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Part of the guideRunning payroll in Nigeria, Ghana and Kenya: an employer's guide
The short answer
A foreign company hiring in Nigeria, Ghana or Kenya has three routes: engage people as independent contractors, employ them through an employer of record (EOR) that is the legal employer and runs local payroll, or set up its own local entity. Contractors are cheapest on paper but risky if the person in fact works like an employee, because the company can be liable for the tax and pension it did not deduct. An EOR suits a handful of hires in a new country; an entity usually makes sense once headcount is larger and permanent.
Companies expanding into Africa often start by paying a few people as contractors, then discover that the label on the contract does not decide how the tax authorities see the relationship. This article compares the three ways to engage people in Nigeria, Ghana and Kenya and shows what each costs for one Lagos hire. For the statutory deductions each route involves, see our guide to payroll in Nigeria, Ghana and Kenya.
The three routes compared
| Independent contractor | Employer of record | Your own entity | |
|---|---|---|---|
| Legal employer | None; a commercial contract | The EOR provider | Your local company |
| Who runs PAYE and pension | The contractor handles their own tax | The EOR | You, or a payroll provider you appoint |
| Time to start | Days | Typically 2 to 5 days in Nigeria | Typically 8 to 12 weeks or more in Nigeria |
| Upfront cost | None | None beyond the provider's onboarding | Incorporation, registrations and, for foreign-owned Nigerian companies, minimum share capital |
| Ongoing cost | Fee only | Salary, statutory costs and the provider's fee | Salary, statutory costs and your own administration |
| Main risk | Misclassification | Provider quality; less direct control | Set-up time and fixed overheads |
| Typical fit | Short, defined projects | One to a handful of hires in a new country | Larger, permanent teams |
Contractor or employee: why the label is not enough
In all three countries, the question is the substance of the working relationship. A person who works fixed hours set by you, uses your equipment, reports to your managers, works only for you and is paid a monthly amount regardless of output looks like an employee, whatever the contract says. A person who controls how and when the work is done, serves several clients, carries their own business risk and invoices for defined deliverables looks like a contractor.
- Control: who decides how, when and where the work is done?
- Integration: is the person part of your organisation chart, with a title, email address and line manager?
- Exclusivity: can they work for others, and do they?
- Financial risk: do they invest in their own tools and bear losses if a job runs over?
- Payment: are they paid a fixed monthly sum or against invoices for results?
- Duration: is the engagement open-ended rather than tied to a project?
If most answers point to employment, a tax authority or court can treat the person as an employee. The company may then owe the PAYE it should have deducted, the employer's pension and other contributions, and penalties on top.
What an employer of record does
An EOR employs your chosen person under its own local registrations and assigns them to work for you. It issues a local employment contract, registers the employee for tax and pension, runs payroll, remits each statutory amount by its deadline and handles statutory benefits such as group life insurance in Nigeria. You direct the day-to-day work and pay the EOR an invoice covering salary, statutory costs and its fee.
The benefit is speed and compliance without a local company. The trade-offs are cost, since the fee is ongoing, and some loss of control over employment terms and processes. Check how the provider handles each country's specific rules, such as Nigeria's rent relief evidence, Ghana's Tier 2 pension and Kenya's SHIF and housing levy. Ask for evidence of remittances, not just payslips.
A worked cost comparison: one hire in Lagos
A UK company wants a software developer in Lagos on ₦500,000 a month, split ₦250,000 basic, ₦150,000 housing and ₦100,000 transport. The figures for statutory costs come from the worked payslip in our parent guide; the EOR fee is a hypothetical figure for illustration, not a market rate.
