An employee’s salary is a fundamental part of the employment relationship. Once an employee has earned salary under the terms of the employment contract, an employer cannot simply withhold it without a lawful basis. Salary can only be withheld or deducted in certain circumstances permitted by law or by the terms of the employment relationship. However, an employer that arbitrarily refuses to pay an employee’s earned salary can be liable to the employee for the outstanding amount. This article explains when an employer can lawfully withhold or deduct salary in Nigeria, what an employee can do when salary is withheld, and the legal remedies available for recovering unpaid salary. What Does It Mean to Withhold Salary? Withholding salary means failing to pay an employee remuneration that has become due and payable. It is different from a lawful deduction. For example, where an employee’s gross salary is ₦500,000 and the employer deducts an amount required by law, the employer has not necessarily withheld the employee’s salary unlawfully. However, where the employer simply refuses to pay the employee’s ₦500,000 salary without a lawful basis, the situation is different. The reason for the non-payment is therefore important. Can an Employer Withhold Salary in Nigeria? An employer cannot arbitrarily withhold salary that an employee has earned. The legality of withholding or deducting salary depends on the employment contract, applicable legislation and the circumstances of the particular case. The Labour Act contains provisions regulating deductions from wages, while the terms of the employment contract can also establish the employee’s remuneration and circumstances in which deductions can be made. An employer should therefore have a lawful basis before withholding or deducting an employee’s salary. When Can an Employer Lawfully Deduct Money from Salary? There are circumstances in which deductions from salary are lawful. Statutory Deductions Certain deductions are required by law. These can include applicable taxes and other statutory contributions or deductions imposed under Nigerian law. An employer making a statutory deduction is not unlawfully withholding the employee’s salary merely because the employee receives a lower net amount than the gross salary. Contractually Authorised Deductions An employment contract can contain provisions authorising particular deductions in specified circumstances. However, the existence of a contractual provision does not automatically make every deduction lawful. The employer must still comply with applicable legislation and the terms of the contract. Deductions Permitted by Law The law permits certain deductions in specified circumstances. Section 5 of the Labour Act regulates deductions from wages and places restrictions on deductions that an employer can make from an employee’s remuneration. An employer should therefore identify the specific legal or contractual basis for any deduction from salary. Can an Employer Withhold Salary Because an Employee Made a Mistake? Not automatically. An employee’s mistake does not give an employer an unrestricted right to deduct the cost of the mistake from the employee’s salary. The employer must establish the legal or contractual basis for the deduction. For example, if an employee causes financial loss to the employer through negligence, the employer should not simply decide the amount of the loss and deduct it from the employee’s salary without considering the applicable employment terms and law. Where the employer believes that the employee is financially liable, the employer should use the appropriate disciplinary or legal procedure. Can an Employer Withhold Salary Because an Employee Owes the Company Money? An employer cannot simply treat an alleged debt owed by an employee as permission to withhold whatever amount of salary it chooses. The alleged debt should be established, and any deduction from salary must comply with applicable law and the employment contract. If the employer has a genuine claim against an employee, it can pursue the appropriate contractual or legal remedy. The existence of an alleged debt and the employee’s entitlement to earned salary are separate issues. Can an Employer Withhold Salary Because an Employee Resigns Without Notice? An employee who resigns without giving the required notice can potentially be liable for the consequences of failing to comply with the employment contract. However, this does not automatically give the employer an unrestricted right to confiscate or withhold all salary owed to the employee. The employer should determine the employee’s contractual liability and the lawful means of enforcing it. An employer should also distinguish between: salary already earned; salary payable during a notice period; payment in lieu of notice; and any separate debt allegedly owed by the employee. These are not automatically the same thing. Can an Employer Withhold Salary During an Investigation? An employer may need to investigate allegations of misconduct, but the existence of an investigation does not automatically entitle the employer to withhold salary indefinitely. The employer should examine the employment contract, staff handbook, disciplinary policy and applicable law to determine the employee’s position during the investigation. If the employee has been suspended, the terms governing suspension become particularly important. The employer should not use an investigation as a blanket justification for withholding earned salary where there is no lawful basis for doing so. Can an Employer Suspend an Employee Without Salary? The answer depends on the terms of the employment relationship and the circumstances of the suspension. An employer should examine the employment contract, applicable workplace policies and relevant law before placing an employee on suspension without pay. Where the contract expressly permits suspension without pay in specified circumstances, that provision becomes relevant. Where there is no contractual or legal basis for withholding remuneration during suspension, the employer can face a claim from the employee. The mere use of the word “suspension” does not automatically determine whether salary is payable. Can an Employer Withhold Salary Because of Poor Performance? Poor performance does not automatically entitle an employer to withhold an employee’s earned salary. Performance management and salary payment are separate issues. Where an employee has performed work for the relevant period and earned the agreed salary, the employer should not simply withhold the salary because the employee did not meet a performance target unless there is a
How to Recover Unpaid Salary from an Employer in Nigeria
