What Severance Pay Rules Must Employers Follow in Nigeria?

Which Employees Qualify for Severance Pay?

• Employees whose contracts, staff handbooks, or collective agreements expressly provide for severance or redundancy benefits.
• Employees declared redundant where your company has an established practice of paying redundancy or ex gratia packages.
• Employees with continuous service who are terminated without misconduct and where your policy links length of service to severance.
• Unionised employees covered by collective bargaining agreements that set out redundancy or terminal benefits.
• Employees whose roles are outsourced or automated, where your company has historically paid severance in similar situations.
• Senior or key employees whose individual contracts specify negotiated severance or end-of-service payments.

What Are the Legal Timelines for Paying Severance?

In Nigeria, the Labour Act does not fix a single statutory deadline for severance payments, but you are expected to pay all terminal benefits within a reasonable time after the last working day. In practice, many employers align severance with the final payroll cycle, typically within 7 to 30 days of termination. Where a collective agreement or contract sets a specific payment date, that timeline will bind your company. Delays can trigger disputes, complaints to the Ministry of Labour, or claims at the National Industrial Court. To stay safe, document payment dates in termination letters and ensure funds are processed promptly.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay agreed severance or redundancy benefits in Nigeria, the main risk is legal and reputational rather than automatic statutory fines. Employees can challenge the termination, claim for unpaid benefits, and seek damages at the National Industrial Court. Non-payment can also attract union action, regulatory scrutiny, and disruption to your operations. Clear documentation and timely settlement are your best protection.

• Employees may file claims for unpaid severance, notice pay, and other terminal benefits.
• The National Industrial Court can award monetary judgments and, in some cases, interest on delayed payments.
• Trade unions may organise industrial action or escalate disputes to labour authorities.
• Persistent non-compliance can damage your employer brand and hinder future hiring.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record does not remove the need to respect Nigerian labour standards, but it changes who is the legal employer of record on paper. In most EOR models, the EOR is the formal employer responsible for issuing contracts, processing payroll, and administering any agreed severance. However, your company, as the client, usually bears the commercial and funding responsibility for severance and redundancy costs under the service agreement. Nigerian courts can also look beyond labels and examine who truly controls the work relationship. You should align your EOR contract, local policies, and budgets so that severance obligations are clearly allocated and fully funded.

Be 100 Percent Compliant in Offering Severance with Playroll

Playroll helps your company translate Nigerian labour rules and market practice into clear, written terms so there is no confusion when employment ends. Your team can standardise contracts, define when severance or redundancy benefits apply, and link them to tenure or grade in a way that is both competitive and manageable. With centralised records, you always know who is entitled to what, and you can evidence consistent treatment if a dispute arises.

Playroll’s global platform also streamlines calculations, approvals, and payouts so severance is processed on time and in line with Nigerian expectations. Whether you hire directly or through an Employer of Record, Playroll helps you model costs, avoid surprise liabilities, and document every step of the termination process. That way, you protect your brand, maintain employee trust, and stay compliant as you scale in Nigeria.