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The short answer
An employer of record (EOR) is a Nigerian company that legally employs your staff for you, runs their payroll, and deducts and remits PAYE and other statutory contributions, while you direct their day-to-day work. It saves you registering a Nigerian entity, but it does not remove every risk: Nigerian tax law has widened the idea of a taxable presence to include services delivered through employees and agents, and you remain responsible for the work, the IP and your own Australian obligations.
How an employer of record works
Three parties are involved. Your Australian business chooses the person, sets the role and manages the work. The EOR, a company already registered in Nigeria, signs the employment contract with the worker, pays the salary in naira, and handles statutory deductions and filings. You pay the EOR a monthly invoice covering the salary, employer costs and its service fee.
For a business testing the Nigerian market with one to five people, this is often faster than incorporating a company with the CAC, registering for tax and setting up payroll yourself. For the comparison with contractors, see employer of record vs contractors.
What the EOR should take on
A Nigerian employer has a set of statutory duties. A credible EOR should show you how it handles each one:
| Obligation | What applies (as published) |
|---|---|
| PAYE income tax | Under the Nigeria Tax Act 2025, in force from 1 January 2026, the first ₦800,000 of annual income is taxed at 0%, then bands from 15% to 25% above ₦50 million (DLA Piper, 28 Aug 2026). Foreign-currency pay is converted at the CBN official rate at the time it is paid. |
| Penalties on PAYE | Per the same DLA Piper summary: failure to deduct, 40%; failure to remit, 10% plus interest; failure to file, ₦100,000 for the first month and ₦50,000 for each month after. |
| Employees' compensation (NSITF) | The NSITF scheme covers employees including contract and casual staff from their first day; employers contribute 1% of total monthly payroll. |
| Industrial Training Fund | Employers with five or more staff, or turnover of ₦50 million or more, contribute 1% of annual payroll (Mondaq summary of the ITF Act). |
| Pension | Contributory pension under PenCom rules; see pension contribution rates. |
| Minimum wage | The national minimum wage is ₦70,000 a month, and minimum-wage earners are exempt from PAYE (DLA Piper). |
Ask the EOR for proof of remittance each month: PAYE receipts from the state revenue service, pension schedules and NSITF payments. A provider that cannot show these is passing its risk to you.
What an EOR does not cover
Taxable presence for your company
A Nigerian law firm's June 2026 guidance on worker classification notes that the Nigeria Tax Act widens permanent establishment to a service presence through employees, agents or subcontractors, and that a foreign company without an exemption under CAMA section 80 faces that risk. An EOR employs the person, but if that person signs contracts with Nigerian customers on your behalf or runs a fixed office for you, your Australian company may still be treated as doing business in Nigeria. Keep roles that sell or sign to people who do not conclude contracts in your name, and take advice before the team grows.
Misclassification
The same guidance says Nigerian courts weigh control, integration, economic reality, mutuality of obligation and exclusivity when deciding who is an employee. A reclassified worker may claim Labour Act notice, leave and sick pay, and can bring a claim at the National Industrial Court. An EOR arrangement reduces this risk only if the person is actually employed by the EOR, not paid as a contractor through it.
Things that stay with you
- Intellectual property: make sure the EOR contract assigns work product to your company, not to the EOR.
- Data protection: personal data of Nigerian staff and customers shared with the EOR.
- Your own Australian books: the EOR invoice is a business expense to be converted into AUD at a documented rate.
- Immigration: if you move a non-Nigerian into the role, work permit duties apply regardless of who the employer is.
Checking an EOR before you sign
- Is it a Nigerian-registered company? Check its name and registration number on the CAC public search.
- Does it employ staff itself, or subcontract to another local partner? Ask who signs the contract.
- How is salary paid: naira to a Nigerian account, and on what date each month?
- What does the fee include, and how is currency conversion priced on your invoice?
- What happens on termination: notice, final pay and who bears the cost?
- Can it give you monthly remittance evidence for PAYE, pension and NSITF?
Worked example
Example with illustrative figures only. A Sydney software firm hires a developer in Lagos through an EOR at a gross salary of ₦1,500,000 a month. The EOR invoices the salary plus employer contributions plus a monthly service fee, in Australian dollars at a stated rate. The firm records the AUD amount it pays as its expense; the EOR deducts the developer's PAYE and pension contributions from the ₦1,500,000 and remits them. Ask for the breakdown in naira so you can check each line.
This is general information, not legal or tax advice. Employment terms in Nigeria vary by state and contract.
Where Pryme fits
If you decide later to employ directly, a Pryme Business Account includes payroll and bulk payouts to Nigerian accounts, with the Compliance agent preparing deduction schedules for a person to approve. For the direct route, see paying staff in Nigeria from an Australian business.
Questions people ask
What is an employer of record in Nigeria?
A Nigerian company that legally employs staff on your behalf, pays them and handles PAYE and statutory contributions, while you direct their work.
Do I need a Nigerian company to hire someone in Lagos?
Not if you use an employer of record, but you should still check whether the work creates a taxable presence for your business.
Is a contractor cheaper than an EOR?
It can be, but Nigerian courts look at the reality of the relationship; a contractor who works like an employee may be reclassified.
Who pays PAYE when I use an EOR?
The EOR deducts and remits it as the legal employer. Ask for monthly proof of remittance.
Sources
- DLA Piper Africa: FAQs on payroll taxes and employer liability in Nigeria (28 Aug 2026) · accessed Oct 2026
- NSITF: Employees' Compensation Scheme · accessed Oct 2026
- Adeola Oyinlade & Co: Worker classification in Nigeria (18 Jun 2026) · accessed Oct 2026
- Mondaq (TNP): The ITF levy, to pay or not to pay · 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.