Salary is a fundamental entitlement arising from an employment relationship. Where an employer fails to pay an employee’s salary when it falls due, the employee is entitled to take steps to recover the outstanding amount. An employer’s failure to pay salary does not automatically extinguish the employee’s entitlement to that salary. The appropriate remedy depends on the terms of the employment contract, the applicable law, the reason for the non-payment and the nature of the employment relationship. An employee who is owed salary should first establish the amount outstanding, review the terms of employment and make a formal demand. Where the employer refuses to pay, the employee can pursue the appropriate legal remedy. What Is Unpaid Salary? Unpaid salary is remuneration that an employee has earned under an employment relationship but which the employer has failed to pay when due. It can arise where an employer: Fails to pay an employee’s monthly salary. Pays only part of the agreed salary. Withholds salary without lawful justification. Fails to pay salary for the final period of employment. Fails to pay other contractual remuneration that has become due. Continues to withhold salary after terminating the employee’s employment. The precise entitlement depends on the employment contract and applicable law. Is an Employer Legally Obliged to Pay Salary? Yes. Where an employee has performed work pursuant to an employment contract, the employer is generally required to pay the agreed remuneration in accordance with the terms of the employment relationship. The employment contract is therefore an important document in any dispute over unpaid salary. The employee should examine the contract to determine: The agreed salary. The payment date or payment cycle. Allowances and other contractual benefits. Conditions attached to any bonus or incentive. The circumstances in which deductions can be made. The procedure for termination. Any applicable disciplinary or grievance procedure. Can an Employer Refuse to Pay Salary Because the Business Is Experiencing Financial Problems? An employer’s financial difficulty does not automatically extinguish an employee’s contractual entitlement to earned salary. A company experiencing financial difficulties can take lawful measures to restructure its workforce or business, but it cannot simply assume that employees have surrendered their entitlement to salary already earned. If the employer cannot pay, the parties can agree on a lawful arrangement concerning outstanding remuneration. An employer should not, however, treat an employee’s earned salary as automatically forfeited because the business is experiencing financial difficulties. Can an Employer Withhold an Employee’s Salary? An employer cannot make arbitrary deductions from an employee’s salary. The legality of withholding or deducting salary depends on the circumstances, the employment contract and applicable legislation. Where an employer has a legitimate basis for a deduction, that basis should be identifiable and supported by the applicable law or contractual terms. An employee who discovers that salary has been withheld should therefore ask the employer to state the reason for the withholding and the legal or contractual basis relied upon. What Should an Employee Do When an Employer Refuses to Pay Salary? An employee should not immediately commence litigation without first establishing the facts and creating a documentary record. 1. Review the Employment Contract The first step is to review the employment contract or letter of appointment. Confirm the agreed salary, payment schedule and any provisions concerning deductions, suspension, leave, disciplinary action and termination. 2. Calculate the Amount Owed Determine precisely how much the employer owes. For example, if an employee’s monthly salary is ₦500,000 and the employer has failed to pay for three months, the basic salary arrears are ₦1,500,000, subject to any lawful deductions or other relevant contractual provisions. The employee should also separately identify unpaid allowances, commissions, bonuses or other benefits where they are contractually due. 3. Make a Formal Demand The employee should formally demand payment from the employer. The demand should state: The period for which salary remains unpaid. The amount outstanding. The contractual basis for the entitlement. The date by which payment is expected. The consequences of failing to resolve the matter. A written demand creates evidence that the employer was informed of the outstanding obligation. 4. Preserve Evidence An employee should preserve documents relating to the employment and non-payment. These can include: Employment contract. Letter of appointment. Payslips. Bank statements. Emails. WhatsApp messages. Staff handbook. Salary schedules. Evidence of previous salary payments. Correspondence with the employer. Termination or resignation documents. These documents can become important evidence if the dispute proceeds to litigation. Can an Employee Recover Unpaid Salary After Resigning? Yes. Resigning from employment does not ordinarily mean that an employee has abandoned salary that was already earned. If an employee resigns while the employer owes salary that had already become due, the employee can pursue recovery of the outstanding amount. The employee should distinguish between salary already earned and future salary that would have been earned had the employment continued. The fact that the employee resigned does not by itself extinguish an existing entitlement to salary already earned. Can an Employee Recover Unpaid Salary After Being Terminated? Yes. Termination of employment does not automatically extinguish salary that had already accrued before termination. For example, if an employee’s employment ends on 15 August and the employee has not received the salary due for the preceding month, the termination does not eliminate the existing salary debt. The employee can pursue the outstanding salary together with any other contractual entitlements that have become due. Where the termination itself was wrongful, the employee can also pursue the remedies available for wrongful termination, subject to the nature of the employment. Can an Employer Refuse to Pay Salary Because an Employee Owes the Company Money? An employer should not simply deduct whatever amount it considers appropriate from an employee’s salary. Whether a particular deduction is lawful depends on the applicable law, the employment contract and the circumstances giving rise to the alleged debt. Where an employer alleges that an employee owes the company money, the employer should establish the basis of the debt and the lawful mechanism for recovering it.