Employee Benefits – The Secret Weapon To Attract, Motivate and Retain Talent for SMEs

secret weaponAttracting and retaining top talent is a never-ending challenge for entrepreneurs. Beyond salaries, benefits can play a crucial role, but few companies have met this challenge with creative solutions.

Chosen and implemented effectively, well-structured employee benefits can demonstrate leadership’s concern for the well-being of employees, reinforce cultural values, and foster deeper employee engagement.

Research has shown that employee benefits really do matter to staff and many will consider choosing one job over another because of the benefits it offers. In a survey, the most important employee benefit listed by jobseekers was a Pension, closely followed by health insurance. Over half of those surveyed said they would be more likely to accept a job which offered health insurance over one that didn’t.

An employee benefit plan protects employees and their families from economic hardship brought about by sickness, disability, death or unemployment. Employee benefits play an increasingly important role in the lives of employees and their families, and have a significant financial and administrative impact on a business. Most companies, regardless of size, in Nigeria have to come to terms with an educated work force that has come to expect a comprehensive benefits program.

In Nigeria, almost every employer, even SMEs, have to comply with mandatory benefits plans (this would be discussed in detail shortly). In addition, employers may also decide to add optional and creative benefits such as flexible compensation (cafeteria plans), performance-related bonuses, flexible work hours, staff bus/company car, service awards, daycare cost sharing (for new mothers), reimbursement of employee educational expenses amongst other creative ideas.

However, Nigerian employers have to implement the following mandatory benefit plans to remain on the right side of the law:

Pension Reform Act

The 2004 Pension Reform Act was on effectively repealed following President Goodluck Jonathan’s assent to the 2014 Pension Reform Bill on 1st July 2014. Some of the changes introduced by the new Pension law as it relates to employers are:

Increase in minimum contribution into the scheme: Employers are now required to contribute a minimum of 10% of their employees’ monthly emolument while the employees are to contribute not less than 8%. Under the old law, the minimum contribution by the employer was 7.5% of Basic, Housing and Transport allowances while maximum of 7.5% by the employee except the employee choses to opt for additional contribution.

Prosecution of Employers for failure to deduct / remit Pension: The 2014 Act now empowers PenCom to institute criminal charges against employers who fail to deduct and/or remit pension contributions of their employees within the stipulated time.

Inclusion of more Private Sector Employers: Private sector entities with 3 or more staff are now subject to the scheme. Prior to now, only sectors with 5 or more staff are affected by the scheme.

Misappropriation to attract jail term: The Act has imposed a jail term of 10 years on persons found to be guilty of misappropriating Pension Funds.


Employee Compensation Act

In the workplace today, it is not uncommon for workers to suffer work related injuries which have rendered some incapacitated without any compensation to ease their ordeal. Although the Workmen’s Compensation Act (WCA) sought to compensate employees for loss suffered following industrial and other work related mishaps, this Act had several shortcomings, which led to its replacement with the Employees Compensation Act, 2010 (the “Act” or “ECA”). The Nigeria Social Insurance Trust Fund Management Board (“the NSITF Management Board”) is statutorily empowered to implement the provisions of the ECA, and to manage the Employees’ Compensation Fund.

It is mandatory for every employer to make a minimum monthly contribution of 1% of its total monthly payroll into the Fund within the first two years of the commencement of the Act. The Act further allows the Board to prescribe different contribution and assessment rates to be made by each employer based on the categorization of the risk factors of the particular class or sub-class of industry to which the employer belongs.

The Act defines injury to include “bodily injury or disease resulting from an accident or exposure to critical agents and conditions in the workplace”. All employees suffering from mental stress, occupational injuries and diseases, as well as the dependants of a deceased employee, whose death is due to occupational injuries, are entitled to compensation under the Act. In addition, the Act empowers the Board to provide health care and disability support to affected employees. It is noteworthy that “mental stress” was not within the contemplation of “occupational injury” under the repealed Workmen’s Compensation Act. The ECA provides for the compensation of an employee who suffers mental stress not resulting from an injury for which the employee is otherwise entitled to compensation, only if such mental stress is an acute reaction to a sudden and unexpected traumatic event arising out of or in the course of the employee’s employment, or where such mental stress is diagnosed by an accredited medical practitioner to have arisen out of the nature of the work, or the occurrence of any event in the course of the employee’s employment.

