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
Under section 5 of the Labour Act, an employer may not deduct fines from a worker's wages, may recover overpayments only from the previous three months, and may never deduct more than one third of a month's wages in total. Deductions for loss caused by a worker's wilful misconduct or neglect need the prior written consent of an authorised labour officer, while tax, pension and agreed contributions are allowed by law or with the worker's consent.
The starting point: no deduction unless the law allows it
Section 5(1) of the Labour Act begins with a prohibition. Except where the Act or another law expressly permits it, no employer may make a deduction, or agree with a worker to make one, in respect of fines. That covers the familiar workplace penalties: ₦2,000 for lateness, a charge for a missed shift, a deduction for breaking a rule. However common, they are not lawful deductions from the wages of a covered worker.
"Covered worker" is a real limit. The Act protects people on contracts for manual or clerical work, and its definition excludes people exercising administrative, executive, technical or professional functions. A cashier, cleaner, driver or factory hand is covered; a finance manager usually is not and relies on the contract. Many employers apply the same rules to everyone for simplicity and fairness.
What the Labour Act allows
| Deduction | Rule | Section |
|---|---|---|
| Tax (PAYE) | Required by tax law | Other law |
| Pension contributions | Allowed with the worker's consent for approved schemes; the Pension Reform Act also requires the employee's 8% | 5(2) |
| Trade union dues | Deducted for recognised unions; workers may contract out in writing | 5(3), 5(4) |
| Overpayment of wages | Only overpayments made in the three months before the month it was discovered | 5(5) |
| Loss from wilful misconduct or neglect | A reasonable deduction, only with prior written consent of an authorised labour officer | 5(1) proviso |
| Recovery of a salary advance | Advance capped at one month's wages; recovery spread over at least three months; no interest | 4 |
| Total in any month | Never more than one third of that month's wages | 5(7) |
The one-third ceiling, worked through
Example only. A worker earns ₦150,000 in a month. One third is ₦50,000, the maximum total of all deductions under section 5(7) that month.
| Deduction | Amount |
|---|---|
| Pension (8%) | ₦12,000 |
| Union dues | ₦1,500 |
| Advance recovery (₦90,000 over three months) | ₦30,000 |
| Total | ₦43,500 |
| Room left under the ceiling | ₦6,500 |
If the employer also wanted to recover ₦20,000 for a damaged phone (with a labour officer's prior written consent), only ₦6,500 could come off this month, and the rest would carry over. PAYE is shown separately on most payslips; whether it counts towards the one-third ceiling is a point to confirm with an adviser, since the ceiling applies "notwithstanding any other provision of this Act" and tax is imposed by a different law.
Advances and overpayments
Section 4 is often overlooked. An employer may not advance more than one month's wages, must allow at least three months for recovery, may not charge interest or discount on an advance, and may not give a new advance to a worker still repaying one except in cases of necessity. A salary advance product offered by a lender is different: that is a loan between the worker and the lender; see how salary advance works.
On overpayments, the three-month window matters. If payroll discovers in October that someone has been overpaid since March, only the overpayments from July, August and September can be recovered by deduction. Anything earlier needs a separate agreement with the worker.
Shortages, breakages and missing stock
Till shortages and stock losses are the commonest source of disputes in Nigerian retail. The Act's answer is narrow: a reasonable deduction is possible only for injury or loss caused by the worker's wilful misconduct or neglect, and only with the prior written consent of an authorised labour officer. A blanket clause saying "all shortages will be deducted" does not replace that consent. Better controls usually work better than deductions: confirmed transfers before goods leave, shift handover counts and separate tills. See stopping staff diverting customer payments.
What to check first
- Is the person a "worker" under the Act, or a manager relying on contract terms?
- Is the deduction required by law (tax, pension) or consented to in writing?
- Is it a fine? If so, stop.
- For a loss, do you have a labour officer's written consent in advance?
- Do all deductions this month stay within one third of wages?
Staff loans and third-party deductions
Employers often lend staff money for rent, school fees or a medical bill, larger than a one-month advance. The Act does not stop an employer making a loan, but repayments taken from wages still count towards the one-third monthly ceiling, and the cleaner approach is a short written loan agreement stating the amount, the monthly repayment and what happens if the employee leaves. The same applies when an employer agrees to deduct repayments for a cooperative society or an outside lender: get the employee's written instruction, keep it on file, and stop deducting when the instruction is withdrawn or the balance is cleared. Show each of these deductions on the payslip by name rather than lumping them under "other deductions", so that the employee can check them against their own records and a dispute does not start over a figure nobody can explain.
Where Pryme fits
With Pryme payroll, each deduction appears as its own line, so staff can see what came off and why. The Finance agent can flag a month where deductions would pass one third of pay before a person approves the run. See also deducting uniform or training costs.
Questions people ask
Can my employer deduct money for lateness?
For a worker covered by the Labour Act, no. Section 5 prohibits deductions for fines.
How much can an employer deduct from salary in Nigeria?
Under section 5(7) of the Labour Act, total deductions in any month cannot exceed one third of that month's wages.
Can my employer deduct shortages from my salary?
Only a reasonable deduction for loss caused by your wilful misconduct or neglect, and only with the prior written consent of an authorised labour officer.
Can my employer recover an overpayment from last year?
By deduction, only overpayments made in the three months before the month it was discovered. Older amounts need agreement.
Sources
- Labour Act (Chapter 198 LFN 1990, now Cap L1 LFN 2004), full text · accessed Oct 2026
- ThisDay: CPS, what you should know about employees' rights (20 Mar 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.