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The short answer
For employees of a Nigerian entity, naira is the safer default: the Labour Act says wages are payable in legal tender, and the CBN's 2026 FX Manual requires Nigerian entities to price and settle in naira outside listed exemptions. Many employers use a dollar-linked salary paid in naira instead, and whichever currency you choose, PAYE is worked out in naira at the CBN official rate on the date paid.
Skilled Nigerian staff ask for dollars because the naira has lost a lot of value in recent years and dollars hold purchasing power. UK employers want to be competitive without breaking Nigerian law or taking on open-ended currency risk. There are three common answers, and the right one depends on who the legal employer is.
What the law says
The Labour Act
Section 1 of the Labour Act says wages are payable in legal tender 'and not otherwise', and that a contract providing for payment in another manner is illegal, null and void. Payment by cheque or postal order needs the worker's prior written consent. Two limits on this matter: the Act's definition of 'worker' in section 91 excludes people with administrative, executive, technical or professional functions, and Nigerian lawyers differ on how the rule applies to them. Take advice before writing a foreign-currency salary into a Nigerian contract.
CBN rules
TheCable's summary of the CBN Foreign Exchange Manual effective 1 June 2026 says Nigerian entities must price and settle transactions in naira, with sector exemptions. A Nigerian subsidiary or employer of record paying salaries in dollars should check with its bank how that rule applies to payroll.
Tax
DLA Piper's August 2026 guidance says pay in foreign currency is converted into naira at the CBN official rate at the time it is paid, and PAYE is then calculated on the naira figure under the 2026 bands. Pension contributions are a percentage of emoluments, so they are also worked out in naira.
Three ways to structure pay
| Structure | How it works | Who carries FX risk | Legal risk |
|---|---|---|---|
| Naira salary | Fixed naira amount, reviewed yearly | Employee | Lowest |
| Dollar-linked, paid in naira | Salary set in dollars, converted to naira at an agreed rate each payday | Employer | Low, if the contract is clear |
| Dollar salary | Paid in dollars to a domiciliary account | Employer pays in dollars; employee converts if they need naira | Higher for a Nigerian employer; check with a lawyer and bank |
The middle option is common. The contract states a dollar reference amount, the rate source used to convert it (for example a named official or bank rate on a stated day), and that payment is made in naira. The employee gets dollar-level pay; the employer pays in legal tender.
Writing a dollar-linked pay clause
If you choose dollar-linked pay in naira, the clause has to answer the questions that cause disputes later. A sound clause states:
- The reference salary in dollars, gross, per month.
- That payment is made in naira to the employee's Nigerian account.
- The exact rate source, such as a named official rate or your bank's published rate, and the day and time it is read.
- What happens if the source is unavailable that day.
- Whether there is a cap or floor, and when the arrangement is reviewed.
- That PAYE, pension and other deductions are calculated on the naira amount.
Keep the rate evidence with each month's payroll file. If an employee later disputes a month's pay, you can show the rate you used and where it came from.
Contractors are different
An independent contractor invoicing your UK company is not on a Nigerian payroll, so the Labour Act wage rule does not apply in the same way, and paying a contractor's invoice in dollars or pounds is common. The contractor then deals with their own Nigerian tax. See paying Nigerian contractors in dollars. Do not use contractor status to get round the rules for someone who is in practice a full-time employee.
Worked example (illustrative)
Example: a role is benchmarked at $1,500 a month, paid in naira. The contract says the employer converts at the stated reference rate on the 25th. If that rate is ₦1,500 to $1 in one month, pay is ₦2,250,000; if it is ₦1,650 the next month, pay is ₦2,475,000, an increase of ₦225,000 (10%). The employer's sterling cost rises or falls with both the dollar and the naira, which is why a payroll FX buffer matters. These rates are labelled examples, not current figures; check the CBN or your bank for today's rate.
What to check first
- Who the legal employer is, and in which currency it can lawfully pay.
- Whether each employee is a 'worker' under the Labour Act.
- The exact rate source and date for any dollar-linked pay.
- How PAYE and pension are calculated on the naira equivalent.
- What happens if the rate moves sharply: caps, floors or reviews.
Where Pryme fits
A Pryme Business Account holds GBP, USD and NGN separately, so you can fund a naira payroll from pounds or dollars when you choose, with the rate shown first and the fee on its own line (Swap). Bonuses in dollars are covered in paying bonuses in dollars.
Questions people ask
Can I pay Nigerian employees in dollars?
For a Nigerian employer, the Labour Act's legal tender rule and the CBN's settle-in-naira policy make naira the safer choice. Dollar-linked pay in naira is a common middle path; take legal advice.
How is PAYE calculated on a dollar salary?
The pay is converted into naira at the CBN official rate at the time paid, then taxed under the normal bands.
Can contractors in Nigeria be paid in dollars?
Paying an independent contractor's invoice in foreign currency is common. They handle their own tax. Do not label employees as contractors.
What is a dollar-linked salary?
A salary set in dollars in the contract but paid in naira, converted at an agreed rate source on a stated date.
Sources
- judy.legal: Labour Act 1974, section 1 (wages in legal tender) · accessed Oct 2026
- Labour Act, Cap L1 LFN 2004 (PLAC text) · accessed Oct 2026
- TheCable: CBN FX Manual 2026 key rules (3 Jun 2026) · 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
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.