Nigeria is on the rise. With a growing economy and a pool of largely untapped talent, it’s time to consider setting your sites on the Giant of Africa. Nigeria is one of the continent's largest economies, largely due to its thriving service sector. Amidst all this growth, is a flourishing tech scene with raw talent at the helm.
If you’re considering hiring remote talent from Nigeria, it’s key to understand the differences between an employee and an independent contractor. Informality continues to dominate the Nigerian labor market, despite state initiatives in recent years to ease the process of registering and growing businesses. As a result, it’s important to have a thorough understanding of work status to mitigate the risk of misclassification.
Borderless can help you navigate hiring and managing Nigerian talent. Read on to learn all about how Nigeria classifies and treats employees and independent contractors.
Who and What Regulates Employment in Nigeria?
The Employees Compensation Act and the Labour Act set the general standards for employment relations in Nigeria. The National Industrial Court of Nigeria is responsible for ensuring they’re upheld.
How Does Nigeria Define an Employee?
Nigeria has a straightforward definition of an employee, which states that an employee is an individual that provides a service, under the direction and control of an employer.
How Does Nigeria Define an Independent Contractor?
Nigerian legislation defines an independent contractor as an individual who performs a particular type of work for an employer and is not subordinate to an employer.
Contracts
The Labour Act stipulates that employers need to provide employees with a written contract no later than three months after their start date. Particular employment relationships are exempt from this law and can rely on a verbal agreement, however, this is not typical. Employers are not required to provide independent contractors with contracts.
Written employment contracts need to contain the following:
- The employer's and employees' names and locations
- The nature of employment
- Fixed-term contracts require the end date
- Length of notice of termination
- The rates of wages, how they are calculated, and how and how often they are paid
- Hours of work
- Holiday and holiday pay
- Terms and conditions related to sick leave and pay
- Any special conditions
English is the official language of Nigeria, so employment contracts are generally written in English. In the instance that an employee isn’t fluent in English, their contract needs to be recited to them and explained.
What Benefits and Protections Are Employees and Independent Contractors Entitled To?
Full-time employees in Nigeria are entitled to receive the following rights and statutory protections, including fixed-term employees. Part-time employees, agency workers, and independent contractors are not entitled to receive any protections or benefits.
- Protection from discrimination on the grounds of sex, age, ethnicity, and political stance
- Data protection
Minimum Wage and Payment
Nigeria's standard federal minimum wage currently stands at NGN18,000 per month; however, this only applies to employees engaged in the public sector. Some states have specific minimum wages, such as Ondo, which has a monthly wage of NGN22,000. Every employee must be paid at least monthly.
Working Hours and Overtime
Nigeria doesn’t have standard work hours defined in legislation. Rather, hours are determined by:
- Mutual agreement between the employee and employer
- If applicable, a collective bargaining agreement (CBA)
- If applicable, an industrial wages board
Any hours worked over an employee's predetermined working hours are considered overtime. Employees have the right to opt out of their overtime hours if their standard hours have already been mutually agreed upon. Except for employees engaged in a collective bargaining agreement. In that case, it’s up to the union and employer. Nigeria doesn’t have any statutory provision concerning overtime pay.
Rest Breaks
Employees who work six hours or more are entitled to one or more rest breaks, as long as they are reasonably spaced and timed, not exceeding one hour in total. Employees who engage in continually strenuous work are entitled to more break time, however, this depends on the nature of their role.
Employees who work seven days per week are entitled to one day of rest. If this is not possible, employers must provide a day off as soon as possible, or overtime pay if it’s stipulated in the employee's contract.
Holidays
Legislation surrounding public holidays in Nigeria is complex. However, in general, employees are entitled to take the following days off work:
- New Years Day
- Good Friday
- Easter Monday
- Eid-el Filtri
- Labour Day
- Democracy Day
- Eid el Kabir
- Eid el Maulud
- National Day
- Christmas Day
- Boxing Day
It’s important to keep in mind that the President has the authority to change the date of the public holidays above and appoint new public holidays. If public holidays are moved, employees are entitled to take the original day off.
Vacation
Employees who have worked 12 consecutive months for the same employer are entitled to 12 days of paid vacation per year. Those under the age of 16 are entitled to six days.
Sick Leave
In the event of illness or injury, employees are entitled to paid time off. If an employment contract doesn’t include a provision concerning sick pay, employees are entitled to take a maximum of 12 days off per year, as long as their illness or injury has been validated by a registered medical practitioner.
It’s up to the employer to remit sick pay. If they’re unable to in the case of insolvency, the Nigeria Insurance Trust Fund Management Board is responsible for compensating employees.
Maternity Leave
Pregnant employees are entitled to 12 weeks of leave on the condition that they present a signed note from a registered medical practitioner stating that they are unable to work.
Employees who have been employed for a minimum of six months are entitled to 50% of their standard wage. Breastfeeding mothers are entitled to half an hour of break twice a day on top of their standard breaks.
Paternity rights are not recognized by Nigerian legislation, except for employees in the public sector in Lagos, Nigeria's capital. Surrogacy isn’t recognized, but in certain circumstances, leave may be granted.
Caregiving Flexibility
Employees who have worked continuously for at least 26 weeks are entitled to request a flexible working schedule that accommodates their responsibilities as a caregiver.
Termination
Nigeria doesn’t have any fixed protections regarding termination with just cause — the specifics depend on the nature of employment. However, if an employer is found guilty of illegally or wrongfully dismissing an employee, they’re required to provide the following, among other conditions:
- Severance payments
- Reinstatement
- Outstanding salary, debt, and gratuities
- Damages equal to what the worker would have made during the relevant notice period
Nigerian legislation has the following stipulations regarding notice periods.
- Employed for less than three months: Either party must provide a minimum of one day's notice
- Employed for less than two years: Either party must provide a minimum of one week's notice, in writing
- Employed for less than five years: Either party must provide a minimum of one week's notice, in writing
- Employed for more than five years: Either party must provide a minimum of one month's notice, in writing
There is no standard statutory provision regarding severance, however, the Minister of Labour has the authority to enact them for employees whose termination is unrelated to their job performance or behavior.
How Is Income Taxed in Nigeria?
As is the norm worldwide, income is taxed differently for employees than it is for independent contractors, which creates a notable difference in how they’re each compensated and treated under Nigerian Law.
Employee Income Taxes
Employment income is taxed on a Pay As You Earn (PAYE) basis, which means that tax is deducted at the source. Therefore, it’s up to employers to deduct income tax from employees' salaries and pay it directly to the Nigerian government. They’re also responsible for contributing 1% to social security on their accumulative payroll costs towards the Industrial Training Fund and the remuneration plan for employees.
The following social security deductions are also made from employees' income:
- National Housing Fund contribution
- National health insurance scheme contribution
- Life assurance premium
- National pension scheme contribution
Independent Contractors Taxes
It’s up to independent contractors in Nigeria to remit their income tax and social security contributions to the government. However, according to the Personal Tax Act, independent contractors who don’t earn more than the minimum wage tax bracket are exempt from paying taxes.
Risk of Misclassification
Employers who are found guilty of misclassifying their employees as independent contractors run the risk of severe financial penalties and fines.
So What Now?
Interested in learning the cost of hiring in Nigeria, or how to manage and pay a remote team? We’ve got you covered. Connect with Borderless; we’ll get you set up and on your way to compliantly hiring remote talent from Nigeria. To get started, book a demo today.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
