Compensation Under Nigerian Employment Law

INTRODUCTION

In Nigeria, the landscape of employee compensation is shaped by combination of statutory provisions, industry practices, and economic factors. Understanding the legal consideration and the practical realities surrounding employee compensation is essential for both employer and employee. The employee compensation Act, of 2010, is a social; security/welfare scheme that provides comprehensive compensation to employees who suffer from accidents at the workplace or in the course of employment. The basis or justification for compensation is the employer’s duty of care.

Compensation under employment refers to the total rewards that employees receive in exchange for their labor and services. It encompasses both direct and indirect forms of payment and serves as a critical element of human resource management (Adair & Satyanarayana, 2018). Compensation impacts employee performance, motivation, and satisfaction, making it an essential component for organizational effectiveness.

Employee Compensation

Employee compensation serves as a critical aspect of labor law, aimed at ensuring that Employees receive adequate financial and healthcare support when they suffer workplace injuries or illnesses. In Nigeria, the Employees’ Compensation Act (ECA) of 2010 stands as a primary legislative framework to provide an equitable system of compensation for employees in the case of work-related accidents, injuries, and diseases. The Act replaced the earlier Workmen’s Compensation Act (WCA) due to its limitations and narrow focus, extending coverage to a broader scope of employment situations and types of injuries (Deloitte Corporate ServicesLimited [DCSL], 2012).

Components of Compensation

Compensation is generally divided into two primary types: direct compensation and indirect compensation.

Direct compensation includes monetary rewards such as base salary, bonuses, commissions and profit-sharing schemes. These financial incentives are designed to recognize and reward individual performance, aligning employee efforts with organizational goals (Adair & Satyanarayana, 2018). Indirect compensation, on the other hand, consists of non-monetary benefits, such as health insurance, retirement benefits, and paid leave. These benefits enhance job satisfaction and contribute to overall employee well-being by addressing various personal needs (Brown, 2003). Theories Related to Compensation, Several theories provide a foundation for understanding compensation' s impact on employee behavior. Reinforcement theory, proposed by B.F. Skinner, suggests that behavior can be motivated by rewards. When high performance is followed by positive reinforcement, such a monetary reward, employees are more likely to repeat this behavior in the future (Adari & Satyanarayana, 2018). Expectancy theory, developed by Victor Vroom, highlights that employees are motivated by expected rewards and are more likely to perform if they believe their efforts will lead to desired outcomes (Harrison & Liska, 2008). Finally, equity theory, introduced by John Stacey Adams, posits that employees assess fairness in their compensation by comparing their input-output ratio with that of others. Fair and competitive compensation packages can therefore enhance job satisfaction and reduce turnover (Adari & Satyanarayana, 2018).

LEGAL FRAMEWORK

Nigeria’s labor laws are primarily governed by the Labor Act, which sets the foundation for employment relationships. The Act outlines provisions related to wages, working hours, leave entitlements, and termination procedures. In addition, the Employee Compensation Act of 2010 specifically addresses compensation for work-related injuries, disabilities, or death, establishing a framework for employer liability in such cases. The Employees’ Compensation Act, 2010, was signed into law on 17th December 2010. This Act repeals the Workmen’s Compensation Act Cap. W6 Laws of the Federation of Nigeria, 2004, and makes comprehensive provisions for payment of compensation to employees who suffer from occupational diseases or sustain injuries arising from an accident at the workplace or in the course of employment. Guidelines for the Release of Staff in the Nigerian Oil and Gas Industry 2019 issued further to the provisions of the Petroleum (Drilling and Production) Regulations 1969 (as amended), made under the Petroleum Act, Cap P10, LFN 2004 (now the Petroleum Industry Act, 2021); Nigeria Data Protection Regulation 2019 issued by the National Information Technology Development Agency.

Categories of compensation

1. Compensation for death

In the event that an employee dies in an occupational accident or of an occupational disease, the family members are paid: a funeral allowance and a pension. Persons considered to be family members are specified in the Workers’ Compensation Act. Notably, the provision of section 7 of the Act widens the scope of liability of an employer to the employee, providing that:

Section 7 (1) Any employee, whether or not in a workplace, who suffers any disabling injury arising out of or in the course of employment shall be entitled to payment of compensation by Part IV of this Act.

(2) An employee is entitled to payment of compensation concerning any accident sustained while on the way between the place of work and:

(a) The employee’s principal or secondary residence

(b) The place where the employee usually takes meals; or

(c) The place where he usually receives remuneration provided that the employer has prior notification of such a place.

