How to Find and Pay Contractors in Nigeria: A Guide for US Employers
A growing technology hub, Nigeria is an increasingly popular place for US companies to hire abroad. We walked through best practices for hiring and paying contractors there, as well as employment laws to keep in mind.
Published on July 12, 2022
Nigerian Labour Act ⚖️The Nigerian law that governs employment relationships in Nigeria is the Labour Act. The Act uses the term "workers" to describe an employee or “any person who has entered into or works under a contract with an employer.” Apprentices, domestic servants, and young people are considered special workers under the Labour Act. The contract for a worker may be for manual or clerical work, a contract of service, or “a contract personally to execute any work or labour.”There are certain categories of workers who are not considered workers under the law. Section 91 of the Act categorizes these individuals as “persons exercising administrative, executive, technical or professional functions as public officers or otherwise." These employed persons have their terms and conditions of employment defined in their employment contracts.There is some gray area regarding whether the Labour Act extends to categories of workers who are not manual laborers or “unskilled” labor workers. In practice, however, the Labour Act is technically the law that governs these relationships.
Categories of workers in NigeriaUnder the Labour Act, there is no statutory distinction between different categories of workers, but instead, the law offers general guidelines. Before you move forward with hiring foreign contractors in Nigeria, there are a few other types of workers to consider in lieu of full-time employees.
Part-time workersPart-time workers are considered employees under the Employment Compensation Act, but they work less than full-time employees, and their wages and statutory benefits are given on a pro-rated basis.
Temporary workersTemporary workers work for a fixed term and are entitled to the same benefits as regular employees. They are not entitled to notice periods for dismissal, however, as the duration of employment is stated in their employment contract. If a temporary worker works beyond this duration, they may be considered a permanent employee.
Agency workersAgency workers have far fewer rights than permanent employees do. They may not be entitled to pay increases or protections from dismissal, as their employment is overseen by the agency for which they work. Their employment agreement is negotiated by the agency and the client who hires them, instead.
Independent contractors 👩💻An independent contractor in Nigeria is treated much like an independent contractor in the United States. Independent contractors are not beholden to work for one employer, but instead perform duties for multiple clients and set their own working hours. Contractors also negotiate their own pay rate, and manage their own taxes and social security contributions.Many employers may prefer to hire a contractor not only for tax purposes, as they are not responsible for a contractor's income tax requirements, but also to reduce the necessary cost of providing benefits. While employees receive benefits like parental leave, time off for public holidays, severance pay, and notice periods for termination, a contractor in Nigeria is not entitled to statutory benefits such as these.Another benefit of hiring independent contractors is that a foreign business does not need to be incorporated in order to hire these types of workers. Although the Companies and Allied Matters Act (CAMA) allows an employer to begin the process for recruiting foreign workers in Nigeria before becoming incorporated, a 12-month permit is required to do so. Instead of seeking a permit for recruitment, many unincorporated businesses will instead hire foreign independent contractors.
Income tax requirementsThe Personal Income Tax Act in Nigeria requires that every individual remit tax on their personal income to the relevant tax authority. Under Section 2 of the act, the only individuals exempt from this law include "persons employed in the Nigerian Army, Nigeria Navy, Nigeria Air Force, Nigerian Police Force other than in a civilian capacity, officers of the Nigerian Foreign Service, residents of the Federal Capital Territory and persons resident outside Nigeria who [derive] income or profit from Nigeria."This means that almost all individuals residing in Nigeria are required to pay a personal income tax, including independent contractors. The taxes are used to secure healthcare and housing projects in Nigeria such as the National Housing Fund, The Pension Fund, and The Social Insurance Trust Fund.
Finding an independent contractor 🔎Perhaps you have decided that an independent contractor best suits your company's needs. How do you find the ideal contractor to add to your global team? Here are a few tips for making sure that you end up with the best talent for a contract position.
Job search sitesThere is no shortage of job search websites in Nigeria, but a few stand out as likely spots for your job posting to receive the most visibility. Jobberman is a highly-trafficked job search site, in addition to MyJobMag, HotNigerianJobs, and of course, LinkedIn and Indeed.
Role description 📝Businesses tend to attract more applicants on job sites if they provide details about a job's description. Make sure to include the job's specific duties when your company posts on a job board or job site. You would be wise to also include the skillset required, the pay being offered, and whether there will be a probation period after hiring.When posting a job description abroad, make sure that it is translated into the country's official language. Over 500 languages are spoken in Nigeria, but English is the official language, and is spoken in all major cities.
