How to hire employees in Nigeria: contracts, PAYE, pension and costs

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To hire employees in Nigeria you need a contract that meets the Labour Act, registration with the state tax authority and pension administrators, and a monthly payroll that withholds PAYE and pension contributions. Nigeria's tax rules changed significantly with the Nigeria Tax Act 2025, effective from January 2026, so older guides are now out of date. This guide covers your options, contracts, the new PAYE bands, pension and other contributions, leave, termination, costs and a practical checklist.

Why companies hire in Nigeria

Nigeria has Africa's largest population, a young and fast-growing workforce, and a large technology and creative sector centred on Lagos and Abuja. Companies hire developers, designers, customer support, sales and finance staff, both for the Nigerian market and for remote global teams. English is the official business language.

Employment and payroll are governed by federal and state rules: the Labour Act for many workers, contract law for others, the Pension Reform Act, federal tax law administered largely by state tax authorities for PAYE, and various levies. Rules change, and the 2025 tax reform changed a lot, so always check current figures.

Your options

• Register a Nigerian company with the Corporate Affairs Commission and run local payroll. Suits larger, long-term teams.
• Use an employer of record, which employs the person through its Nigerian entity. Suits first hires and small teams. See what an employer of record is.
• Engage contractors only where the person genuinely runs their own business. See employer of record vs contractor.

Foreign-owned companies setting up in Nigeria face additional registration steps, so an EOR is often the faster route for a first hire.

Employment contracts

The Labour Act requires employers to give workers a written statement of the main terms of employment within three months of starting. In practice, professional employers issue a full written contract at the start. It should cover:

• Names of the parties, job title and duties.
• Start date and nature and duration of the contract.
• Wages, how they are calculated and when they are paid.
• Hours of work.
• Leave, sick pay and other benefits.
• Notice periods and termination terms.
• Confidentiality and intellectual property.

Note that some Labour Act protections apply mainly to "workers" in manual and clerical roles, while senior and professional staff rely more on their contract terms. Get local advice on which rules apply to your roles.

Minimum wage

Nigeria's national minimum wage was raised to NGN 70,000 a month by the Minimum Wage (Amendment) Act 2024. It applies to employers above a certain size, and many states and sectors pay more. Professional salaries are usually well above the minimum, but check it for support roles such as drivers, cleaners and security staff.

PAYE under the Nigeria Tax Act 2025

From 1 January 2026, personal income tax follows the Nigeria Tax Act 2025. Annual taxable income is taxed in bands:

• The first NGN 800,000: 0%.
• The next amount up to NGN 3,000,000: 15%.
• Up to NGN 12,000,000: 18%.
• Up to NGN 25,000,000: 21%.
• Up to NGN 50,000,000: 23%.
• Above NGN 50,000,000: 25%.

The old consolidated relief allowance was replaced. Employees' pension contributions are deductible, and a rent relief of 20% of annual rent paid, up to NGN 500,000, is available. Employees earning the minimum wage are exempt. Our Nigeria PAYE calculator applies these rules, and PAYE in Nigeria explains them in detail.

Who collects PAYE

PAYE on employment income is generally paid to the tax authority of the state where the employee is resident, such as the Lagos State Internal Revenue Service for Lagos residents. Employers withhold tax monthly and remit it by the state's deadline, and file annual returns of employees' pay. If your employees live in several states, you remit to several authorities. Payroll software and EORs handle this routing.

Pension contributions

Under the Pension Reform Act 2014, employers with three or more employees must operate the contributory pension scheme. The minimum contributions are 8% of monthly emoluments from the employee and 10% from the employer, paid to the employee's chosen Pension Fund Administrator. Monthly emoluments for this purpose generally include basic salary, housing and transport allowances.

Employers must remit contributions promptly, generally within seven working days after paying salaries, and penalties apply for late payment. Each employee needs a Retirement Savings Account. The National Pension Commission (PenCom) regulates the system.

Other contributions and levies

• National Housing Fund (NHF): a contribution of 2.5% of basic salary deducted from employees, under the National Housing Fund Act. Application in practice varies; get current advice.
• Employees' Compensation Scheme (NSITF): employers contribute 1% of total monthly payroll to fund compensation for workplace injuries.
• Industrial Training Fund (ITF): employers with five or more employees, or turnover above a set level, contribute 1% of annual payroll.
• Group life insurance: the Pension Reform Act requires employers to maintain group life insurance for employees.

These add to employer costs and admin. An EOR should include them in its quote.

Leave and holidays

The Labour Act sets minimums that many employers exceed:

• Annual leave: at least six working days with full pay after twelve months of continuous service. Most professional employers offer far more, often 15 to 20 working days or more.
• Maternity leave: twelve weeks under the Labour Act; some public and private employers offer longer.
• Sick leave: up to twelve working days a year with full pay, with a medical certificate.
• Public holidays as declared by the federal government.

Set leave in the contract at a level competitive for the role.

