As the year draws to a close, employers in Nigeria are actively engaged in various critical tasks, and one such imperative activity is the completion of their end-of-year payroll tasks. A seamlessly executed payroll process isn’t just vital for regulatory compliance but also plays a substantial role in maintaining high levels of employee satisfaction. Furthermore, it lays the groundwork for a smooth transition into the upcoming year. In this comprehensive guide, we’ll walk you through the essential steps outlined in the End-Of-Year Payroll Checklist for Employers in Nigeria.

1. Employee Records and Personal Data

As the year-end approaches, employers should undertake a thorough review and update of employee records to ensure accuracy and compliance. This process involves verifying and confirming various aspects of personal information for each employee, such as addresses, contact numbers, and emergency contacts.

For example, let’s consider an employee named Bimpe. She recently moved to a new apartment and changed her phone number. During the end-of-year payroll activities, the HR department would reach out to Bimpe to validate and update her current address and contact information. This step ensures that the company has the most accurate and up-to-date details for Bimpe, which is crucial for effective communication and emergencies.

Simultaneously, employers should leverage such opportunities to discuss life changes with employees, such as marriage or address modifications. In this context, if Bimpe got married and changed her last name, the HR team could encourage her to update this information as well. Utilizing an Employee Self-Service System, if available, empowers employees like Sarah to autonomously manage their personal details.

Additionally, employers need to confirm that employees’ banking details are current to facilitate seamless salary payments. In Bimpe’s case, the HR team would cross-verify her banking information, making sure it aligns with her latest details. This proactive approach ensures that any adjustments or corrections can be made before the year-end payroll is processed, preventing payment delays or errors.

By incorporating these checks and updates as part of the year-end payroll checklist, you not only maintain accurate records but also demonstrate a commitment to the well-being and satisfaction of your workforce. It is an essential practice to foster a smooth transition into the upcoming year and adhere to regulatory standards.

2. Tax Compliance

To ensure accurate tax calculations and deductions in year-end payroll tasks, employers must meticulously cross-check tax rates, exemptions, and allowances, aligning them with the latest regulations. Additionally, they should thoroughly prepare for the submission of annual tax returns and provide employees with their tax certificates, detailing the PAYE deductions made over the year.

In Nigeria, annual tax returns are typically submitted to the Federal Inland Revenue Service (FIRS). Employers must be cognizant of the specific tax office responsible for their location and industry. Compliance is mandatory, as outlined in Section 81(2) of the Personal Income Tax (Amendment) Act 2011, requiring employers to file an annual return with the relevant tax authority by January 31 of each year, detailing all remunerations paid to employees in the preceding year. Failure to meet this obligation incurs penalties of N50,000 for individuals and N500,000 for corporations, as stipulated in Section 81(3).

Moreover, providing employees with tax certificates is standard practice in Nigeria. Tax certificates are also known as PAYE (Pay As You Earn) certificates. These certificates comprehensively outline the income earned and taxes deducted throughout the year, aiding employees in their personal tax filings and facilitating accurate reporting of income for potential tax refunds.

Tools like roPay play a pivotal role in maintaining thorough tax calculations throughout the year. By automating the payroll process, roPay ensures accurate and up-to-date data on tax rates, exemptions, and allowances. This not only streamlines the year-end tax compliance process but also mitigates the likelihood of errors, ensuring employers have precise information for the preparation of annual tax returns.

3. Year-End Bonuses and Benefits

As the year concludes, thoughtful planning for the distribution of year-end bonuses and benefits is crucial for companies that follow these traditions. This process requires not only setting clear communication channels but also aligning the payment process with company policies and budgetary constraints.

In the Nigerian work sphere, aside from HMO and pensions, several types of bonuses are prevalent, making the distribution planning an integral part of year-end payroll activities. One common practice is the provision of a 13th-month payment, equivalent to an additional month’s salary. This bonus is often considered a financial boost for employees during the festive season and is a discretionary practice by some employers.

Another significant bonus structure is tied to Key Performance Indicators (KPIs). Many Nigerian companies have a performance-driven bonus system where employees receive a percentage of their annual salary based on individual or team performance. This not only acts as a motivational tool but also directly links rewards to productivity and the achievement of set goals.

Clear communication of bonus criteria is essential for transparency and understanding. For instance, if the 13th-month payment is contingent on specific criteria like length of service or consistent performance, these should be communicated well in advance. Similarly, for KPI-based bonuses, employees should be aware of the metrics and benchmarks used for eligibility.

Moreover, the payment process should adhere to company policies and budget constraints. If there are financial considerations or limitations, effective communication is vital. Employers can explore alternative ways to appreciate and recognise their workforce, such as non-monetary benefits or incentives like Christmas hampers, food items, movie tickets, and more.

Proactive planning for year-end bonuses and benefits not only enhances employee satisfaction and motivation but also contributes to a positive work culture. It is a strategic element of the year-end payroll checklist that ensures fairness, compliance, and financial prudence in the rewarding of employees.

4. Leave Balances

As part of the year-end payroll activities, review and update leave balances for all employees. Accurately account for unused leave days and communicate policies regarding carryover or forfeiture.

