How To Calculate Deduction For Employee Compensation Scheme


Last year the National Assembly replaced the Workmen’s compensation act with the Employee Compensation Act (ECA). The ECA is an act that directs employers to contribute 1% of their TOTAL EMOLUMENTS cost to the NSITF (Nigerian Social Insurance Trust Fund). The amount is set aside as insurance to employees with compensation for Injury in work place, mental stress, occupational hazard, and even death. See more here

How do employers contribute?

This is where there have been controversies. The NSITF in their newspaper advertorial requested that employers contribute an amount equal to 1% of total salary. This has wide implication for companies and even small businesses where payroll may include salaries, allowances, benefits, health cost etc. 1% of that is certainly a lot more than 1% on specific parts of what constitutes payroll. Well, gladly the Nigerian Employers Consultative Association (NECA) released guidelines based on a clarification meeting with NSITF on what constitues total emoluments which the 1% will be applied to.

Total Emoluments was hereby defined as the summation of BASIC SALARY, TRANSPORT AND HOUSING ALLOWANCES.  For example, if in your organisation your payroll cost is made up of the following;

Total Payroll

Basic –  N5,000,000

Housing – N2,00,000

Transport –  N1,000,000

Leave Allowances – N2,500,000

Medicals – N2,000,000

Training – N3,500,000

Utilities  –  N500,000

Travel & Holiday – N2,000,000

Meal Allowance – N3,000,000

Vehicles to Senior Staffs – N5,000,000

Total     ——–N26,500,000

Based on the above your company will only contribute (Basic N5,000,000)+(Housing N2,000,000)+(Transport N1,000,000) X 1% = N80,000. 

Compare the above to 1% of N26.5m which is N265k which the NSITF erroneously requested that we pay. Employers are also expected to begin implementation from JULY 2011 as against January 2011 advertised by NSITF.So for small businesses and start ups, it is important that you note the above as it applies to all employers whether private and public and irrespective of size of employees.  Also not that by the act setting up ECA, Workmen’s Compensation is no longer required.

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