What an employee costs in Nigeria

On top of gross salary, employer costs typically include the 10% pension contribution (on the pension base), NSITF at 1% of payroll, ITF at 1% for qualifying employers, group life insurance, and any health insurance you provide through a health maintenance organisation, which many professional employers offer. Through an EOR, add the provider's fee.

Estimate the total with our EOR cost calculator and compare providers in the EOR ranking. Current entry prices: Deel From USD 599 per employee per month, Remote From USD 699 per employee per month, Multiplier From USD 499 per employee per month (monthly contract).

Running payroll in Nigeria

Monthly payroll means calculating gross pay, deducting pension and any NHF contribution, calculating PAYE on the remaining taxable pay using the new bands and reliefs, paying net salaries, issuing payslips, and remitting PAYE to the right state authorities and pension to each PFA by the deadlines.

Local payroll software automates this. Compare options in our Nigeria payroll software ranking and Nigeria payroll software guide, and make sure any tool you choose has been updated for the 2026 rules.

Paying salaries and currency

Salaries are normally paid monthly in naira by bank transfer. Exchange rate movements have been significant in recent years, which affects both the employee's purchasing power and your costs if your budget is in foreign currency. Some employers review salaries more often as a result. If you pay through an EOR, ask how they convert your funds and what rate they use. For collecting payments in Nigeria, see accepting online payments in Nigeria.

Ending employment

For workers covered by the Labour Act, minimum notice depends on length of service, ranging from one day for very short service to one month for five years or more, and payment in lieu of notice is allowed. Professional staff are usually governed by the notice period in their contract. Nigerian courts increasingly look at fairness in dismissals, and international labour standards have influenced decisions of the National Industrial Court.

Follow a fair process: give reasons, allow a response, and document everything. On termination, pay outstanding salary, accrued leave and notice, and any contractual or redundancy benefits. Involve your EOR or lawyer before acting.

Expatriates and work permits

Foreign nationals need an appropriate visa and residence permit, and employers usually need an expatriate quota approval from the immigration authorities. This process takes time and is generally handled by companies with their own Nigerian entity. For most roles, hiring Nigerian nationals or residents is far simpler.

Data protection

The Nigeria Data Protection Act 2023 governs how you process employees' personal data. Employers must have a lawful basis for processing, keep data secure, limit it to what is needed, and respect employees' rights. The Nigeria Data Protection Commission oversees compliance, and organisations processing large volumes of data may have registration and audit obligations.

Hiring talent in Nigeria

Nigeria's tech ecosystem produces strong engineers, designers and product people. Recruit through local job boards, communities, referrals and specialist platforms; see our talent platforms ranking and Toptal vs Andela. Reliable power and internet matter for remote roles, so many employers provide allowances for backup power and data. Our guide to hiring remote developers covers assessment and onboarding.

Hiring checklist

1. Decide whether the role is employment or genuine contracting.
2. Choose an EOR or your own Nigerian entity.
3. Agree salary, benefits and start date, and estimate total cost.
4. Issue a written contract.
5. Collect tax ID, bank, PFA and other details.
6. Set up payroll with the 2026 PAYE rules and pension.
7. Remit PAYE to the correct state and pension to the PFA on time.
8. Keep records and review rules each year.

Common mistakes

• Using pre-2026 tax rules, such as the old consolidated relief allowance.
• Remitting PAYE to the wrong state.
• Late pension remittances, which attract penalties.
• Leaving out NSITF, ITF and group life insurance from cost estimates.
• Relying only on the Labour Act minimums for senior staff contracts.
• Treating full-time team members as contractors.

Example: how a Nigerian payslip is built

For an employee with a monthly salary made up of basic pay, housing and transport allowances, the payroll works in this order:

1. Work out monthly emoluments for pension: basic plus housing plus transport.
2. Deduct the employee's pension contribution of at least 8% of that amount.
3. Deduct NHF at 2.5% of basic salary, where it applies.
4. Annualise taxable pay and apply allowed reliefs, such as rent relief of 20% of annual rent up to NGN 500,000 if the employee provides evidence.
5. Apply the annual PAYE bands and divide by twelve for the monthly deduction.
6. Pay the net salary, and remit PAYE to the employee's state and pension to the PFA.

The employer separately pays its 10% pension share and other levies. Try your own figures in the Nigeria PAYE calculator.

Benefits Nigerian candidates expect

Competitive packages in Nigeria often go well beyond the legal minimum. Common items include health insurance through an HMO, often covering dependants; a thirteenth-month salary or annual bonus, common though not required by law; allowances for housing, transport, power and internet; generous annual leave; and learning budgets. For remote roles, support for backup power and reliable internet can make a real difference to productivity. Structure allowances carefully, because the split between basic pay and allowances affects pension and NHF calculations.

Accounting and VAT for a Nigerian entity

If you set up your own company in Nigeria, payroll is only part of the compliance work. You will also need to register for tax with the Federal Inland Revenue Service, now restructured under the 2025 reforms, file company income tax returns, handle VAT on taxable supplies, and keep proper books. Choose accounting software that supports Nigerian tax rules; for the wider African VAT picture, see VAT for small businesses in Africa. An EOR avoids this overhead entirely for a small team.

Questions