Companies typically use an Employer of Record for fast entry, payroll management for existing entities, and entity setup for durable presence. Nigeria's Contributory Pension Scheme and its state-level PAYE tax administration are the two features requiring the most careful planning.

Employer of Record in Nigeria

An EOR removes the need to register with the Pension Commission (PenCom) and Nigerian tax authorities, and to navigate the state-level PAYE administration that varies across Nigeria's 36 states. It suits early hires and distributed tech teams; it is less suited to established entities. Nigeria's growing technology sector — particularly in Lagos — makes it an increasingly important market for companies building African operations.

How payroll works in Nigeria

Nigerian payroll withholds PAYE income tax at progressive rates and both employer and employee contribute to a mandatory pension scheme under the Contributory Pension Scheme, with funds held in individual Retirement Savings Accounts (RSAs). Payroll is monthly, and employers must also contribute to the National Housing Fund (NHF) and, for larger employers, an Employee Compensation Scheme (ECS) covering workplace injury. PAYE is administered at the state level, meaning the applicable tax authority and filing requirements depend on where the employee is based.

Payroll frequency and reporting obligations

Monthly payroll is standard, with PAYE remitted monthly to the relevant state tax authority (e.g., LIRS for Lagos, FIRS for FCT Abuja) and pension contributions remitted monthly to the employee's chosen Pension Fund Administrator (PFA). Annual tax filing and reconciliation is required. Employers must register with the relevant state tax authority and with PenCom before the first employee starts work.

Key payroll nuances

Pension contributions are mandatory for most employers above a small threshold, split between employer (minimum 10 percent) and employee (minimum 8 percent) of a defined pensionable salary base. There is no statutory 13th-month payment, though some employers provide one as market practice. PAYE tax rates and administration vary by state — Lagos State (LIRS) and the Federal Capital Territory (FIRS) are the most common, but multi-location employers need to manage state-specific filing requirements for each employee's state of residence.

Pay components and employer costs

Typical pay components include base salary and, in some sectors, a discretionary bonus. Employer pension and related statutory contributions commonly add around 10 to 12 percent on top of pensionable salary. The NHF contribution (2.5 percent of basic salary, employee-side) and ECS contribution (employer-side, for qualifying employers) add further modest amounts. Nigeria's overall employer on-cost is comparatively low relative to many peer markets.

Benefits and leave entitlements

Statutory annual leave is six working days per year for most employees under the Labour Act — a modest legal minimum by international standards, though many employers offer more as competitive practice. Sick leave entitlements vary by contract and company policy. Maternity leave is 12 weeks under the Labour Act. Public holidays number around 12 to 13 per year, including both national and religious observances.

Hiring and employment contracts

Written contracts are standard practice in Nigeria and required for certain terms to be enforceable. Probation periods are commonly three to six months, contract-defined. Termination requires notice per contract or statutory minimum (one month for monthly-paid employees), whichever is greater. Redundancy situations require additional procedural steps including consultation and, in some cases, severance pay.

Entity setup in Nigeria

A private limited company registered with the Corporate Affairs Commission (CAC) is the standard vehicle for foreign employers. Post-incorporation, the entity registers with the relevant state tax authority, PenCom, and other applicable authorities before hiring. End-to-end setup typically takes four to six weeks, with CAC registration often completable within one to two weeks online.

EOR vs Payroll Management vs Entity Setup — Nigeria

Frequently asked questions