The provisions of the ECA extend to injuries sustained where the nature of the business of the employer extends beyond the usual workplace i.e. where the employee is required to work both in and out of the workplace or where the employee has the permission of the employer to work outside the normal work place.

Any default in the payment of an assessment attracts a penalty of an amount equal to 10% of the unpaid assessment or the value of the security required. Any employer who fails to make the required payroll information available to the Board may be liable to pay the best of judgment assessment levied by the Board, including a penalty, calculated as a percentage of the assessment to be determined by the Board. In addition, such an employer (or the responsible officer(s)) may be liable to imprisonment, a fine or both. The ECA prohibits an employer from deducting any payments made to the Board from the remuneration payable to its employees. Any contravention attracts a fine, plus the repayment of any amount deducted from the relevant employee.


National Health Insurance Scheme

On October 15th, the National Health insurance Scheme was launched. The enabling law Decree 35 of 1999 (now Act 35 of 1999) was signed in May 1999. Some of the objectives of the Health Insurance is t0:

  1. To ensure that every Nigerian has access to good health care services
  2. To protect families from the financial hardship of huge medical bills
  3. To limit the rise in the cost of health care services
  4. To ensure equitable distribution of health care costs among different income groups, amongst others.

The NHIS services are provided through approved Health Management Organisations (HMO). However, based on our experience, SMEs aren’t big revenue generators for insurance companies. Unfortunately, this puts them at a disadvantage, increasing cost and decreasing options. By joining our pool of SME buyers, you can leverage our buying power to secure high-quality corporate health insurance with different plans for your employees.


Industrial Training Fund

The Industrial Training Fund was established by the ITF Act in 1971 and amended in 2011. It was established to utilise contributions to the Fund to among others provide, promote and encourage the acquisition of skills in industry. It was of a mandate to generate a pool of indigenous trained manpower sufficient to meet the needs of the private and the public sectors of the economy.

It is the duty of all employers to provide adequate training for their indigenous staff with a view of improving the skills needed in executing their jobs in a more efficient and effective manner. Evidences of such training should be forwarded to the fund to show that the employer has consistently engaged its employees in training for better productivity.

The Act stipulates that ever employer with 5 or more employees or with annual turnover of N50million and above is obligated under Section 6 of the Industrial Training Fund (Amendment) Act 2011 to contribute 1% its total annual payroll to the Industrial Training Fund as the employer’s contribution to the training of employees in Nigeria. However, the scheme provides that a maximum of 50% of payment made into the fund by a compliant employer who satisfies all laid down conditions for claiming reimbursement shall be refunded. The ITF reimbursement scheme was established to motivate and encourage contributing employers to train and retrain their employees. ITF is however required to notify Federal Board of Inland Revenue Service of any refunds made as contributions will ultimately affect the tax obligations of the employer concerned.

The provision of the act requires that every employer must make payment of 1% of the gross payroll to the Fund at a date not later than three months of the following year (1st Day of April). Contributions to the Industrial Training Fund, with any under-payment discovered, and their monetary penalties accruing are recoverable by civil action within a time-frame of six years from the date when the contribution became due. However, if an employer fails to make payment to the fund, 5% of the amount unpaid shall be added for each month or part of a month after the due date for which payment ought to have been made.


My advise that you take immediate steps to ensure full compliance, where necessary. Though some of the benefits may be mandatory, it also works in attracting, motivating and retaining great talent for your organisation. Make the wise choice and be creative in working out your company’s benefit plan while ensuring legal compliance.

If you need further support for compliance, talk to us for our Compensation and Benefits offering or our full Human Resource service.

As a Nigerian entrepreneur, what are your thoughts on these mandatory benefits stipulated by law?. For our international audience, are these mandatory benefits similar to what is implemented in your country?

To your success!

Olanrewaju Oniyitan