A salary structure is not just an internal policy of an organisation; it is a legal and professional framework that protects both employers and employees. For clarity, fairness and compliance, every salary structure must define its components, state which elements are fixed or variable, and indicate how statutory deductions and employer obligations are applied. These structures are guided by the Nigerian Labour Act, the Constitution of the Federal Republic of Nigeria, the Pension Reform Act, the Employees’ Compensation Act, the National Health Insurance Authority Act, the Personal Income Tax Act, and relevant ILO conventions ratified by Nigeria.
The basic salary is the foundation of every lawful salary structure. Section 7 of the Labour Act, Cap L1 Laws of the Federation of Nigeria 2004, requires employers to issue written particulars of employment within three months of commencement, which must include the nature of wages and the method of calculation. Section 5 further prohibits unlawful deductions from wages, ensuring that the basic salary remains a guaranteed entitlement. This component also provides the base upon which statutory obligations such as pensions and taxes are calculated. Section 2 of the Pension Reform Act 2014 makes clear that pensions must be computed on “total emoluments” comprising basic salary, housing and transport allowances. Therefore, the law makes it impossible for employers to obscure or understate the role of basic salary in salary structures.
Housing and transport allowances are vital elements of a salary structure, reflecting the cost of living and enabling employees to manage accommodation and commuting. The Pension Reform Act, Section 102, defines “emoluments” to include basic, housing and transport. This means they are pensionable items, and employers cannot deliberately strip them out of pension calculations to reduce contributions. Contracts of employment and payslips must therefore show whether these allowances are included in retirement savings contribution computations, ensuring compliance with Section 4 of the Pension Reform Act, which mandates a minimum contribution of 10% by the employer and 8% by the employee.
Other allowances such as meal subsidies, utility allowance, leave travel allowance and performance bonuses must also be clearly defined. Section 7(1)(c) of the Labour Act requires employers to communicate to workers “the nature of the terms and conditions relating to hours of work, holidays, or any special conditions.” This applies equally to allowances and variable pay. In line with Section 34 of the 1999 Constitution (as amended), which guarantees the dignity of labour, and Nigeria’s ratification of the ILO Equal Remuneration Convention (No. 100), such allowances must be applied consistently and transparently to prevent discrimination and disputes.
A lawful salary structure must also distinguish between employee deductions and employer obligations. Under Section 81 of the Personal Income Tax Act, employers are obligated to deduct and remit Pay-As-You-Earn (PAYE) tax monthly. Section 4(1) of the Pension Reform Act compels both employer and employee contributions into the Retirement Savings Account, with penalties for default provided under Section 11. Employer obligations such as contributions to the Employees’ Compensation Fund under Section 33 of the Employees’ Compensation Act 2010, Industrial Training Fund levies under the Industrial Training Fund Act, and health insurance premiums under Section 18 of the National Health Insurance Authority Act 2022 must be borne fully by the employer and not deducted from wages. The Labour Act, Section 5(1), is explicit that deductions from wages must be lawful and authorised; any shifting of employer liabilities onto employees is therefore unlawful.
Overtime pay and premiums are further critical components. Section 13 of the Labour Act regulates working hours, while Section 14 provides that additional work beyond normal hours must be compensated at agreed rates. A compliant salary structure specifies the rate for overtime, ensuring employees are not coerced into unpaid excess hours, consistent with Section 34(1)(c) of the Constitution which prohibits forced labour.
Union dues and check-off contributions also form part of some salary frameworks. Section 17 of the Trade Unions Act provides that deductions for union dues (the check-off system) can only be made with the written consent of the worker. This reflects the constitutional guarantee of freedom of association under Section 40 of the 1999 Constitution and further aligns with ILO Convention No. 87 on Freedom of Association. Any deduction without consent is therefore unlawful and challengeable.
The constitutional framework reinforces all these provisions. Section 17(3) of the 1999 Constitution directs the State to ensure “opportunities for securing adequate means of livelihood” and “reasonable national minimum living wage.” Section 42 prohibits discrimination, thereby embedding the principle of equal pay for equal work. Combined with international conventions ratified by Nigeria, including the ILO Protection of Wages Convention (No. 95), these provisions oblige employers to design salary structures that are transparent, non-discriminatory, and fair.
A defensible salary structure therefore consists of the basic salary as the foundation, allowances such as housing and transport, other benefits including bonuses and overtime, statutory deductions for tax and pension, and employer obligations for pension contributions, workplace injury insurance, health insurance and training levies. Each component must be properly documented in contracts as required by Section 7 of the Labour Act, reflected on payslips as demanded by transparency principles in ILO Convention No. 95, and backed by evidence of remittance where applicable. Employees must ensure their payslips reflect lawful deductions only, while employers must maintain records that show full compliance with statutory obligations.
The components of every salary structure are more than financial entries; they are legal instruments rooted in Nigeria’s Labour Act, the Constitution, the Pension Reform Act, and international obligations. Employers who design structures that separate basic pay, allowances, deductions and statutory obligations not only comply with the law but also build trust and stability in their workforce. Employees who understand these components are better positioned to safeguard their rights, demand transparency and ensure that their pay is not only timely but also lawful and dignifying.
Samuel Jekeli a Human Resources Professional writes from Abuja
