Payroll Registrations in Nigeria

HEDGE-SQUARE CONSULTANCY SERVICES PRIVATE LIMITED
Address: Impress, 111A, Currimji Compound, M. G. Road, Fort, Opp. Mumbai University, Mumbai – 400 001.

Payroll Registration in Nigeria

A. Employee Compensation Act:

1.1 Introduced in the year of 2010 at the place of Workman compensation Act.

1.2 Applicable to all the employers and employees in the public & private sectors in the Federal
Republic of Nigeria except to any member of the armed forces.

1.3 In case of injury or death or such other issues to be informed by the employee and in case of his
death by his dependent within 14 days of occurrence or receipt of the information of
occurrence.

1.4 The Employer shall report above said injury within 7 days of its receipt from the employee to the
Board & nearest office of the National Council for Occupational Safety & Health.

1.5 An Application of the compensation shall be made by the employee or its defendant to the
board in the form prescribed within one year from the date, injury or disability. If the Board
deemed it fit it may provide the compensation if the application is filed within 3 years after date.

1.6 Necessary documents as prescribed in Section 6 to be submitted to the Board for the
Compensation.

1.7 The compensation shall be demanded and paid as per the criteria and limits laid down in the
Act.

1.8 An employee shall also entitle for mental stress resulting due to the reasons as provided in
Section 8 of the Act. The Board may appoint a Medical Board of Inquiry consisting of relevant
specialists to review the situation to determine whether or not the employee is entitled to
compensation for mental stress.

1.9 Liability to pay in the fund is solely lies with the employer and no employee shall be completed
to do otherwise.

1.10 Scale of compensation is provided under Section 17 of the Act.

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1.11 In case of permanent total disability results from the injury of an employee, the Board shall pay
to the employee compensation that is a periodic payment equal to 90 per cent of the
remuneration of the employee.

1.12 In case of permanent partial disability resulting from the injury of the employee, the Board shall
estimate the impairment of earning capacity from the nature and degree of the injury. The
compensation paid shall be a periodic payment equal to 90 per cent of an estimate of the loss of
remuneration resulting from the impairment.

1.13 The compensation shall be paid to the employee only if the employee is

(a) less than 55 years of age on the date of the injury, until—
(i)   the date the employee reaches 55 years of age, or
(ii)   the Board is satisfied that the employee would retire after reaching 55 years of
age, or
(iii)   the date the employee would retire, as may be determined by the Board ; and

(b)   55 years of age or older on the date of the injury, until—
(i)   2 years after the date of the injury,
(ii)   the Board is satisfied that the employee would retire after the date referred to
in sub‐paragraph (i) of this paragraph, or
iii) the date the employee would retire, as may be determined by the Board.

1.14 Every employer shall, within the first 2 years of the commencement of this Act, make a
minimum monthly contribution of 1.0 per cent of the total monthly payroll into the Fund.
(Section 33). After these 2 years Board shall make regulations prescribing categorization of risk
factors and the amount of contributions to be made in to the fund.

1.15 The employers shall also be assessed by the Board from time to time to determine
administration of the Act. Payment of each assessment shall be due on 1st January in the year
which it relates

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1.16 As per Section 37 the Board may provide for different assessment rates applicable to each class
and sub‐class of the industry as specified u/s 38 of the Act.

1.17 Employer shall keep all the time the records of its payroll at the address of which the employer
had given the notice to the Board.

Further employer after coming under definition of the employer shall furnish to the Board all
information as required by the board together with the total estimate of the probable amount
of the payroll.

Employer shall also provide signed copies of reports of the employer’s payrolls, not later than
the 31st December in each year or at such other times and in the manner required by the Board.

1.18 Every employer shall provide to the Board, not later than the last day of February in each year or
at such other time as may be required by the Board a statement, in a manner to be determined
by the Board containing details as specified in Section 40 of the Act.

1.19 In case employer failed to pay an assessment or failed to provide security, when required by the
Board, the Board may assess a penalty in an amount equal to 10 per cent of the unpaid
assessment or the value of the security required, the payment of which may be enforced in the
same manner as the payment of an assessment.

1.20 In case the employer commencing or recommencing the business, he shall within 30 days of
such commencement or recommencement submit a statement containing total payroll of the
year to the Board.

1.21 Any person authorised by the Board may examine the books and accounts of the any employer.
Further Board has powers such as entering in to the premises of the employer, requiring
production of license and such other documents etc.

1.22 All moneys, funds or contributions by employers for adequate compensation to employees

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or their dependants for any death, injury, disability or disease arising out of or in the course of
employment shall be credited to the Employees Compensation Fund managed by the Nigeria
Social Insurance Trust Fund Act.

1.23 The Compensation in the act means the any amount payable or service provided under this Act,
in respect of a disabled employee and includes rehabilitation.