Scale of Compensation: The scale of compensation for an injury, disease, or death suffered in the course of employment is provided under Part IV of the Act. Section 17 of the Act provides for compensation in fatal cases, stating that where death results from an injury of an employee, compensation shall be paid to the dependents of the deceased. The compensation paid to the employee’s widow (err) or children ranges from 30% – 90% of the employee’s total monthly remuneration as of the date of death, although this is dependent on the circumstances of the dependents. Section 17 – 25 of the Act. Where the compensation offer is accepted, this further bars the affected employee or his siblings from instituting any legal action against the employer in respect of the same subject matter.

Employer’s Liability: Employers are held liable for providing compensation to employees affected by work-related incidents. The Act specifies the obligations of employers in promptly reporting accidents, facilitating medical examinations, and ensuring compliance with the compensation process. Section 5 of the Act

Establishment of the Employees Compensation Fund: The legislation mandates the creation of the Employees Compensation Fund, managed by the Nigeria Social Insurance Trust Fund (NSITF). The fund serves as the financial pool from which compensation payments are made to eligible employees. Section 56 – 63 of the Act

Compensation Administration: The Act establishes the administrative structure for the implementation of the compensation scheme. This includes the role of the NSITF in managing the fund, adjudicating claims, and overseeing the overall compensation process. However, more recent studies by Nnedinma Umeokafor, over an 11-years period [2002-2021], found that of the reported accidents: 80% occurred at night; manufacturing of rubber products accounted for the highest number of injuries at 53.8% for death. Sections 31 and 32 of the Act

One notable achievement is the clear articulation of the compensation process, providing a structured mechanism for addressing work-related incidents. The legislation establishes a no-fault compensation scheme, shifting the focus from attributing blame to swiftly compensating employees. This is a positive departure from traditional legal processes that could be protracted and adversarial. In Nigeria there is a dearth of accurate information involving fatalities arising from work injuries. One responsible cause is the underreporting of cases by private business and government agencies. However, according to Ezenwa A.O, between 1987 and 1996, the annual case fatality rate ranged from 0.94 per 100 injured workers 1990 to 5.41 in 1994 with an overall fatality rate of 2.23 per 100 injured workers.

2. Compensation for injury:

It is common for workers to suffer injury or incur liabilities during the course of employment. This is more common with employee’s whose employment requires them to work with delicate and complex medium and heavy duty machinery, such as workers on an oil rig, a manufacturing company, a laundry service or even a restaurant.

The Act provides in section 7, that:

. Any employee, whether or not in a work place, who suffers any disabling injury, occurred, as the Act provides other instances when the employee will be liable to compensation for injury suffered.

The Act provides in subsection {2} that:

“An employee is entitled to payment of compensation with respect to any accident sustained while on the way between the places of work. In c & c const. co Ltd. V. okhai {2003} 18 NWLR [pt.851]79, the respondent, while on duty which involved the serving of the appellants crane sustained grievous injuries arising out of the 2nd appellant failure as switch operator to use due care thereby causing the crane to become agitated and resulting in a drum of the crane to rollover violently over the respondents’ left foot, crushing that leg below the knee. For this he was under great pain and suffering for which he was hospitalized and this eventually led to the amputation of that leg. The employee was awarded damages for loss of earning capacity, future loss and damages for pain and suffering.

Impact of Compensation on Employee Performance

Compensation is not only a reward but also a tool for driving employee performance. Research suggests that competitive compensation packages attract and retain high-performing employees, contributing to organizational success (Pearce, 2010). Employees who feel adequately compensated are more likely to exhibit higher levels of motivation, engagement, and productivity (Brown, 2003). Moreover, when compensation is linked to performance, such as through merit pay or profit-sharing programs, employees become more focused on achieving organizational objectives (Adari & Satyanarayana, 2018).

For example, merit pay, a common performance-based compensation method, has been shown to encourage employees to meet or exceed performance benchmarks. Profit-sharing plans, though more indirectly tied to individual performance, foster a sense of ownership and alignment with organizational goals among employees (Adari & Satyanarayana, 2018). However, to maximize these effects, compensation systems must be thoughtfully designed to balance financial incentives with intrinsic motivators, ensuring sustained employee motivation an minimizing unhealthy competition within the workplace (Adari & Satyanarayana, 2018).

