Nigeria: NSITF And NECA Agreement: What Implications For Non-NECA Members?

Last Updated: 22 March 2017
Article by Deloitte Nigeria

Most Read Contributor in Nigeria, July 2017

The might of a nation is expressed in the social security and welfare of its people. This was aptly put by Abraham Lincoln in his saying that "the purpose of government is to do for a community of people whatever they need to have done but cannot do at all or cannot do so well for themselves in their separate and individual capacities." This underpins the provision of Chapter II of the 1999 Constitution of the Federal Republic of Nigeria, which provides that the security and welfare of the people shall be the primary purpose of government.

The enactment of Employee Compensation Act ("ECA" or "the Act") 2010 breeds hope of guaranteed welfare and adequate cover from workplace injuries and death employees and their dependents. That bids goodbye to the era of neglect of employees by their employers in the time of need, when the unthinkable occurs in the course of duty.

Section 2 of the Act confers the Nigeria Social Insurance Trust Fund (NSITF) Management Board ("the Board") with the power to implement the Act and the Fund established under section 56 of this Act. In this piece, reference to the NSITF will mean the same as the Act or ECA as the case may be.

The objective of the Act, amongst others, is to ensure that employees and their beneficiaries receive a fair and adequate compensation for any death, injury, disease or disability arising out of or in the course of employment. Under the scheme, employers are mandated to make contributions to the fund on behalf of its employees (either employed by oral or written contract of agreement, continuous or part-time, apprenticeship or on casual basis). The employer is prohibited from making a direct or indirect deduction of the contributions due to the scheme from the remuneration of an employee. Also the employer is forbidden to compel the employee to make contributions to indemnifying the employer against any liability which it may incur under the Act.

In line with the Act, every employer is required to make monthly contribution of one per cent (1%) of its total monthly payroll into the fund. The Act did not define what constitutes the total monthly payroll which leaves room for varying interpretation. While some have interpreted it as total gross income per payroll, others have deemed it as total gross fixed income. One would have expected the Board to issue a guideline to provide the definition of the "payroll" but that was not done.

In a move to resolve the controversies surrounding the definition of payroll (the base of NSITF contribution) and to bring efficiency in running the scheme, the Nigeria Employers Consultative Association (NECA) and NSITF constituted a joint committee in one of its interactive sessions on 1 September 2016. This led to the agreement reached between NSITF and NECA on 22 November 2016 on the definition of payroll for the purpose of employer's contribution to the fund and the modalities for the implementation and administration of the Employees' Compensation Act.

The agreement provides further clarification to the definition of remuneration in the Act by excluding pension contributions, bonus, overtime payments and irregular one-off payments such as 13th month payments.

Another key area resolved by the agreement between NSITF and NECA was the resolution process for outstanding claims made by beneficiaries under the scheme. The delays in fulfilling the claims are usually due to inappropriate information, default by claimants on the timeline and claim procedures as specified by the Act. With this agreement, the turnaround time for resolution of outstanding claims is expected to span four (4) weeks on receipt of a formal complaint from the employer. Settlement period of within two (2) weeks on submission of relevant documents was also agreed.

NECA's involvement in resolving the controversy surrounding the definition of remuneration in the Act is a welcome development and it is expected to advance employers' compliance in the contribution to NSITF, especially for its members. However, the questions on the lips of many is the validity of the agreement reached between NSITF and NECA which came into effect from 1 January 2017, and whether non-NECA members will benefit from it.

It does appear that the agreement falls within the power conferred on NSITF by section 3 which allows the board to "formulate policies and strategies for assessment of compensation..., and do such other things which, in the opinion of the Board, are necessary to ensure the efficient performance of the Board under this Act." However, it is expected that NSITF would take the necessary steps to incorporate the agreement into the Act to give it full legal backing.

Also the application of the agreement should not be restricted to members of NECA notwithstanding that NECA was the front for such negotiation. The agreement is a matter of interpretation of the terminology used in the Act rather than a concession to NECA members. More so, employers are not legally bound to join NECA. 

Indeed, NSITF scheme has come a long way from obscurity. However, there is still a major challenge around awareness and adequate sensitization of the public and private sector on the benefits of the scheme. The scheme currently has over fifty one thousand registered employers and covers over six million employees which is still a far cry compared to the population of Nigeria's workforce. Thus, the government, employers, trade unions and the public have roles to play in ensuring compliance, which in turn will help safeguard the welfare of the people.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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