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Doing Business in Nigeria A Payroll Management Guide

Doing Business in Nigeria: A Payroll Management Guide

Payroll Management in Nigeria — Delving into payroll management requires that we return to a few basics to appreciate the breadth of the discourse fully. So we begin with payroll itself… 

What Is Payroll?

The financial records of an organisation’s employees’ salaries, wages, bonuses, allowances, and deductions are handled by payroll.

It also refers to the amount employees pay for services rendered during a specific period. It is essential because laws and regulations govern it (e.g. in Nigeria, Payroll is subject to Personal Income Tax Acts).   

Payroll is critical and strategic for winning organisations. This is because its function reflects a company’s financial stability, operational efficiency, and reputation.

It also directly impacts employee experience, and a sound payroll management system saves organisations from costly fines or even shutdowns due to compliance issues.

Nonetheless, many organisations expanding into Nigeria lack a proper payroll system that adheres to the statutory laws of the Nigerian labour market, leaving them vulnerable to operational errors that could jeopardise business initiatives.

Payroll management administers employees’ salaries, wages, bonuses, net pay, and deductions. Payroll processing is frequently complicated and time-consuming for businesses expanding into Nigeria.

Their primary goal is to concentrate on their core business, but they spend most of their time and money constantly monitoring the various tax laws that apply to their employees.   

Payroll Management Management in Nigeria — Process Stages   

  • Before processing payroll

Several factors are considered, including bonuses, leaves, and other benefits. These factors are determined by the approval of the company’s decision-makers. Fewer factors influence payroll generated by small businesses.

Payrolls at more giant corporations typically require software applications that streamline the entire process. All data processed in either case must adhere to company policy and procedure.  

  • During payroll processing

Verified data is employed. Calculations, taxes, bonuses, and deductions are part of this stage. To ensure accuracy and avoid mistakes, all amounts are validated and verified.  

  • After payroll processing

Here, all deductions are made. Finally, the total payroll budgeted funds are disbursed through the appropriate payment channels.  

Keeping Payroll Management in Nigeria Compliant

Keeping Payroll Management in Nigeria Compliant

Payroll and the Nigerian Labour Law

The Nigerian Labour Act of 1971 is the main legislation in Nigeria that governs employment issues and the relationship between an employer and an employee.

According to Section 91 of the Act, a worker is “anyone who has signed an agreement with an employer, whether the contract is for manual labour or clerical work”, or is explicitly or implicitly, orally or in writing, or where it is a service contract or a personal contract to perform any work or labour”.

The Labour Act of 2004 established the minimum wage for workers in Nigeria. The National Minimum Wage Act of 2011 raised the monthly minimum wage to ₦18,000.00.

However, the Labour Act of 2004 also includes an exception stating that any establishment employing fewer than 50 workers is exempt from paying the Nigerian minimum wage.

In 2019, activists advocated a new minimum wage of ₦50,000. However, this was reduced to ₦30,000, and payment has begun at that rate.  

In other words, for payroll to remain compliant in Nigeria, the minimum wage must be at least ₦30,000.

Statutory Reporting Requirements

Statutory reporting is “the requirement to submit financial and non-financial information to a government agency.” Furthermore, each industry has laws, regulations, and governing bodies that require reports.   

Some of the statutory requirements include,   

1. Employer’s Annual Declaration 1

At the end of every year, the employer is required to submit its remittance card and the tax deduction cards of all its employees.

The summary of the income earned and taxes deducted thereon from each employee will be shown on the employer’s Annual Declaration Form (Form H1) and submitted to the tax authority.

The form (i.e.Form H1) is to be filed with the RTA not later than 31st January of the  following year. On conviction, a corporate body faces a ₦500,000 fine for failing to submit returns within the specified time frame.

2. Employer’s Annual Declaration 2

Monthly remittance of PAYE tax not later than the 10th day of the following month of deduction. Penalty and interest charges where taxes are not remitted within this statutory period.

Filing of annual declaration and certificate (Form H1) and employers remittance card (Form G) per location where the employees are resident.

The Form H1 shows the gross income earned and PAYE taxes deducted from each employee (by name) in the previous year.

Copies of receipts evidencing remittance must be attached to the form, and the due date is on or before 31st January of each year; late filing attracts a penalty of ₦500,000.  

3. Employer’s Certificate of Pay and Tax

This is a form the employer gives to the employee certifying the amount deducted as PAYE tax. In practice, an application form must be obtained and completed to be issued an annual Tax Clearance Certificate (TCC).

4. Employee – Annual Return of Income and Claims

At year-end, every employee must submit an annual return of income and claims using the prescribed form (Form A) to the tax office through his employer.

The employer would stamp the completed form to confirm the accuracy of the income declared by the employee.

The return should contain the details of allowances, reliefs and deductions claimable by the employee for that year and must be submitted within the statutory time frame being 90 days from the commencement of every year of assessment.

The RTA may not grant certain reliefs such as life assurance premium reliefs if such allowances are not claimed in Form A.

6. Processing Tax Compliance Certificate (TCC)

A TCC contains information concerning the gross income and taxes paid by the employee for the last three (3) years.

TCCs are required to be produced in respect of various transactions such as applications for foreign exchange or exchange control permission for remittance of funds, applications for registration as a contractor, and applications for Government loans for industry or business.

A TCC is given only on application by the employee; in practice, employers usually apply for TCCs on behalf of their employees.

Therefore, companies with employees in several states would have to apply to all the relevant SBIRs where their employees are residents.  

Implications of Non-Compliance

Implications of Non-Compliance

Corporate compliance entails adhering to many rules, regulations, laws, and standards to safeguard every aspect of your business.

From following safety guidelines to following wage payment standards, an organisation looking to do business in Nigeria must always comply with all local, state, and federal laws.

Unfortunately, in recent years, the cost of non-compliance and monetary fines has steadily increased. However, organisations expanding into Nigeria are growing impatient, as these consequences would be detrimental to the organisation in several ways.   

Some of the Implications of Non-compliance include   

  1. Exposure to additional taxes by way of penalty and interest charges  
  2. Loss of man-hours spent in resolving PAYE tax-related matters/ in the case of distraining
  3. Bad publicity for the company  
  4. It might lead to prosecution  
  5. Suspension or termination of the business  

Now that you understand the fundamentals of payroll management in Nigeria, it is critical to collaborate with a professional payroll organisation to strategically position the function for business success. 

Let’s help you set up a compliant payroll solution for Nigeria markets OR solve any African payroll problems you may be facing. Schedule a consultation today; let’s help you succeed.