Taking the leap to hire your first employee is a milestone for any Nigerian business. It signals growth but also marks your transition from solo entrepreneur to employer. To protect your business from legal risks and foster a productive environment, you must comply with Nigeria’s core employment laws, especially concerning contracts and mandatory pensions.
This comprehensive guide breaks down the essential compliance steps for Nigerian SMEs hiring their first staff member.
1. The Foundation: Nigerian Labour Law Compliance
The Nigerian Labour Act (LFN 2004) is the primary legislation governing the relationship between ‘workers’ (manual/clerical) and ’employees’ (administrative/professional). Even with just one hire, compliance is mandatory.
A. The Employment Contract: Essential Terms
You are legally required to provide your employee with a written contract detailing the terms of employment no later than three months after their start date.
B. Mandatory Working Conditions
2. Statutory Remittances: Pensions & Insurance (PENCOM, NSITF, ITF)
Hiring your first employee triggers several mandatory financial obligations beyond their salary. Non-compliance can result in severe financial penalties and legal issues.
A. PENCOM: The Contributory Pension Scheme (CPS)
The Pension Reform Act (PRA) 2014 makes participation in the CPS compulsory for all organizations with at least three (3) employees. While you may only have one employee now, it’s wise to set up compliance processes immediately.
Key Steps for Compliance:
- Employee Registers RSA: Your employee must open a Retirement Savings Account (RSA) with a licensed Pension Fund Administrator (PFA) of their choice.
- Employer Registration: You must register your business with the National Pension Commission (PENCOM) and the chosen PFA.
- Monthly Remittance: Deduct the 8% employee contribution and add your 10% employer contribution. Remit the total 18% to the Pension Fund Custodian (PFC) no later than seven working days after the salary payment date.
B. Group Life Insurance (GLI)
Under the PRA 2014, employers are legally required to maintain a Group Life Insurance Policy for all employees, for a minimum sum insured of three times the employee’s annual total emoluments.
C. Other Mandatory Remittances
3. The Payroll and Tax Checklist
Your financial process must be compliant with the Federal and State tax laws.
- Pay-As-You-Earn (PAYE): You must deduct Personal Income Tax (PIT) from your employee’s salary and remit it to the relevant State Internal Revenue Service (SIRS).
- Tax Identification Number (TIN): Ensure both your business and your employee have a valid TIN.
- Statutory Deductions: The only deductions permissible from an employee’s salary without written consent or law are PAYE, NHF, and authorized union/pension contributions.
