Labour is often deemed as the engine that drives the production wheel of a business organisation. In Nigeria, where a diverse and dynamic workforce propels various sectors, it is crucial for local or foreign employers of labour in Nigeria to understand their Nigeria regulatory obligations as it pertains to the form of their engagements or contracts with their workforce. The legal backbone of this relationship is the Nigerian Labour Act ("the Act"); however, the Act establishes the fundamental framework for employer-employee interactions leaving out other categories of workforce engagements.
The Labour Act outlines what constitutes an employment relationship. It defines an employee as any person employed under a contract of employment, which can be oral or written, express or implied. Conversely, an employer is any person or entity that has engaged another under such a contract.
Some employers engage their workforce as contract workers, casual workers or as consultants under a consulting contract or agreement. By popular definition, a contract worker is someone other than an employee, who has an agreement with a company to work for a limited period of time; whilst a consultant is a professional or specialist who provides advice or services in an area of specialization or on a particular subject. However, considering the common law doctrine of substance over form, based on the job specification, mode and duration/length of service, one can question whether the relationship is rightly defined as a work contract/consulting contract rather than as an employment contract.
An employer's tax and other regulatory compliance obligations as it pertains to its workforce or employees are defined by the nature of the relationship or contract with the latter. In practice, in instances where the workforce are engaged as contract workers or consultants, some employers have neglected these obligations. Will this be deemed as non-compliance considering the common law doctrine of substance over form? What are the tax compliance obligations for local and foreign employers of workforce in Nigeria considering the various forms of workforce contracts? This article aims to shed light on these relationships and the resultant obligations in order to avoid potential consequences that typically arise from non-compliance.
Defining the Relationship
The nature of workforce engagement determines the compliance obligations of the employer. In order to manage or minimise these compliance obligations, some employers engage their workforce as consultants or contract workers rather than as full time employees. Thus, it is imperative to consider some key attributes that should generally be evident, for such workforce to fit the description; otherwise, such engagements may be seen as a facade to circumvent labour laws and evade tax and employee-related statutory obligations.
As earlier mentioned, in defining the nature of an employer's work arrangement or agreement with its workforce, the substance of the relationship is a major determining factor. Hence, we have identified below, some key attributes of the relationship that employers should pay attention to.
- Compensation Package The Labour Act makes general provisions as to fair wages, protection of wages, contracts of employment and conditions of employment. It stipulates the right of employees to paid holiday, overtime payments, redundancy payments, etc. Employees in Nigeria are also entitled to certain social security benefits, which is fulfilled via payment of specified sum by the employer to certain regulatory authorities at specified times. Some of these social security benefits include pension contributions, social insurance trust fund contributions, health insurance and group life insurance. Employers are obligated to make these statutory contributions for the benefit of their employees. The terms of engagement in non-employment relationships such as consulting arrangements or work contracts, are determined by the contractual agreement between the relevant parties. The contracts must explicitly define the scope of work, payment terms, and duration to avoid legal ambiguities. The compensation of consultants are generally referred to as fees. In practice, some employers make payments such as redundancy payments, bonus payments, leave allowance payments, compensation for loss of office, retirement benefit package to their workforce that have been categorised as consultants. Where this applies, such employer would be required to treat this category of workforce as employees and fulfil the tax and regulatory obligations in this regard.
- Job Description / Function / Tenure Consultants are deemed as professionals or specialists in their area of expertise. They are mostly members of professional bodies in their chosen fields. More often than not, it is necessary to have consultants perform certain specialized functions. However, their engagement will usually be for a specified/ limited period and will cover highly technical tasks. Some organisations have their entire workforce (performing day-to-day or routine operations without a restricted engagement tenure) engaged as consultants; others have key functions such as director roles being occupied by employees that are engaged as consultants. In other scenarios, business owners engage themselves as consultants to their own business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.