The Nigerian Employees’ Compensation Act of the Nigerian Employees’ Compensation Act, 2010 (ECA) offers a legal framework for compensating employees who suffer injuries, disabilities, diseases, or death as a result of their employment. This Act, enacted to replace the Workmen’s Compensation Act of 1987, aims to protect employees through a structured compensation scheme. The ECA aims to create an &quote; open and fair system of guaranteed and adequate compensation for all employees or their dependants" in instances of death, injury, disability, or illness arising from the course of employment (DCSL, 2012).This compensation includes not only financial benefits but also rehabilitation services, which extend to both physical and mental health support. Unlike the WCA, which had a narrow focus primarily on physical injuries, the ECA covers mental health issues directly linked to traumatic workplace events or ongoing workplace conditions. For instance, mental stress is considered compensable if it results from a traumatic event in the workplace, making this legislation comprehensive in its approach to employee welfare (DCSL, 2012).

Objective of the Act

The primary purpose of the ECA is to provide compensation for employees who suffer from work-related injuries, diseases, or fatalities. Anushiem and Oamen (2017) explain that the Act intends to provide a more inclusive and effective compensatory regime, which was a significant departure from the employer-friendly nature of the repealed Workmen’s Compensation Act. The ECA aims to create a balanced framework benefiting both employees and employers, with specific objectives outlined in Section 1 of the Act. These objectives include ensuring fair compensation for injuries, establishing a compensation fund, and creating mechanisms for rehabilitation and prevention (Anushiem & Oamen, 2017). How the Nigerian Employees’ Compensation Act 2010 Transmits to Compensation Under Employment. The Employee Compensation Act (ECA) of 2010 creates a structured way for Nigerian employees to receive compensation if they experience work-related death, injury, disease, or disability. It translates into an employment compensation framework by mandating financial protection measures that employers must implement. Here's how this framework transmits to practical compensation under employment:

1. Mandatory Contributions: The ECA obligates all Nigerian employers (both public and private sector) to contribute 1% of each employee' s monthly salary to the Employee Compensation Fund. This fund is managed by the Nigerian Social Insurance Trust Fund (NSITF) Board and provides resources to compensate employees or their dependents in cases of workplace-related incidents.
2. Compensation Coverage: Compensation under the Act applies if an employee experiences harm due to work activities. This includes: o Death: The Act mandates financial support for dependents of employees who pass away from work-related injuries. Section 17 specifies that dependents, such as spouses or children, may receive 30-90% of the deceased employee’s monthly remuneration, depending on their circumstances. O Injury and Disability: The Act provides for compensation to employees suffering from work-related injuries or disabilities that impact their ability to work. This allows affected employees to maintain financial stability while recovering or adapting to long-term changes in their work capabilities. o Disease: For work-related diseases, the Act ensures compensation for medical expenses and other costs arising from the diagnosis and treatment of conditions linked to employment.
3. Legal Limitation on Further Claims: Acceptance of compensation under the ECA means that the employee (or dependents) agrees to forego any further legal claims against the employer for the same incident. This protects the employer from repeated liability and provides employees with an expedited, guaranteed source of compensation without lengthy legal battles.

Scope and Application of the Act

The ECA applies to both public and private sector employees in Nigeria, encompassing a broad definition of & quote; employee & quote; to include anyone under contract, whether oral or written, continuous, temporary, or part-time (Anushiem & Oamen, 2017). However, military personnel in non- civilian capacities are excluded from the Act’s protections. This broad coverage ensures that nearly all employees have access to compensation for injuries or diseases arising out of their employment.

Administration and Compliance Requirements

The Nigeria Social Insurance Trust Fund (NSITF) Management Board is tasked with administering the ECA. Employers are mandated to contribute at least 1% of their total monthly payroll to the Employees’ Compensation Fund (ECF) within the first two years of the Act’s commencement. This fund is used to provide financial support and medical assistance to employees impacted by workplace injuries. The NSITF also has the discretion to adjust contribution rates based on the risk level associated with specific industries. Penalties are imposed on employers for non-compliance, including fines, penalties on unpaid assessments, or even imprisonment for responsible officers who neglect to make required contributions or provide payroll data (DCSL, 2012). Criticisms and Challenges of the ECA While the ECA represents a significant improvement over the WCA, several critiques exist. One major concern is the management of the ECF by the NSITF Board, which some argue lacks adequate transparency and efficiency. Another issue is the broad discretion given to the NSITF to adjust employer contributions, potentially leading to inconsistent assessments and unpredictability for employers. Moreover, unlike the WCA, the ECA does not provide a detailed schedule of compensations for various types of injuries and disabilities, which may lead to inconsistencies in compensation amounts and potential disputes between employers and employees (DCSL, 2012).

