January 29, 2022


Accounting + Finance Blog

Meaning of Contract of Employment in Nigeria

Meaning of Contract of Employment in Nigeria

Contract of employment is different from a contract for employment. When you earn a job with a company or a small business. It’s a relationship of contract of employment. If you win a contract from a company or government MDAs, it is a contract for employment. This article examines the first one.

Definition — What is the contract of employment?

1. The Personal Income Tax Act LFN 2004 defines a contract of employment or simply employment to “include any appointment, or office whether public or otherwise for which remuneration is payable and employee and employer shall be construed accordingly.”
2. The Nigeria Labour Act 1994, defines it as “any agreement whether written or verbal, express or implied, whereby one person agrees to serve the employer as a worker.”

Key Explanations

Its definition can be found in PITA 2004 as amended. And the Nigerian labour act. Both definitions show the relationship between employer and employee. Also, the employee is under the employer. He must comply with the performance specifications of the business.

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Appointment or office. The contract will result in a formal letter. Known as an appointment later. Although, a verbal medium can used. Moreover, the labour law expects the appointment should be written. Furthermore, it should be available within three months from the beginning of the employment process. This process begins from an offer for employment by the entity’s management.

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Written or verbal. A written method is used for most contract of employment. Unless in micro and small businesses which are mostly verbal or implied. Implied means the contract is based on the consent of both parties.

Remuneration. The employer is expected to pay wages or salary to the employee. This can be on a daily or weekly basis for wages. Or monthly basis for salary earners. The remuneration is normally agreed on between both parties. Whatever both parties agreed on is what the employer believes it can pay and the employee thinks it’s okay for the job.

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Relationship. A contract of employment is an employer and employee relationship. The employer is the entity while the employee is the person seeking a job in the entity.

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PAYE. This is subject to Pay As You Earn taxation in Nigeria. The employer is expected to remit monthly PAYE tax to the relevant tax authority.


A contract of employment is an employer and employee relationship where the employer will remunerate the employee for using his or her skill to do work for the organization. The contractcan be written or verbal, express or implied. The salary or wages paid is the consideration agreed on by both parties that make both of them a winner.