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The short answer
No Nigerian law requires a 13th month salary; it is a common custom, usually paid in December, and becomes owed only if the contract or a consistent policy promises it. Under the Nigeria Tax Act 2025, bonuses and 13th-month pay are added to the employee’s PAYE base and taxed at their marginal rate, so the employer must withhold and remit PAYE on them like salary.
Ask a Lagos candidate about compensation and the 13th month will often come up. Many Nigerian employers pay an extra month’s salary at year end, and staff plan December spending, school fees and travel home around it. A US employer needs to decide whether to offer it, how to describe it, and how to tax it. This guide covers each point.
Is a 13th month required by law?
No. The Labour Act sets rules on wages, deductions, leave and notice, but it contains no provision requiring a bonus or 13th-month payment. The obligation, where it exists, comes from the employment contract, a staff handbook, a collective agreement or an established practice. If your offer letter says "13th month salary payable in December", treat it as part of pay. If you want discretion, say so clearly and apply the policy consistently, because a payment made the same way every year can come to be expected.
How bonuses are taxed
DLA Piper’s August 2026 payroll FAQ on the Nigeria Tax Act 2025 is direct: employers are to add bonuses and 13th-month pay to the employee’s PAYE base, making them taxable. The personal income tax bands from 1 January 2026, as summarised by PwC, are:
| Annual taxable income band | Rate |
|---|---|
| First ₦800,000 | 0% |
| Next ₦2,200,000 | 15% |
| Next ₦9,000,000 | 18% |
| Next ₦13,000,000 | 21% |
| Next ₦25,000,000 | 23% |
| Above ₦50,000,000 | 25% |
Because the bands are annual, a December bonus is taxed at the employee’s marginal rate for the year. Payroll software that spreads the annual calculation across the months will pick it up; a manual calculation that taxes only the December payslip in isolation can under-deduct. DLA Piper notes that failure to deduct attracts a 40% administrative penalty on the amount not deducted.
Worked example (illustrative figures)
Example only, before reliefs such as pension and rent relief. An employee earns ₦6,000,000 a year. Tax on the bands: ₦0 on the first ₦800,000, ₦330,000 on the next ₦2,200,000 (15%), and ₦540,000 on the remaining ₦3,000,000 (18%), a total of ₦870,000. A 13th month of ₦500,000 takes income to ₦6,500,000, all of the extra falling in the 18% band, so it adds ₦90,000 of tax. The employee receives ₦410,000 of the bonus before any other deductions.
For the full mechanics of PAYE, see Nigerian PAYE for staff hired by a US business and the Nigeria library’s PAYE bands for 2026.
Pension and other deductions
Pension contributions are calculated on monthly emoluments, which KPMG’s summary of the Pension Reform Act 2014 describes as not less than basic salary, housing and transport. Whether a bonus is pensionable depends on how your pay package and pension policy define emoluments. Decide it once, write it down and apply it to everyone. PAYE on the bonus is remitted with the month’s PAYE, on or before the 10th of the following month according to PwC.
Writing the policy
- Say whether the 13th month is guaranteed or discretionary.
- Say who qualifies: for example, staff confirmed by a set date, pro rata for joiners.
- Say whether staff who resign or are dismissed before the payment date receive it.
- Say when it is paid, and whether it is one month of basic salary or of gross pay.
- For performance bonuses, state the measures and who decides.
Joiners, leavers and pro-rating
Most disputes over the 13th month are about people who joined or left during the year. Example only: a policy pays one month of basic salary, pro rata by complete months of service in the calendar year, to staff employed on 1 December. An employee on a basic of ₦600,000 who joined on 1 April has nine complete months by 31 December and receives ₦450,000 (₦600,000 × 9/12). An employee who resigned in October receives nothing under that wording, because they were not employed on 1 December. Whatever rule you choose, the point is to write it before December, not during it.
Performance bonuses and US equity
Performance bonuses paid in naira are taxed in the same way as the 13th month. If Nigerian staff hold options or shares in the US parent, the tax treatment in Nigeria of the grant, vesting and sale is a separate question that needs advice; it is not settled by the employment contract, and the employing entity may still have PAYE obligations on any benefit it pays.
Funding it from dollars
A December bonus doubles the naira you need that month, at a time when US and Nigerian holidays reduce banking days. Convert in good time and budget the bonus at your planning rate; see cash flow planning.
Where Pryme fits
Bonus payments can go out in naira from a Pryme Business Account, funded by dollars converted with Swap; the app shows the rate and the fee before you approve. The Finance agent can prepare the December run with PAYE on each bonus for a person to approve.
Questions people ask
Is 13th month salary compulsory in Nigeria?
No law requires it. It is owed only where the contract, a handbook, a collective agreement or a consistent practice promises it.
Is a 13th month bonus taxed in Nigeria?
Yes. Under the Nigeria Tax Act 2025, bonuses and 13th-month pay are added to the PAYE base and taxed at the employee’s marginal rate.
When is PAYE on a December bonus due?
With that month’s PAYE, on or before the 10th of the following month, to the state tax authority where the employee lives.
Do I deduct pension from a 13th month?
It depends on how your package defines pensionable emoluments, which must include at least basic, housing and transport. Set a written rule and apply it consistently.
Sources
- Labour Act, Cap L1 LFN 2004 (PLAC Laws of Nigeria) · accessed Oct 2026
- DLA Piper Africa: FAQs on payroll taxes and employer liability in Nigeria (28 Aug 2026) · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, taxes on personal income (reviewed 29 May 2026) · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, individual tax administration (reviewed 29 May 2026) · accessed Oct 2026
- KPMG Nigeria newsletter: summary of the Pension Reform Act 2014 (Jul 2014) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.