No, a 13th month salary isn't compulsory in Nigeria. No law requires it. But once you promise it in an offer letter, contract or staff handbook, it becomes part of your staff's pay, and the National Industrial Court will make you pay it.
It's taxable: under the Nigeria Tax Act 2025 it's added to the employee's PAYE. Pension usually isn't deducted from it. On a ₦500,000 monthly salary, a full 13th month adds about ₦90,000 to the year's tax, so the employee keeps about ₦410,000.
December is when good intentions meet cash flow. A 13th month is one of the kindest things a small company can do for its team, and one of the easiest promises to make in March and regret in November. Our view: promise only what you can pay in a bad year, and pay what you promise. A modest bonus paid every year builds more trust than a generous one that quietly disappears.
1. What the law says
The Labour Act and Nigeria's other employment laws don't mention a 13th month salary. Employment lawyers agree it's not a statutory benefit (Chambers Employment 2024, Nigeria). Some global payroll websites list it as mandatory in Nigeria. It isn't.
A 13th month becomes something you owe in three ways:
- Your contract or offer letter promises it.
- Your staff handbook promises it, and staff have accepted the handbook.
- Your practice: lawyers argue that paying it consistently for years can create a "legitimate expectation" even without writing it down (Perchstone & Graeys, December 2023). We didn't find a judgment decided on practice alone, but it's a real risk.
Some state governments pay their workers a 13th month, among them Akwa Ibom, Oyo and Zamfara in recent years. That's their own policy; it creates no duty for private employers.
2. What the National Industrial Court enforces
Two recent judgments show how the court reads a 13th month promise. Both were against the same company, over the same handbook clause:
- Adefisan v. Sparkwest Steel Industries Ltd (NICN/IB/07/2023, judgment December 2025). The company said "performance" meant the company's results, which had been poor, so no 13th month was due. The court found the clause could be read more than one way, held that the ambiguity was the employer's own making, and resolved it in the employee's favour. Because other staff had been paid for the same years, it also found the non-payment discriminatory, an unfair labour practice. It ordered ₦145,557.70 in arrears, ₦200,000 costs and 20% a year interest on late payment (judgment).
- Adebayo v. Sparkwest Steel Industries Ltd (NICN/IB/10/2023, 4 May 2026). Same clause, same result: ₦451,663.98 in arrears plus ₦200,000 costs. The Managing Director was held to be a proper party to the case (judgment).
- Earned benefits can't be cancelled one-sidedly. In Ovbioise v. Adedeji (NICN/LA/484/2020, 2023), the employer said it had "annulled" the 13th month in 2015. The court still ordered arrears for 2016 to 2019, even though the employee had resigned (as reported by Perchstone & Graeys).
The lesson for founders: vague conditions don't protect you. If a 13th month depends on something, say exactly what, how it's measured and who decides. And whatever you decide, apply it to everyone the same way.
3. Tax, pension, NHF, NSITF and ITF
| Deduction | On a 13th month? |
|---|---|
| PAYE | Yes. Under the Nigeria Tax Act 2025, "employers are to add bonuses and 13th-month pay to the PAYE base of the employee" (DLA Piper Africa, August 2026). It's taxed at the employee's top band: 15% or 18% for most staff. |
| Pension | Usually no. Pension is worked out on monthly emoluments, at least basic plus housing and transport (Pension Reform Act 2014, section 120). One-off payments are usually left out, unless your contract defines emoluments to include them. See our pension guide. |
| NHF | No. NHF is 2.5% of basic salary, and optional for private-sector staff. A 13th month isn't basic salary. |
| NSITF | It depends on the base. NSITF inspectors apply the employer's 1% to gross pay, including bonuses. The 2017 NSITF–NECA agreement excludes one-off payments such as a 13th month, but not every NSITF office applies it. Gross is the safer base. See our NSITF guide. |
| ITF | Likely yes. ITF is 1% of annual payroll, which counts allowances and other entitlements, for employers with 5 or more staff or ₦50 million turnover. |
How much PAYE to deduct in the month you pay it
The tax a 13th month adds over the whole year is clear: the bonus times the employee's top band, as in the example below. How that tax should be withheld in the payment month is less settled. Taxing the bonus month on its own can deduct more than the year's tax needs, while working it out on the year to date matches it. We haven't found guidance from the Nigeria Revenue Service or a state tax office on this, so ask your tax adviser how your state tax office wants it withheld.
4. Worked example: what a 13th month costs and pays
A company pays a 13th month equal to one month's gross salary, in December. Pay is split into basic, housing and transport, nobody claims rent relief, and pension isn't deducted from the bonus.
| Monthly salary | 13th month | Extra tax on the year | Employee keeps | NSITF on gross (1%) |
|---|---|---|---|---|
| ₦150,000 | ₦150,000 | ₦22,500 | ₦127,500 | ₦1,500 |
| ₦500,000 | ₦500,000 | ₦90,000 | ₦410,000 | ₦5,000 |
If your 13th month is one month's basic instead, it's smaller. On the common 50/30/20 split, the ₦500,000 earner's basic is ₦250,000: the extra tax is ₦45,000 and they keep ₦205,000. Check any salary with the take-home pay calculator.