| Route | Monthly cost to the company | What is included |
|---|---|---|
| Contractor | ₦500,000 | Fee only; no PAYE, pension or levies deducted or paid |
| EOR | ₦560,000 + ₦300,000 hypothetical fee = ₦860,000 | Salary, employer pension ₦50,000, NSITF ₦5,000, ITF accrual ₦5,000, plus the provider's fee |
| Own entity | ₦560,000 plus administration | Same statutory costs; set-up and running costs of the company on top |
What misclassification could cost
Suppose the contractor arrangement runs for a year and the Nigerian tax authority later decides the developer was an employee. Using the 2026 PAYE bands and the rent relief assumptions in the parent guide, PAYE that should have been deducted is ₦59,900 a month, or ₦718,800 for the year. Failing to deduct tax carries a 40% administrative penalty on the amount not deducted: ₦287,520. Pension of 18% on ₦500,000 of emoluments (₦90,000 a month, ₦1,080,000 a year) would also be outstanding, with a PenCom penalty of at least 2% of the arrears for each month of default, as explained in our article on pension contributions in Nigeria. Before interest and professional fees, the exposure is about ₦2.1 million for one person. That is less than a year of the hypothetical EOR fee (₦3.6 million), which is why some companies take the risk. But the liability arrives unbudgeted, penalties keep growing until it is settled, it repeats for every person engaged the same way, and it can cover several years. A fair price for the contractor route has to include that risk.
When an entity starts to pay
Setting up in Nigeria typically takes 8 to 12 weeks or more and, for a foreign-owned company, involves a minimum issued share capital requirement (one employer-of-record provider's guide puts it at ₦100 million; confirm the current figure with the Corporate Affairs Commission and the Nigerian Investment Promotion Commission before you budget), investment promotion registration, a business permit and separate PenCom, NSITF, ITF and state tax registrations. Advisers commonly suggest an EOR for one to five people in a new country and an entity once the team is larger and permanent. The crossover depends on the provider's fees and your own overheads.
Where Pryme fits
If you want an employer of record, use a provider that offers it; the section above on what an EOR does explains what to look for. If you have your own entity in Nigeria, Ghana or Kenya, Pryme payroll covers all three countries, and above a threshold you set, a second named approver must sign off before money moves. If you pay genuine contractors, bulk payouts validate account names before you approve, and a multicurrency business account holds NGN, USD, GBP and EUR with local details, with activities outside Nigeria carried out through regulated partners. Business accounts can be opened from any country, so a foreign company paying contractors in Nigeria does not need a local entity to hold one. For the statutory rules your entity or EOR must follow, read our three-country payroll guide, and see doing business with Africa for the wider picture.
Questions people ask
What is an employer of record in Africa?
A provider that becomes the legal employer of your staff in a country such as Nigeria, Ghana or Kenya. It runs payroll, deducts and pays tax and pension, and handles employment paperwork, while you direct the work.
Can I hire staff in Nigeria without a company?
Yes, through an employer of record, or by engaging genuine independent contractors. Employing people directly requires a registered local entity with its own tax and pension registrations.
Is it legal to pay African staff as contractors?
Yes, if they are in fact independent contractors. If they work like employees, with set hours, your equipment and your managers, the authorities can treat them as employees and you can be liable for the tax and contributions not deducted.
How long does it take to set up a company in Nigeria to hire staff?
Typically 8 to 12 weeks or more, including incorporation, investment registrations, a business permit and separate tax, pension, NSITF and ITF registrations. An employer of record can usually onboard someone within a week.
Is an EOR cheaper than setting up an entity?
For a handful of staff, usually yes, because you avoid set-up and fixed running costs. As headcount grows, the per-person EOR fee tends to exceed the cost of running your own entity.
Sources
- Topsource Worldwide: Employer of record in Nigeria · accessed Oct 2026
- RemotePass: Nigeria taxes, a guide for employers · accessed Oct 2026
- DLA Piper Africa: FAQs on payroll taxes and employer liability (Nigeria, 2026) · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, individual, other taxes · accessed Oct 2026
- PenCom: Framework for recovery of outstanding pension contributions and penalty from defaulting employers · accessed Oct 2026
- Kenya Revenue Authority: PAYE · accessed Oct 2026
- Ghana Revenue Authority: PAYE · 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.