One of the most common payroll disputes in Nigerian organisations involves the proration of a new employee’s salary during their first month of service. If a monthly-paid staff member commences employment even a few days into the month, many companies automatically apply a fractional calculation, paying them only for the days worked.
However, this widespread administrative practice often clashes with the fundamental principles of Nigerian employment law, specifically the distinction between periodic employment and daily labour, as upheld by the National Industrial Court of Nigeria (NICN).
1. The Supremacy of the Written Contract of Employment.
The employment contract is the bedrock of the employee-employer relationship. Its terms are legally binding, and the employer is constrained from unilaterally altering conditions, particularly regarding remuneration.
Under Section 7 of the Labour Act Cap L1 LFN 2004, an employer is obligated to provide a written statement detailing the terms of employment, including the rate of wages and the method of calculation.
Legal Implication: The Contractual Guarantee.
Where a contract defines a salary as a fixed "Monthly Gross" or guarantees a specific "Net" payout after deductions, that figure represents a non-negotiable term for the agreed periodic pay. An internal payroll decision to apply a pro-rata formula that results in a payment significantly below the agreed-upon gross or net amount constitutes a breach of the agreed-upon terms. The contractual obligation outweighs the convenience of an internal payroll system.
2. Judicial Precedent: The NICN on Periodic Payment.
The most decisive legal barrier to indiscriminate proration is the body of case law established by the NICN. The court has clearly differentiated the legal nature of monthly pay from daily or hourly wages.
The prevailing judicial position is that compensation for an employee under a monthly contract is for the entire calendar period, not a fractional sum derived from a daily rate.
In the definitive case of Grant Mpanugo v. CAT Construction Nigeria Ltd (Suit No. NICN/LA/660/2015), the National Industrial Court affirmed the principle that:
Pro-rata/fractional payment of salary is not applicable to workers in periodic employment who receive salary per calendar month, but only applicable to daily-paid workers.
The rationale is sound: if a monthly salary were calculated strictly on a daily basis, employees would receive different salaries every month due to the varying number of days (28, 30, or 31). The nature of a monthly salary is to provide a fixed periodic amount, regardless of the precise number of working days. Therefore, for an employee on a monthly contract who starts within the first week of the month, applying a fractional payment based on the few days missed is contrary to this established judicial principle.
3. The Illegality of Unilateral Deduction and Lack of Consent.
A common issue in these disputes is that the decision to prorate is often an internal, unilateral action by the payroll department, without the employee’s prior knowledge, consent, or inclusion of the proration terms in the contract.
The Labour Act strictly controls deductions. While statutory deductions (tax, pension) are permissible, any action that reduces an employee's salary must be carefully justified. A unilateral reduction based on a post-employment calculation formula can be challenged as an unfair labour practice and a failure in transparency.
Conclusion and Best Practices.
For corporate organisations seeking to mitigate legal risk and maintain employee relations, adherence to legal principles over mere administrative convenience is paramount:
1. Strict Compliance with NICN Precedent: When dealing with periodic employees (those on monthly contracts), employers should recognise that the law generally entitles them to the full month's salary, especially when they commence work early in the month.
2. Honour the Contractual Net/Gross: If the offer letter guarantees a specific net salary, payroll must ensure that figure is delivered, even if it requires adjusting the internal gross-up calculation.
3. Transparency is Key: If a proration is deemed necessary (e.g., for a mid-month start), the formula and the resulting payment must be clearly articulated and agreed upon by the employee in writing before the commencement of employment.
By grounding payroll decisions in the Labour Act and the clear rulings of the NICN, companies can avoid unnecessary legal challenges and ensure their compensation practices are fair, transparent, and legally defensible.
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