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The short answer
Nigerian law sets minimum notice by length of service (one day up to one month under the Labour Act), allows pay in lieu, and for redundancy requires the employer to inform workers’ representatives, follow last-in-first-out subject to merit and use best endeavours to negotiate redundancy pay. There is no statutory severance formula; the contract and any negotiation decide the amount, and compensation for loss of employment is tax-free up to ₦50 million under the 2025 tax law.
US employers are used to at-will employment and voluntary severance plans. Ending employment in Nigeria works differently: there are statutory minimums, a redundancy procedure, and a body of case law at the National Industrial Court that has grown more protective of employees. This guide sets out the rules a US company should follow when it ends a Nigerian employee’s contract, whether for redundancy or otherwise. It is information, not legal advice; take Nigerian legal advice before acting on any individual case.
Minimum notice under the Labour Act
Section 11 of the Labour Act sets the minimum notice either party must give, unless the contract gives more:
| Continuous service | Minimum notice |
|---|---|
| Three months or less | One day |
| More than three months but less than two years | One week |
| Two years but less than five years | Two weeks |
| Five years or more | One month |
Notice of a week or more must be in writing. Either party may waive notice or accept pay in lieu, and pay in lieu is calculated on money wages excluding overtime and allowances. Wages due must be paid on or before the expiry of notice. Many Nigerian professional contracts set longer notice than the statute, and the contract figure applies where it is higher.
One limit matters for many tech and finance hires: the Labour Act’s definition of "worker" in section 91 excludes people exercising administrative, executive, technical or professional functions. For those staff, the written contract does most of the work, which is one more reason to draft it carefully; see the Nigerian employment contract.
Redundancy: the procedure in section 20
The Act treats redundancy as an involuntary and permanent loss of employment caused by excess manpower. Where it happens, the employer must:
- Inform the trade union or workers’ representatives concerned of the reasons for and the extent of the anticipated redundancy.
- Apply the principle of last in, first out within the category of workers affected, subject to factors of relative merit including skill, ability and reliability.
- Use its best endeavours to negotiate redundancy payments with workers who are not protected by regulations made under the Act.
The Act does not set a severance amount. In practice the figure comes from the contract, a staff handbook, a collective agreement or negotiation. Write down how you reached it and keep the record.
Termination without a reason
Older Supreme Court decisions held that an employer could end a contract with proper notice without giving reasons. A Templars review of case law notes that the National Industrial Court has in some cases required a valid reason, relying on its constitutional powers and ILO Convention 158, while the Court of Appeal and later NICN decisions have questioned whether the unratified Convention can be enforced. The law is not settled. A US employer should give a documented, truthful reason and follow its own written procedure.
What goes into the final payment
- Notice pay or pay in lieu, on money wages.
- Accrued leave. Under section 18 an employee leaving after six months or more but before a full year is entitled to pro-rata holiday pay; under the contract, untaken leave is usually paid.
- Salary to the last day and any contractual bonus that has been earned.
- Severance or redundancy pay as agreed.
- Pension. Contributions on the final salary must still be remitted to the employee’s PFA.
Tax on severance
Under the Nigeria Tax Act 2025, effective from 1 January 2026, compensation for loss of employment up to ₦50 million is exempt, as reported by Premium Times and confirmed in DLA Piper’s payroll FAQ. DLA Piper also notes that employers must calculate PAYE on gratuity before paying it out. Salary, notice pay and leave pay remain ordinary taxable pay. See PAYE under the 2025 tax law.
Worked example (illustrative figures)
Example only. An employee with three years’ service earns ₦1,200,000 a month in money wages and has a one-month contractual notice period, which exceeds the two-week statutory minimum. The employer pays one month in lieu (₦1,200,000, taxable), five days of untaken leave at ₦54,545 a day on a 22-day month (about ₦272,727, taxable) and an agreed severance of three months’ pay (₦3,600,000). The severance is within the ₦50 million exemption.
After the employee leaves
An employee under 50 who leaves and is not re-employed within four months can withdraw up to 25% of their retirement savings account, according to KPMG’s summary of the Pension Reform Act 2014, so prompt remittance and accurate exit records help them. Issue a written letter confirming the last day of work and the final payment breakdown.
Where Pryme fits
Final payments can be paid in naira from a Pryme Business Account, with a verifiable receipt the employee can keep (receipts). The Finance agent can prepare the final pay calculation for a person to check and approve; nothing is paid without that approval.
Questions people ask
How much notice must I give a Nigerian employee?
At least the Labour Act minimum: one day for three months’ service or less, one week up to two years, two weeks up to five years and one month after five years, or more if the contract says so.
Is severance pay compulsory in Nigeria?
The Labour Act sets no severance formula. For redundancy it requires best endeavours to negotiate redundancy pay; the contract or a collective agreement may set a fixed amount.
Is severance taxed in Nigeria?
Compensation for loss of employment is exempt up to ₦50 million under the Nigeria Tax Act 2025. Salary, notice pay and leave pay are taxed as normal pay.
Can a Nigerian employee be dismissed without a reason?
Case law is divided. Some National Industrial Court decisions have required a valid reason. Give a documented reason and follow a written procedure.
Sources
- Labour Act, Cap L1 LFN 2004 (PLAC Laws of Nigeria) · accessed Oct 2026
- Labour Act full text (Cap 198 LFN 1990, same Act as Cap L1) · accessed Oct 2026
- Templars ThoughtLab: Is termination of employment without reason still valid in Nigeria? (20 Jun 2023) · accessed Oct 2026
- DLA Piper Africa: FAQs on payroll taxes and employer liability in Nigeria (28 Aug 2026) · accessed Oct 2026
- AllAfrica (Premium Times): what the Nigeria Tax Act 2025 changes (3 Nov 2025) · accessed Oct 2026
- KPMG Nigeria newsletter: summary of the Pension Reform Act 2014 (Jul 2014) · 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.