Statutory Benefits in Nigeria: A Comprehensive Guide

Statutory Benefits in Nigeria

How much do you know about the statutory benefits in Nigeria? Read on to find out how to stay compliant with Nigerian employment law without neglecting your core business.

Nigeria is something of a Western African gem. It has a vibrant economy and culture, is home to technological hubs and to the second-largest film industry in the world – and is rich in natural resources to boot. There is no end of reasons to invest in the country, and no end of safe investment avenues either. But as with all things, there is a caveat for companies looking to expand to Nigeria: the duty of compliance, of which statutory benefits are a major component.

What is defined as a statutory employee benefit in Nigeria?

Statutory or mandatory benefits, in the context of employment, refer to benefits that workers must receive from their employers as mandated by law. They often include such perks as paid and sick leave, medical insurance, pension and other social security perks. Employers also offer other benefits not mandated by law to employees at their own discretion.

What are the mandatory employee benefits in Nigeria?

Minimum Wage in Nigeria

In Nigeria, the minimum wage is 30,000 NGN per month.

Working Hours

In Nigeria, a typical workweek is 48 hours long spread over 8 hours every day from Monday to Friday.

Overtime work

The employment contract and collective agreements govern all labor that is performed in excess of the required number of hours per week. Any such excess must be compensated as overtime. There are limits on the amount of hours an employee may work when requested to work overtime or on a holiday.

All overtime hours that exceed 48 hours per week are paid at a rate that is outlined in the employment contract and in collective agreements.

Payroll Frequency

Employers can choose to pay their employees weekly, biweekly, or monthly. However, it is mandatory that salary payments be made at least once every month.

13th month

The 13th month is not mandatory in Nigeria. However, bonuses are frequently given at the employer’s discretion for a number of reasons, including: to boost employee retention and to reward employees for their productivity.

Annual Leaves

Nigerian employees are entitled to 6 days of paid annual leave if they have been in employment for at least 12 months.

Sick Leaves

Employees are legally entitled to 12 days of paid sick leave every year once they have presented a medical certificate after two days of absence. 

Maternity Leave

Women employed in the public sector in Nigeria are entitled to 16 weeks of maternity leave at 100% of their average pay rate. Women employed in the private-sector, on the other hand, are entitled to only 12 weeks of paid maternity leave at 50% of their average salary. Female employees only receive the above benefits after 6 months of consecutive service within the company.

Employer Payroll Contributions

Pension contributions amount to 10% if the employer has more than 15 employees. Employers also contribute a sum equivalent to 1% of the sum total of the employee’s earnings to the National Social Insurance Trust Fund (NSITF) and again 1% to the Industrial Training Fund (ITF), which is applicable to all employers with at least 5 employees or an annual turnover of 50 million Nigerian Naira.

The total employer cost therefore ranges from 1 to 12%.

Employee Payroll Contributions

Employees’ mandatorily contribute 8% of their earnings towards their pension, 2.5% to their Housing Fund, an option available to employees earning more than 3,000 Nigerian Naira per year.

The total employee cost therefore ranges from 8% to 10.5%.

 

Employee Income Tax

Income tax applies to employees’ earnings in the following way:
Employees pay income tax at a rate of 7% for the first 300,000 earned, then 11% for the next 300,000 NGN, followed by 15% for the next 500,000 NGN and 19% for the next 500,000 NGN, then a whopping 21% for the next 1.6 million NGN and finally, 24% for amounts exceeding 3.2 million NGN.

 

Employee Termination

Depending on the type of contract and the grounds for termination, the termination procedure differs for each employee. Both the employer and the employee have the right to terminate an employee’s employment at any time with proper notice.

 

Notice Period

In Nigeria, an employee’s notice period depends on how long they have been in employment: for those employed for 3 months of service or less, the notice period is 1 day. Those employed between 3 months and 2 years, must give or be given one week’s notice. Those employed between 2 to 5 years should give or be given 2 weeks’ notice, while those who have been employed for 5 or more years are legally required to give one month’s notice.

