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The short answer
No Nigerian law requires an employer to pay a 13th-month salary or a year-end bonus. It becomes owed when the employment contract or a collective agreement provides for it, and the National Industrial Court has also treated a consistent practice of paying it as creating an enforceable expectation. Whatever you pay is taxable employment income and goes through PAYE.
Many Nigerian employees, especially in banking, oil and gas and larger private firms, expect an extra month's pay in December. Owners running a business in Nigeria from abroad often inherit that expectation from a previous manager, or start paying it in a good year and then find it hard to stop. The legal position is simple to state and easy to get wrong in practice: the obligation comes from what you agreed and what you have done, not from statute.
What the law says
The Labour Act sets rules on how wages are paid (in legal tender, at intervals of no more than a month, with limits on deductions), on written terms of employment, notice, holidays and sick leave. It does not mention a 13th-month payment or any bonus. A December 2023 employment law newsletter from the firm Perchstone & Graeys states that there is no statutory requirement for a 13th-month payment in Nigeria, and that the obligation arises from the employment relationship.
That relationship can create the obligation in three ways:
- An express contract term. If the offer letter or contract says staff receive a 13th-month salary, failing to pay it is a breach of contract.
- A collective agreement. Where a union agreement covers your staff, its terms on bonuses bind you.
- Consistent practice. The same newsletter says that where an employer has paid it consistently, staff may claim it before the National Industrial Court of Nigeria (NICN) as an expectation, even without a written term. It cites Pius Ohimai Ovbioise v. Mr. Aderibigbe Adedeji SAN (NICN/LA/484/2020, 22 February 2023), in which the court held the claimant was owed unpaid 13th-month salaries for 2016 to 2019 because the employer could not prove payment and could not change the contract on its own.
The newsletter's reading is that an established 13th-month payment cannot be stopped unilaterally; the employer should negotiate any change with staff. This is the point most owners miss. Paying "just this year" three years running can turn a gift into a term.
Bonus, 13th month or gift: name it correctly
| Type | How it usually works | Risk if unclear |
|---|---|---|
| 13th-month salary | One extra month of basic or gross pay, usually in December | Treated as part of pay once written in or paid regularly |
| Performance bonus | Paid against targets set in advance | Disputes over whether targets were met if criteria are vague |
| Discretionary bonus | Decided each year by the company | Can look contractual if paid every year at the same rate |
| Festive gift or hamper | Goods or a small fixed sum to all staff | Usually low; still a taxable benefit if cash |
The words in the letter matter. "Staff will receive a 13th-month salary" is a promise. "The company may, at its sole discretion, pay a bonus in any year, and payment in one year does not create a right to payment in another" is not. Even discretionary wording is weaker if you pay the same amount to everyone every year without any decision being recorded.
Tax: bonuses go through PAYE
Under the Nigeria Tax Act 2025, in force from 1 January 2026, bonuses and 13th-month pay are taxable employment income. DLA Piper Africa's payroll FAQ (28 August 2026) lists them as taxable and sets out the bands: the first ₦800,000 of annual income at 0%, then 15%, 18%, 21%, 23% and 25% on income above ₦50 million. Because PAYE is cumulative, a December bonus can push part of the year's income into a higher band, so the tax on it is often a higher share than on a normal month.
The bonus must also appear in the employer's annual return of emoluments, due by 31 January for the previous year under section 14 of the Nigeria Tax Administration Act 2025, which asks for each employee's gross emoluments including allowances. Pay the PAYE in the normal monthly cycle; the remittance date is covered in the statutory deductions calendar.
Worked example
Example only. A supervisor in Ibadan earns ₦300,000 a month gross. You pay a 13th-month salary of ₦300,000 in December. Their annual employment income rises from ₦3,600,000 to ₦3,900,000. Ignoring reliefs, the first ₦800,000 is at 0% and the next ₦2,200,000 at 15% (₦330,000), leaving ₦900,000 at 18% (₦162,000), a total of ₦492,000. Without the bonus, the 18% slice would be ₦600,000 (₦108,000), a total of ₦438,000. The extra ₦300,000 therefore costs ₦54,000 in PAYE, all of it at 18%. Pension and other deductions, and any rent relief, would change the figures.
Writing a bonus policy from abroad
- Decide whether you want a fixed 13th month or a discretionary bonus. If you can only afford it in good years, do not call it a 13th month.
- Put the rule in the contract or a signed handbook: who qualifies (for example, confirmed staff in post on 1 December), how it is calculated (basic or gross), when it is paid, and what happens to leavers.
- For performance bonuses, set targets in writing at the start of the year and keep the evidence.
- Record the decision each year, even for a discretionary bonus, with the amount and the reason. A short board or owner resolution is enough.
- If a past practice exists and you want to change it, take advice and consult staff before the season, not in December.
- Budget for it monthly. Set aside one twelfth of the expected cost each month so December payroll does not strain cash.
Where Pryme fits
A Pryme Business Account can be opened from any country. You can set aside the bonus provision in naira as you go, run the December payment through payroll or bulk payouts, and have the Finance agent prepare the run for your approval. Nothing is paid until a person approves it, and each action is recorded.
Questions people ask
Is 13th-month salary compulsory in Nigeria?
No statute requires it. It becomes owed if your contract or a collective agreement provides for it, and a consistent practice of paying it may be enforced by the National Industrial Court.
Can I stop paying 13th-month salary to my staff?
If it is a contract term or an established practice, a change should be negotiated with staff. Stopping it on your own risks a claim for the unpaid amounts.
Is 13th-month pay taxed in Nigeria?
Yes. Under the Nigeria Tax Act 2025 bonuses and 13th-month pay are taxable employment income and go through PAYE.
How do I make a bonus discretionary?
Say so clearly in writing, state that payment in one year creates no right in another, and record a real decision each year rather than paying the same amount automatically.
Sources
- Perchstone & Graeys: Employment law newsletter, payment of 13th month salary (Dec 2023) · accessed Oct 2026
- Labour Act (text) · accessed Oct 2026
- DLA Piper Africa: FAQs on payroll taxes and employer liability (28 Aug 2026) · accessed Oct 2026
- Nigeria Tax Administration Act 2025 (gazette copy) · 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.