AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
The short answer
Section 20 of the Labour Act requires an employer planning redundancies to tell the trade union or workers' representatives the reasons and extent, to apply "last in, first out" within the affected category subject to skill, ability and reliability, and to use its best endeavours to negotiate redundancy pay. The Act sets no fixed redundancy formula, so the amount comes from the contract, a collective agreement or negotiation, on top of notice and wages already due.
What counts as redundancy
The Labour Act defines redundancy as "an involuntary and permanent loss of employment caused by an excess of manpower". Three features matter. It is involuntary: a resignation is not a redundancy. It is permanent: a temporary lay-off while a factory waits for parts is something else. And it is caused by too many people for the work, not by the employee's conduct or performance. If the real reason is performance, handle it as a performance matter; dressing it up as redundancy invites a challenge.
The three duties in section 20
- Inform. The employer must inform the trade union or workers' representative concerned of the reasons for, and the extent of, the anticipated redundancy. Do this before decisions are final, with numbers, roles and timing.
- Select fairly. The principle of "last in, first out" (LIFO) is to be adopted within the particular category of workers affected, "subject to all factors of relative merit, including skill, ability and reliability". LIFO is the starting point; merit can change the order, but you should be able to show how.
- Negotiate pay. The employer must use its best endeavours to negotiate redundancy payments for discharged workers who are not covered by regulations. The Minister may make regulations requiring redundancy allowances; check whether any apply to your sector.
What you must pay
Redundancy pay is only one part of the bill. A departing employee is usually owed:
- Notice or pay in lieu. At least the Labour Act minimum (one day up to three months' service, one week to under two years, two weeks to under five years, one month for five years or more), or the contract's longer period. Pay in lieu is calculated on basic money wages, excluding overtime and allowances.
- Wages up to the last day, paid on or before the notice expires.
- Accrued annual leave. Section 18 gives pro-rata pay for a partial leave year of six months or more; the contract may give more.
- The negotiated or contractual redundancy payment.
- Pension deducted from the final salary, remitted on time to the employee's PFA.
Worked example: a negotiated package
Example only. A company agrees with the union to pay two weeks' basic pay per completed year of service. An employee has worked six full years on a basic salary of ₦260,000 a month.
| Item | Calculation | Amount |
|---|---|---|
| Weekly basic pay | ₦260,000 × 12 ÷ 52 | ₦60,000 |
| Redundancy pay | ₦60,000 × 2 weeks × 6 years | ₦720,000 |
| Notice in lieu (5+ years: one month) | One month's basic | ₦260,000 |
| Total before tax and other final pay | ₦720,000 + ₦260,000 | ₦980,000 |
On tax: DLA Piper's August 2026 summary of the 2025 tax laws reports that the tax-free threshold for severance payments was raised to ₦50 million. Notice pay and arrears of salary are ordinary employment income and go through PAYE. Get your tax adviser to confirm how the package is split before you pay.
A practical sequence
- Write down the business reason and the number of roles affected.
- Identify the category of workers affected and list them by start date.
- Meet the union or staff representatives; share reasons, numbers and the proposed selection.
- Apply LIFO, adjusting only on documented skill, ability and reliability.
- Negotiate the package and record what is agreed.
- Issue written notices with a breakdown of each payment.
- Pay everything due by the last day, remit pension and issue a certificate of service if asked.
Selection disputes go to the National Industrial Court, which has applied fairness arguments in employment cases; see whether you can sack without a reason.
Look at alternatives first
Section 20 does not oblige an employer to try alternatives, but showing you considered them strengthens your position if a selection is challenged, and it often saves money. Options Nigerian employers use include:
- freezing hiring and letting fixed-term contracts end on their dates;
- redeploying people from a shrinking unit to one that is growing, with retraining where needed;
- cutting overtime and contract labour before cutting permanent staff;
- agreed short-time working or unpaid leave, which needs the employee's consent in writing because it changes the contract; and
- asking for volunteers, sometimes with an enhanced package, before compulsory selection.
Keep a note of what you considered and why it did not work. If redundancies still go ahead, that note shows the union and, if it comes to it, the court that the decision was not taken lightly.
Where Pryme fits
Final payments can go out as a single batch through bulk payouts from a Pryme Business Account, and each employee can be given a verifiable statement of what was paid, produced with VerifyDoc.ai, which anyone can check is genuine and unaltered. For the final pay calculation itself, see computing final entitlements.
Questions people ask
Is redundancy pay compulsory in Nigeria?
The Labour Act requires the employer to use its best endeavours to negotiate redundancy pay; it does not set a formula. Your contract or collective agreement may set one.
How is redundancy pay calculated in Nigeria?
By agreement. A common approach is a number of weeks' basic pay per year of service, but the figure is whatever the contract or negotiation says.
What is last in, first out?
Section 20 says the most recently hired in the affected category go first, subject to skill, ability and reliability.
Is redundancy pay taxed in Nigeria?
DLA Piper reports the 2025 tax laws raised the tax-free threshold for severance to ₦50 million. Salary and notice pay are taxed as normal.
Sources
- Labour Act (Chapter 198 LFN 1990, now Cap L1 LFN 2004), full text · accessed Oct 2026
- DLA Piper Africa: FAQs on payroll taxes and employer liability (28 Aug 2026) · accessed Oct 2026
- Templars ThoughtLab: Is termination of employment without reason still valid in Nigeria? (20 Jun 2023) · 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.