WadataHR handles bonuses alongside the month's pay, flags large ones before you approve, and shows December's "cash you'll need" with every due date. Free for up to 5 staff.
5. Budget for it now
A 13th month equal to one month's gross is a 13th payroll in the year, about 8% more on your annual salary bill. Set it aside monthly, not in December.
6. Who gets it: joiners, leavers and probation
The law sets no rules here, so your terms decide. Common approaches:
- Joiners: pro-rated by complete months worked in the year. Someone who joined on 1 July on ₦300,000 a month gets 6/12 of ₦300,000: ₦150,000.
- Leavers: many terms pay it only to staff still employed on the payment date. If you say nothing, a leaver may argue for a share, so say it.
- Probation: some employers exclude staff still on probation in December. Again, write it down.
Whatever you choose, apply it to everyone the same way. Paying some staff and not others, without a clear reason, is what turned the Sparkwest cases into findings of discrimination.
7. Clause wording you can adapt
Two versions: one where the 13th month is a firm promise, one where it's genuinely discretionary. Have a lawyer check the final wording against your contracts.
1. A contractual 13th month
You will receive a 13th month salary equal to one month's [basic / gross] salary at your rate on [1 December], paid with your December salary each year.
If you joined during the year, it is pro-rated by the complete months you have worked in that year.
It is paid only to staff employed by the company on the payment date who have not given or received notice of termination.
It is subject to PAYE and any other deductions required by law.
2. A discretionary end-of-year bonus
The company may pay an end-of-year bonus. Whether a bonus is paid in any year, and how much, is decided by [the Managing Director / the Board] at its discretion, taking into account [the company's revenue against its budget for the year] and [your performance rating for the year].
If a bonus is paid, it is applied to all eligible staff on the same basis, and we will tell you how it was worked out.
A bonus paid in one year does not create a right to a bonus in any later year.
Any bonus is subject to PAYE and any other deductions required by law.
Our view: if you pay a discretionary bonus, explain each December how the decision was made. Discretion that's explained feels fair. Discretion that isn't feels like a lottery.
8. If you can't pay it this year
It happens, especially in a tight year. How you handle it matters as much as the money.
- If it's contractual, it's owed. You can't cancel it on your own. Talk to your team early, explain the position honestly, and agree any new date or instalments with each person in writing. Take legal advice before you do.
- If it's discretionary, tell your team before December, not on payday, and tell them why.
- Either way, don't single anyone out. Treat everyone in the same position the same way.
13th month questions founders ask
Is 13th month salary compulsory in Nigeria?
No. No Nigerian law requires employers to pay a 13th month salary. But once you promise it in an offer letter, contract or staff handbook, it's part of the employee's pay and the National Industrial Court will enforce it. In two 2025 and 2026 judgments against Sparkwest Steel Industries, the court read a vague handbook clause in the employees' favour and ordered the arrears paid with costs.
Is 13th month salary taxed in Nigeria?
Yes. Under the Nigeria Tax Act 2025, a 13th month is employment income and is added to the employee's PAYE base. On a ₦500,000 monthly salary, a 13th month of ₦500,000 adds ₦90,000 to the year's tax, so the employee takes home about ₦410,000 of it, if pension isn't deducted from the bonus. How much PAYE to deduct in the month you pay it depends on your payroll method; ask your tax adviser how your state tax office wants it withheld.
Is pension deducted from 13th month salary?
Usually not. Pension is worked out on monthly emoluments: at least basic salary plus housing and transport allowances (Pension Reform Act 2014, section 120). Most employers leave one-off payments like a 13th month out. If your contract defines emoluments to include it, pension applies.
Can I stop paying 13th month salary?
If it's in your contracts or handbook, not on your own. The court has held that an employer can't cancel a benefit staff have already earned. For future years, change the terms with your staff's written agreement, and take legal advice. If it was always discretionary and written that way, you can decide each year.
Do new staff get a 13th month salary?
Only if your terms say so. Many employers pro-rate it by complete months worked in the year: someone who joined on 1 July on ₦300,000 a month would get 6/12 of ₦300,000, or ₦150,000. Write the rule down so every new hire is treated the same.
When is 13th month salary paid in Nigeria?
Usually in November or December, often with the December salary. There's no legal date: pay it when your contract or handbook says.
Related guides and tools
December payroll, worked out before December.
WadataHR works out PAYE, pension, NHF and NSITF every month, handles bonuses alongside the month's pay, and reminds you before each due date. You pay from your own bank. Free for up to 5 staff.
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