The Organisation for Economic Co-operation and Development defines social security contributions as compulsory payments paid to the government that confers the entitlement to receive a (contingent) future social benefit. In many countries, such social security contributions are required to be made by organisations and individuals (employees or otherwise). In Nigeria, a number of legislation have been enacted to form the basis for creating an enabling environment for the funding and administration of social security expenditures. Some of these legislations include the Industrial Training Fund Act, Employees Compensation Act, National Health Insurance Act, National Housing Fund Act and the Pension Reforms Act.

While there is some level of compliance with these legislations in Nigeria, a vast number of citizens and companies do not adhere strictly to the compliance requirements (such as deduction and/or remittance of these social security contributions) under these legislations due to varying reasons. These reasons range from perceived difficulty in accessing funds/claims, to disputes between companies and regulators. etc.

This Article seeks to discuss the compliance challenges with respect to social security contribution schemes in Nigeria, with a particular focus on the Industrial Training Fund (ITF) and Employees Compensation Scheme (ECS or "the Scheme"). We have also provided our views on boosting the compliance levels to social security contributions in Nigeria.

Compliance and Regulatory Requirements for Industrial Training Fund and Employee Compensation Scheme

a. Industrial Training Fund

The Industrial Training Fund was established by the Industrial Training Fund Act, 1971 (as amended) ("the ITF Act" or "the Act"). The ITF is designed as a Fund for promoting and encouraging the acquisition of skills in industry or commerce in Nigeria. The objective of the Act is to generate a pool of indigenous-trained manpower sufficient to meet the needs of the economy.

The ITF Act states that employers that meet the stipulated thresholds of an annual turnover of ₦50 million or 5 employees must contribute 1% of their annual payroll cost to the ITF, not later than 1 April of the following year. The penalty for non or late remittance is 5% monthly interest on the unpaid amount. Employers are expected to comply with the provisions of the Act relating to the training of their employees, which include having a training policy and a training plan that must be submitted and approved by the ITF at the beginning of each financial year.

Furthermore, the Act requires all employers to keep records relevant to the training conducted in the course of the year. The employers are entitled to 50% refund of their contributions based on their training policies approved by the ITF.

b. Employees Compensation Scheme (ECS)

The Employees Compensation Act, 2010 (ECA) makes provisions for Social Security Insurance Services by operating the Employees Compensation Scheme. The major objective of setting up the Scheme is to provide guaranteed and adequate compensation for all employees or their dependents for any death, injury, disease or disability arising out of or in the course of employment, providing rehabilitation to employees with work disabilities as much as possible and maintaining a solvent compensation fund managed in the interest of employees and employers.

Under the ECA, employers are expected to make a minimum contribution of 1% of the total monthly payroll into the Employees' Compensation Fund, which is managed by the National Social Insurance Trust Fund (NSITF) Board. The penalty for non or late remittance is 10% interest on the outstanding amount(s).

Compliance Challenges Associated with ITF and ECS

Whilst the government's objective of setting up social security funds is a laudable one, it has also been marred with issues that affect the compliance level of companies. Some of these issues are highlighted below:

a. Additional Administrative Cost

A number of employers perceive social security contributions as an additional burden, particularly the ITF. This is because the ITF contribution comes as an additional mandatory expense despite such employers' training budget for the period.

Although the ITF Act provides that employers are able to access 50% refund if the employer has satisfied the stipulated requirements such as: training of not less than 15% of the organisation's workforce must be trained annually; provisions of evidence of payment for course fees, certificate of attendance and receipt of levy paid to the ITF. Some companies have however argued that the considerable administrative energy and resources required to obtain this refund could be better focused on the core business operations of their companies.

b. Lengthy Audit Period and Controversies

In certain instances, ITF and NSITF audits stretch and linger over a period of time because companies and regulatory authorities may have controversies over some items such as the definition of payroll which forms the basis of social security contributions. For example, disputes frequently arise during ITF audit with respect to the inclusion of fees paid to Non-Executive Directors (NEDs) which clearly is not a payroll cost. The ITF Act defines payroll as "the sum total of all basic pay, allowances, and other entitlements payable within and outside Nigeria to any employee in an establishment, public and private." NEDs are not necessarily employees of the Company because they do not draw a monthly salary from the Company. This means payments made to NEDs do not come within the scope of "payroll" as defined by the ITF Act.

Similarly, the definition of payroll could also be a source of controversy in NSITF audits. It is however instructive to note that the Nigeria Employers' Consultative Association (NECA) reached an agreement1 with the National Social Insurance Trust Fund (NSITF) in November 2016 "the NECA Agreement" to define payroll as "remuneration" based on the provisions of Section 73 of the ECA, and the Agreement modifies the definition of payroll cost to exclude items like pension contributions, bonuses and overtime payments and such items that are irregular on the payroll. This implies that the employers will not be subjected to multiple costs especially where the remunerations do not translate into immediate cash in the pockets of employees, such as the pension contributions and other employment benefits. Despite this Agreement, there are instances where the NSITF may make a move to charge 1% of the total payroll cost, which creates disputes between employers and the NSITF.

The approach of the regulatory agencies during the audit or verification periods may undermine the urgency in the request of the companies for compliance certificates.

c. Onerous Refund Process

The NECA Agreement provides that responses to claims from the NSITF should be resolved within four weeks after receipt of a formal complaint and settled within two weeks of submission of the relevant documents. However, in practice, the approval process is slow and tedious as there are long-standing claims to be met.

d. Post Covid-19 Disruption and Industry Rates

Post Covid-19, we have seen a wider adoption of remote working/work from home. A number of companies have considered the ECS levy to be non-essential since the risk exposure is considered low for certain employees especially those in the service industry who work from home. This stems from the fact that the level of exposure to accident or injury at the workplace is minimal when employees work from home.

Furthermore, the fixed contribution rate which applies across all industries does not reflect the level of risk associated with the different industries, given that some employers are required to take up group life insurance policy. These employers argue that the rates of their contribution to the NSITF be reduced or abolished since they ultimately serve the same purpose.


Having discussed the challenges of social security contributions in Nigeria, below are some suggestions that can improve the level of compliance in Nigeria.

a. Statutory Amendments

The ITF and ECS Acts should be amended to provide for graduated rates of contribution in line with the risk associated to the industries and size of businesses. For example, in South Africa, the Skill Development Levy which is similar to the ITF, exempts employers with an annual payroll of less than ZAR 500,000 while the rate of contribution is different for high-risk industries such as manufacturing, energy and other similar work-hazard-driven sectors. We believe that the implementation of this will help reduce the administrative cost for employers.

b. Standardize the Audit and Refund Process

In Nigeria, the regulatory authorities can fully leverage technology to digitalise collection and refund processes. This would help to significantly reduce the costs of compliance and presumably, expedite the dispute resolution process so that audits can be conducted quicker. This will in turn lead to increased social security contributions to the funds and where the regulators disagree with the returns submitted by the Company, they may subject the company to verification exercises using technology to recover any outstanding liability.


Due to the burden and complexity of regulatory compliance, and the potential impact on the available finances of companies, the importance of seeking advice from experienced consultants cannot be overemphasized. Therefore, in navigating the diverse compliance requirements, companies are advised to liase with experienced consultants to discuss their regulatory compliance matters.


1. NECA Agreement became effective from 1 January , 2017

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.