In Nigeria’s increasingly regulated business environment, payroll compliance is far more than an administrative requirement—it is a legal imperative and a cornerstone of sound corporate governance. Beyond the timely payment of salaries, it encompasses adherence to a complex web of tax laws, pension obligations, and statutory contributions.

Non-compliance can expose organizations to significant financial penalties, reputational risks, and operational disruptions. For forward-thinking businesses, investing in robust payroll compliance systems is not just about meeting regulatory expectations—it is about protecting long-term value and enabling sustainable growth.

Why Payroll Compliance Matters

Payroll compliance ensures that organizations align with Nigeria’s labor, tax, and other employee related regulatory laws. Regulatory bodies such as the Federal Inland Revenue Service (FIRS), States Internal Revenue Services (SIRS), National Pension Commission (PenCom), Nigeria Social Insurance Trust Fund (NSITF), Industrial Training Fund (ITF), and National Housing Fund (NHF) all oversee different components of the payroll landscape. 

A slip in one area can result in sanctions that could have been easily avoided with proper planning and processes.

Common Payroll Compliance Triggers for Sanctions

• Late or Non-Remittance of PAYE Tax: Under the Pay-As-You-Earn (PAYE) scheme, employers are required to deduct personal income tax from employees’ salaries and remit it to the relevant State Internal Revenue Service (SIRS) by the 10th day of the following month. Failure to comply attracts penalties and interest charges.

Penalty: A 10% penalty on the amount due, plus interest at the prevailing Central Bank of Nigeria (CBN) rate (Personal Income Tax Act, 2011)

• Non-Remittance of Pension Contributions: Employers with fifteen (15) or more employees must contribute at least 10% of their employees' monthly emoluments to the Retirement Savings Account, while employees are required to contribute a minimum of 8% to the same account. These contributions must be made not later than seven (7) working days from the day of salary payment.

Penalty: Non-compliance may attract sanctions from PenCom, including fines and restriction of access to public sector contracts.

• Failure to Register with NSITF: The Employees’ Compensation Act mandates that all employers must register with the NSITF and make monthly contributions. This fund provides compensation for employees who suffer occupational injury, disease or disability.

Penalty: Defaulting employers may face legal action, fines, and exclusion from government tenders (Employee Compensation Act, 2010).

• Inaccurate Payroll Records and Underreporting: Deliberately or mistakenly underreporting employee wages, benefits, or headcount can lead to regulatory scrutiny and heavy penalties. Audits may expose discrepancies between actual wages and what was reported to regulatory bodies.

Penalty: Range from financial penalties to criminal prosecution in cases of tax evasion.

• Non-Remittance to Industrial Training Fund (ITF): Employers with twenty-five (25) or more employees are required to contribute 1% of total annual payroll to the ITF not later than 1^st April of the following year (Business Facilitation Act, 2022).

Penalty: Failure to comply can result in a fine and ineligibility for grants and reimbursements from the Fund (The ITF (Amendment) Act, 2011)

• Misclassification of Workers: Improper classification of employees as independent contractors to avoid tax and pension obligations is another red flag.

Penalty: This can lead to back payments, interest, and penalties when discovered during audits.

• Non-Remittance of National Housing Fund (NHF): Employees are required to contribute 2.5% of their monthly income:
  • This contribution is mandatory for employees in the public sector in Nigeria.
  • While it is optional for employees in the private s3ector in Nigeria.

Penalty: Any employer who defaults, neglects or refuses to make contributions to the Fund as specified by the Act shall be liable to fine or imprisonment (National Housing Fund Act)

How to Avoid Payroll Compliance Pitfalls

• Stay Informed and Updated: Regulations change frequently. Subscribe to updates from regulatory bodies or work with compliance professionals to stay current.
• Automate Payroll Processes: Use payroll software that is updated with current tax rates and deadlines. Automation reduces the risk of human error and missed remittances.
• Conduct Regular Internal Audits: Quarterly or biannual payroll audits can help detect and fix issues before they escalate.
• Engage Professional Advisors: Working with tax and payroll compliance experts like Stransact ensures that your payroll processes align with local laws and best practices.
• Properly Document Employee Contracts: Ensure all employment terms are legally documented and that payroll records reflect the accurate compensation and benefits as stipulated.

Read more: Are You Being Over-Taxed? How to Spot Errors in Your PAYE Deductions

Conclusion

Payroll compliance in Nigeria is a non-negotiable responsibility for businesses. While the regulatory landscape may be complex, the consequences of non-compliance ranging from fines to business disruption are far more costly. By understanding the common triggers for sanctions and implementing proactive compliance strategies, businesses can safeguard themselves against unnecessary risks.

At Stransact Chartered Accountants, we help organizations stay ahead of compliance requirements. Our dedicated professionals provide tailored payroll and tax advisory services, helping businesses avoid penalties, stay compliant, and focus on growth.

📩 Need help navigating payroll compliance? Reach out to us at [email protected] for expert guidance.