Severance Pay

There is no legal requirement to pay any severance in Nigeria. Any severance pay that is agreed upon is defined in the employment contract or collective agreement for employees.

Probation Period

No probation period is required in Nigeria. Any probation period that is agreed upon is defined in the employment contract or in the collective agreement for employees.

Why is it important to ensure your employees receive these benefits?

There are 2 main reasons why companies should ensure that their employees in Nigeria receive their statutory benefits:

1. Integrity & Company Reputation

It is a matter of your own integrity as an organization to ensure that your workers receive the benefits they are legally entitled to in a timely and appropriate manner. Failure to do so or to do so adequately would, quite understandable, lead to resentment in your employees. As a foreign employer, such failures may be received even more negatively by employees who may justifiably feel that they are being neglected – or worse, exploited – by foreign employers while in their own country. Upset workers typically perform poorly, don’t stay long with the company and may even go as far as pressing charges, undermining the company’s reputation and exposing it to legal sanctions by the Nigerian authorities.

2. Legal Sanctions

Not complying with Nigerian legislation when it comes to statutory benefits in Nigeria will, in time, lead to sanctions served by local authorities. As a company, you will likely have to pay fines, the sum total of which largely exceeds the costs of being compliant in the first place.

And yet, this is often the better of two options when it comes to legal sanctions. Should an employee sue your organization for disrespecting workers’ rights, you will face the burden of legal proceedings, using up your time and financial resources, all the while your company’s reputation endures public scrutiny. Should your company be found guilty, the damages will also likely be considerable, once again far exceeding the cost of being compliant in the first place. In this worst-case scenario, the tangible and intangible losses are both significant.

How can you ensure that your Nigerian employees receive their mandatory benefits?

There are 3 ways to ensure compliance when it comes to employee benefits in Nigeria:

 

1.    Undertake the task yourself

Compliance is not a task one can simply tick off a to-do list. Rather, it is a process, owing to the ever-changing, ever-evolving nature of laws. To stay compliant, you will first need to become well-acquainted with Nigerian labor law, which will mean going through pages and pages of legal documents and properly interpreting them within the Nigerian context. However, this is, in and of itself, a risky endeavor. One misunderstanding or wrong interpretation of the law could come to cost you in time. Further ahead, you will also be required to keep up to date with the changes in law, and this is typically done by scouring official government websites as well as brochures and legal documents – all in all, a time-consuming task that is fraught with the risks of omission and misinterpretation of the law. Not to mention, tackling the issue of compliance on your own often means that you cut down on the time and attention you can devote to your core business.

2.    Partner with a local expert

Alternatively, you may wish to look for a local compliance expert to guide you when it comes to employee benefits. In this way, you will receive the professional guidance and advice you need to tackle the issue of compliance. The downside in this case is volatility: there is no accounting for the person’s availability and presence in the long term. Besides, finding the right person is easier said than done when you are new to the country.

3.    Outsource your HR tasks to an Employer of Record

To avoid tackling compliance yourself and to ensure that your chosen partner is stable and able to be with you in the long run, you may instead turn to an Employer of Record (EOR), and outsource your HR functions to them. Dedicated to the purpose, an EOR will help keep your company compliant on all fronts, not just in terms of employee benefits.

Digitalisation is the answer. Digitalising your payroll allows for swift and timely processing, while minimising the likelihood of miscalculations and mistakes. At Africa HR, our experts in payroll administration use SAGE, a cloud-based platform to fully shoulder this key responsibility and rise to our clients’ expectations. 

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Why Choose Africa HR Solutions?

For Africa HR Solutions, compliance is an absolute priority, effectively making your organization’s expansion to Nigeria worry and risk-free. Our 12 years’ of experience and portfolio of over 300 international clients give us the authority and ability to provide you with the highest possible quality of service. Looking for more information about our offers to help you stay compliant in Nigeria? Get in touch with us now.
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