1.24 The Remuneration in the act means basic wages, salaries or earnings designated or calculated,
capable of being expressed in terms of money and fixed by mutual agreement or by law which
are payable by an employer to an employee for work done or to be done or services rendered or
to be rendered; and allowances which include rental, transport, meals and utility or other
allowances as may be determined by the Board, from time to time.

B. Pension Reform Act – 2004:

I. Features:

1.1 A contributory pension scheme (the Scheme) is mandatory in Nigeria to be provided by the
employer in accordance with the Pension Reform Act, 2004.

1.2 Scheme is applicable to all the employees in public as well as private sector; however in case of
private sector it is applicable when the number of the employees is 5 or more than that.

1.3 Every employee shall maintain a Retirement Savings Account (RSA), in his name with any
Pension Fund Administrator (PFA.) Further, an employee also has power to change the PFA by
transferring its RSA, once a year without giving any reason.

The employee shall not have access to his retirement savings account nor have any dealing with
the custodian with respect to the retirement savings account except through the pension fund
administrator.

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1.4 The employer should deduct the employee’s contribution from his monthly emoluments.
Further employer has to submit the contribution of the employee along with his contribution
within 7 working days from the day the employee is paid his salary and same to be remitted to
the custodian specified by the pension fund administrator of the employee.

On above said receipt the custodian shall notify the same to the PFA and then amount shall be
credited to the RSA.

1.5 An employee is liable to pay 2% of the total contribution for each month or part of each month
during which default continues, as a penalty in case he fails to remit the contribution within the
time prescribed.

1.6 Contribution Amount:

a) In case of private/ public sector it is minimum 7.5% of “monthly emoluments”* of
employee by both employer and employee

b) In case employee is working in military force contribution is 12.5% of monthly
emoluments of employee by both employer and employee

(*Monthly emoluments –“monthly emoluments includes basic salary, housing allowance, and
transport allowance.”)

c) Apart from above contributions employer shall also maintain group life insurance policy
in favor of the employee for a minimum of three times of total emoluments of the
employee.

1.7 Employer may agree or elect to bear the full burden of the scheme by contributing all 15%.
Employee in addition to total contribution under the act may make more contribution
voluntarily.

1.8 The above said contributions (apart from voluntary contributions) by an employee to the
Scheme under this Act shall form part of tax deductible expenses in the computation of tax
payable by an employer or employee under the relevant income tax law.

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1.9 The employee can not withdraw the funds from his account until he attains the age of 50 or his
retirement whichever is later. To avail said benefit in the early retirement before the age of 50 is
subject to conditions such as retirement on the advice of suitably qualified physician or properly
constituted medical board, retirement due to permanent disability either of mind or body or in
accordance with the terms of employment contract.

1.10 Where an employee retires as per the terms of the employment contract, he can withdraw the
25% of the amount standing to the RSA subject to condition that such withdrawal shall only be
made after six months of such retirement and the retired employee does not secure another
employment.

1.11 Further in case of death of the employee his entitlements under the group insurance policy
taken should be credited to his RSA.

PFA shall pay above said fund to the beneficiary under a will or to the spouse & children or to
the next of kin or any person designated by the deceased as the case may be. In case the
employee is missing for more than a year, all the benefits which could have given in case of his
death should be given to him.

1.12 Notwithstanding the provisions of the Act, any employee who at the commencement of this Act
is entitled to retirement benefits under any pension scheme existing before the commencement
of this Act but has 3 or less, years to retire shall be exempted from the scheme.

1.13 Where an employee transfers his service or employment from one employer or organisation to
another, the same retirement savings account shall continue to be maintained by the employee.

1.14 No application for licence to act as a PFA shall be granted unless the applicant is a limited
liability company incorporated under the Companies and Allied Matters Act with the object to
manage pension funds and has a minimum paid up share capital ofNI50,000,000 or such sum as
may be prescribed, from time to time, by the Commission. PFA should satisfy such additional
requirements as may be prescribed by the Commission from time to time.

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1.15 Any person proposing to act as a custodian of pension funds shall apply to the Commission for a
licence in such form with the payment of such fees as the Commission may, from time to time,
prescribe. A person applying shall also comply with the other requirements as may be
prescribed under the section.

1.16 Apart from above mentioned provisions the Act contains various provision on registration &
management of PFA, provisions on dispute resolution, legal proceedings, penalties etc.

Hemant Shah
Hedge‐Square Consultancy Services Pvt. Ltd.
111A, Impress, Currimji Compound, Fort, Mumbai – 400 001.
Contact: +91 ‐ 9870551611
Email: hemant@hedge‐square.com
Website: www.hedge.square.com

This material and the information contained herein prepared by Hedge‐Square Consultancy Services Pvt. Ltd. (HSQ), is intended to provide general
information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). None of HSQ’s partners or their related entities is, by
means of this material, rendering professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which
may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a
qualified professional adviser. No entity in the HSQ Network shall be responsible for any loss whatsoever sustained by any person who relies on this material.

© 2011 Hedge‐Square Consultancy Services Pvt. Ltd.

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Payroll Registrations in Nigeria

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