface and experience.
- Customer Relationship Management (CRM) Experts managing customer interactions and data.
- Search Engine Optimization (SEO) Specialists optimizing digital content for search engines.
Best Employer of Record Nigeria
Conclusion
In the vibrant landscape of Nigeria’s evolving workforce, Mercans stands as a trusted partner, providing cutting-edge Employer of Record (EOR) solutions. Our tailored services seamlessly navigate the complexities of compliance, payroll, and workforce management. With a commitment to efficiency, innovation, and local expertise, Mercans empowers businesses to thrive in the dynamic Nigerian market. Explore the limitless possibilities with Mercans as your dedicated EOR partner, ensuring success in every employment facet.