In Nigeria, it is a legal requirement for employers to deduct and remit both Pay-As-You-Earn (PAYE) tax and pension contributions on behalf of their employees. However, a disturbing trend is emerging where some employers deduct these amounts from employees’ salaries but fail to forward them to the relevant authorities. This unethical and illegal practice not only violates the law but also jeopardises employees’ financial security and tarnishes the integrity of businesses.
By law, employers must deduct 8 percent of an employee’s salary as a pension contribution and add their own 10 percent, remitting a total of 18 percent to the Pension Fund Administrator (PFA) within seven working days of salary payment. Similarly, PAYE tax deductions must be remitted to the State Internal Revenue Service (SIRS) by the 10th day of the following month. These statutory obligations are clear and non-negotiable.
Yet, some employers either divert these funds for other purposes or simply neglect to remit them altogether. This malpractice is not only unethical but also criminal, with serious consequences for both employees and employers.
For employees, the failure to remit pension contributions can have devastating effects. Pension funds are meant to provide financial security after years of dedicated service. Discovering, often years later, that these contributions were never actually paid into their pension accounts can lead to severe financial hardship and emotional distress. It is a betrayal of trust that no worker should have to endure. Similarly, unremitted PAYE taxes prevent employees from obtaining their Tax Clearance Certificates (TCC), documents essential for loan applications, securing contracts, accessing grants, and even some travel visa processes. The ripple effects of this breach extend far beyond the pay cheque.
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Employers who fail to remit these statutory deductions expose themselves to harsh penalties. For PAYE, they face a 10 percent penalty plus commercial interest rates on the amounts not remitted. The Pension Commission (PenCom) imposes a 2 percent monthly interest on outstanding pension contributions. Beyond the financial penalties, such practices damage an employer’s reputation and can trigger legal action, audits, and loss of business confidence.
To safeguard both employees and the company, transparency and accountability must be prioritised. Employers should ensure timely and complete remittance of all statutory deductions. Meanwhile, employees should be proactive by regularly checking their pension statements and requesting confirmation of tax remittance from their employers. Providing your employer with your correct PAYER ID and pension number is essential to facilitate accurate processing.
Accountants and HR professionals play a pivotal role in addressing this issue. It is their duty to advise management on the legal and ethical implications of non-remittance. They must ensure that the company complies fully with its obligations to avoid penalties and protect employee interests.
Finally, employers owe more than just salaries; they owe integrity and a commitment to their employees’ financial futures. When employers deduct but fail to remit, it is a breach of trust with far-reaching consequences. Employees must remain vigilant, and professionals must advocate for compliance. Only through collective responsibility can we uphold fairness, transparency, and financial security within Nigeria’s workforce.
Adeniyi Bamgboye, MBA, FCTI, FCA, FCCA, a dual qualified chartered accountant, tax expert, and policy analyst, is the managing partner of Empyrean Professional Services, an audit, business, and financial advisory firm dedicated to enhancing its clients’ business value.