Despite the ECA’s progressive provisions, several operational issues still affect its effectiveness. Anushiem and Oamen (2017) highlight these key areas:

1. Appeal Procedure: Section 55 of the ECA provides a unique appeal structure, where aggrieved employees must first appeal to the Nigerian Social Insurance Trust Fund (NSITF) Board before approaching the National Industrial Court. Critics argue that this procedure conflicts with fair justice principles because the Board acts both as a party and judge in initial appeals. Anushiem and Oamen (2017) argue that this could lead to partiality, proposing instead that a pre-action notice should replace the internal appeal requirement.
2. Compensation for Mental Stress: Section 8 of the ECA covers compensation for mental stress but lacks a clear definition, leaving interpretation to the NSITF Board. This provision allows for compensation if mental stress is a direct reaction to a traumatic event at work. The ambiguity, however, may limit practical enforcement, as the Board has significant discretion to determine eligibility for mental stress compensation (Anushiem & Oamen, 2017).
3. Occupational Diseases and Schedule Limitations: The Act lists compensable occupational diseases, yet it does not meet international standards, excluding several recognized conditions such as mental and behavioral disorders. Section 9 of the Act requires that these diseases must result in either death or disability for compensation eligibility. This limited list restricts the rights of employees suffering from unlisted conditions, potentially excluding valid claims (Anaheim & Oamen, 2017).

 

CHALLENGES AND REALITIES

However, the effectiveness of these laws faces challenges in practical implementation. Delays in the disbursement of compensation and disputes over the extent of liability are issues that need attention. The administrative hurdles and complexities in navigating the compensation process sometimes hinder the timely delivery of benefits to affected employees. Furthermore, the scope of these laws may need to advance to address the changing nature of work. The rise of non-traditional employment arrangements, such as gig work and freelancing, presents new challenges in defining employer-employee relationships and determining liability in the event of work-related incidents.

To enhance the impact of Employee Compensation laws in Nigeria, there is a need for strengthened enforcement mechanisms. This involves ensuring that employers are aware of their obligations and are held accountable for compliance. Furthermore, streamlined and efficient processes for filing and adjudicating compensation claims can contribute to a more expeditious resolution of cases.

Public awareness campaigns can also play a crucial role in informing both employers and employees about their rights and responsibilities under these laws. Improved awareness can contribute to a culture of safety in workplaces and empower workers to assert their rights when necessary.

Despite the existence of robust legal frameworks, several challenges persist in the realm of employee compensation in Nigeria. Enforcement of labor laws can be inconsistent, especially in smaller enterprises or informal sectors where oversight is limited. This inconsistency sometimes leads to exploitation and unfair practices, such as inadequate wages or denial of benefits.

Moreover, the complex nature of the labor market, including issues like contract work, outsourcing, freelancing, and gig employment, poses challenges in defining and ensuring fair compensation. The evolving nature of work requires continuous adaptation of legal frameworks to address emerging trends and protect the rights of all workers.

Conclusion

The Employees’ Compensation Act is a vital piece of legislation that addresses the shortcomings of its predecessor, offering an inclusive framework for compensating employees for a wider array of work-related injuries and conditions. While challenges remain in the administration and scope of the Act, it has undeniably advanced employee welfare in Nigeria, establishing a comprehensive system for workplace injury compensation. Compensation remains a central factor in employee satisfaction, motivation, and performance. A well-designed compensation strategy that aligns with industry standards and employee expectations can enhance employee productivity and loyalty. Thus, organizations must continuously assess their compensation systems to ensure they support both employee well-being and business objectives (Adari & Satyanarayana, 2018).

 

References

• Adair, T., & Satyanarayana, G. (2018). Impact of compensation on employee performance.
• Intercontinental Journal of Human Resource Research Review, 6(4), 1-7.
• Anaheim, M. I., & Oamen, P. E. (2017). Nigerian Employees’ Compensation Act 2010: Issues
• Arising. African Journal of Comparative and International Law, 1(1), 53-63.
• Brown, D. (2003). Reward strategies. Journal of Personnel Management, 1, 17-29.
• Deloitte Corporate Services Limited. (2012). A review of the Employees Compensation Act 2011.
• Harrison, D. A., & Liska, Z. (2008). Promoting regular exercise in occupational fitness Programs. Journal of Personal Psychology, 5(5), 27-45.
• Pearce, L. (2010). Managerial compensation based on organizational performance. Journal of industrial relation 52, 3-28