Interviews 👥Virtual interviews are the most convenient option for most companies, whether it's to hire abroad or locally. Just be mindful of the time difference! Nigeria is in the West Africa Time Zone, which is eight hours ahead of Pacific Time, and five hours ahead of Eastern Standard Time.
Paying independent contractors in Nigeria 💸When it comes to paying an international contractor, companies have a few options. Below is a list of some of the payment options available when making international payments.
Bank transfers using SWIFT 🏛SWIFT stands for The Society for Worldwide Interbank Financial Telecommunications. SWIFT is a trusted network of banks used by financial institutions around the world, and many companies depend on it to wire electronic funds to contractors because it's a secure process, with little risk that the international money transfer will not arrive in the recipient's bank account.Fund transfers with SWIFT are conducted through a standardized system of codes. These codes transmit different instructions for electronic fund transfers. Every bank or financial institution within SWIFT is assigned its own, unique code, called a SWIFT code or a Bank Identifier Code (BIC) that is either eight digits or 11 digits long.A downside of SWIFT is that a fee is typically deducted each time there is a transfer. These bank fees can add up and can reduce the final amount that contractors receive, while hiking up payroll costs for your company. Another downside is that SWIFT fees are unpredictable: banks may charge a different fee for every transfer, even if the transfers have been routed through that bank previously.
Money transfer companies 💳Remitly, Xoom (owned by PayPal), and Wise (formerly Transferwise), are just a few of the international wire transfer companies that operate online. Some transfer companies require company-issued debit cards to access funds, and a fee is typically charged every time the debit card is used. Instead of payees accessing their payments directly, they must go through the trouble of using one of these cards or withdrawing money from the service, which often includes a withdrawal fee.When the payer makes a request for a wire transfer of funds from their bank to their worker's bank, they must provide information such as the recipient's contact information, bank details, and the reason for the transfer.Next, the electronic funds are routed through multiple banks before the payment reaches a recipient bank account. This can take a couple of business days, depending on the country where the money is being wired.Money transfer companies often charge percent-based fees or add markup fees when transferring a payment. While these fees can be less costly than other transfer services, it's still an inconvenience for payers and payees.
Traditional money transfer services 🏦Western Union and MoneyGram are a few well-known money transfer services that are conveniently found online as well as in most major cities. One advantage to sending payments through companies like these is that they often have better markups on currency rates. Just like other payment options, however, these companies typically charge percent-based fees or add markup fees for currency exchange.
Cryptocurrencies 🤑While cryptocurrency has been a hot topic recently, as businesses like Facebook are creating their own digital currency, it's not always practical, as not everyone has a system set up for sending or receiving crypto. Even with a system for receiving crypto as payment, digital currency will still be subject to currency fluctuations and possible bank fees.
Money orders 🧾An international money order is another option for employers to pay contractors. Money orders are a paper form of payment. Sending a check through the mail may seem antiquated, given all the options for digital payment at a payer's fingertips. Money orders aren't the same as personal checks, however. For one, a money order can’t bounce the way a personal check can. The payer must guarantee the payment with some other form of payment, like a debit card, cash, or traveler's check.Because the order has both the name of the payee and the financial institution issuing the check, it would be a challenge for someone to intercept the order and cash the payment. While the risk is minimal, it isn't zero. A payer should keep the receipt for a money order in case the order is lost or stolen.
International Compliance ✅When your company enters new markets in other countries, staying compliant with the countries' labor laws is an integral part of hiring a global team. There are certain requirements that must be fulfilled in order to accept services from foreign contractors, and without the proper support, businesses risk worker misclassification and other compliance issues. Even if an employer mistakenly classifies an employee as a contractor, they could find themselves in legal trouble.Many companies find that hiring a team of HR experts mitigates the risk of breaking compliance. When you enlist the services of payroll and HR platform like Pilot, you can work with a team of experts to navigate the complexities of hiring abroad, where local legislation and employment laws will vary.
Partnering with Pilot 🤝Pilot can minimize your company's risk of noncompliance abroad. Our team of HR experts can assist your company with understanding local laws in other countries, covering everything from securing a work permit to administering payroll, and myriad other HR needs. We provide specialist advice for our clients at every stage of the hiring process, and we can help you figure out which type of remote workers make the most sense for your company to hire. Pilot’s platform was built from day one to support hiring both contractors and employees, and we have no bias in guiding you toward one option or the other.Our global payroll system is unmatched: we support payments in over 240 countries around the world, so that companies have the tools to pay a wider pool of international talent. Contractors love getting paid through Pilot because we don't mark up exchange rates, and unlike other international payroll platforms, we do not require contractors to use an e-wallet to access their funds.Interested in learning more about Pilot? Schedule a demo with one of our experts.
The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
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