In Nigeria, many company policies specify that leaves cannot be accumulated beyond a certain period, often one year. Exceptions may apply when both the employer and employee mutually agree, allowing leave balances to extend over two years or more. This flexibility can be beneficial when employees have valid reasons for not utilising their leave within the standard timeframe.

Communicate clearly with employees about the company’s leave policies, including any limitations on leave carryover and the procedures for requesting and scheduling leave. Proactive communication helps avoid misunderstandings and ensures awareness of the rules governing leave balances.

Also, consider implementing automated leave tracking systems, such as those provided by human resources management software such as roPay, to streamline the process of monitoring and updating leave balances. This reduces the likelihood of errors and promotes transparency in leave management.

5. Payroll Reconciliation

You should undertake a comprehensive reconciliation of payroll records for the entire year as part of the year-end payroll activities. This involves a meticulous review to identify and rectify any discrepancies, ensuring precise calculations and validating that all deductions and contributions align with regulatory requirements.

In Nigeria, various deductions may be applicable, including but not limited to taxes (such as PAYE), pension contributions, and health insurance premiums. To reconcile payroll records effectively, employers should cross-verify the total amounts deducted against the sum of individual employee records. This process ensures accuracy and compliance with statutory obligations.

One critical aspect of payroll reconciliation is confirming that all employees’ tax obligations have been accurately calculated and deducted throughout the year. This includes cross-checking tax rates, exemptions, and allowances to align with the latest regulations. You can leverage automated payroll tools like roPay to streamline this process, ensuring accurate and up-to-date calculations. The roPay payroll tool offers a valuable solution for employers looking to enhance the efficiency of payroll reconciliation. By automating calculations and maintaining a centralised database of payroll information, roPay minimises the risk of errors and provides a clear overview of payroll records.

Similarly, for contributions to pension schemes and health insurance, reconciliation involves verifying that the amounts deducted from employees’ salaries match the agreed-upon percentages or fixed amounts. Consistency in these calculations is crucial for compliance with pension and health insurance regulations.

6. Statutory Contributions:

To ensure compliance with statutory contributions, verify the consistent remittance of crucial deductions, including those for pension, the National Housing Fund (NHF), and the National Health Insurance Scheme (NHIS). This entails confirming that these contributions have been made promptly and regularly throughout the fiscal year.

Pension Contributions

Confirm the accuracy of deductions for employees’ pension contributions, ensuring they have been consistently remitted to their respective pension fund administrators. In Nigeria, employers typically deduct a percentage of employees’ salaries for pension, as mandated by pension regulations. Cross-verify the total contributions against individual employee records to maintain precision.

National Housing Fund (NHF)

Ensure consistent and accurate deduction and remittance of contributions to the National Housing Fund (NHF). Employers are mandated to deduct a specific percentage from employees’ salaries for the NHF, to promote affordable housing for Nigerian workers. It is essential to verify that these deductions align with statutory requirements and have been promptly remitted to the appropriate authorities.

National Health Insurance Scheme (NHIS) Deductions

Verify NHIS deductions to ensure consistent application throughout the year. Confirm that the deducted amounts align with stipulated percentages or fixed rates. NHIS contributions are crucial for providing healthcare coverage to employees, and adherence to established deduction rates is vital.

For outstanding contributions, it is imperative to remit these before the fiscal year’s end. Timely remittance not only ensures regulatory compliance but also demonstrates your commitment to fulfilling statutory benefits for your employees.

By confirming the accuracy and consistency of these statutory contributions, you contribute to the financial well-being and security of your workforce. This proactive approach ensures a smooth year-end payroll process and compliance with relevant regulations.

7. Employee Acknowledgment and Communication

In the final stages of the year-end payroll activities, employers need to foster transparent communication with their workforce. One effective way to achieve this is by providing employees with a comprehensive summary of their financial transactions throughout the year. This summary typically includes details of earnings, deductions, and tax information.

A key element in this communication strategy is the use of detailed payslips. These documents offer a breakdown of each employee’s financial transactions, providing a clear overview of income, deductions, and taxes. Payslips act as tangible records that employees can refer to, promoting transparency and understanding.

To facilitate easy access to this information, self-service portals can be employed. For instance, the roPay employee app offers a user-friendly platform where employees can conveniently view and download their payslips. This not only streamlines the process but also empowers employees to manage their financial information independently.

Email communication is another effective method for distributing year-end financial summaries. Sending consolidated statements allows employees to review their financial data at their own pace and provides a digital record for future reference.

For a more personal touch, employers may consider arranging in-person meetings to discuss the year-end summary. This approach allows employees to seek clarification on any aspects of their financial information, fostering a culture of open communication.

Interactive platforms, such as company forums or chat groups, can also be explored. These platforms create real-time communication channels where employees can engage with HR or payroll personnel directly. This ensures that any queries or concerns are addressed promptly, reinforcing a positive employer-employee relationship.

By adopting these communication methods, employers not only fulfill their obligation to provide financial summaries but also empower employees to actively engage with and understand their financial information. This proactive approach contributes to a positive work environment and strengthens the overall communication between employers and employees.

8. Review Employment Contracts and Policies

As the year comes to a close, it’s a fitting moment for employers to conduct a thorough review of employment contracts and company policies. This process is essential to guarantee that these foundational documents align seamlessly with the latest labour laws and regulations. To navigate this endeavour effectively, consider adopting the following systematic approach:

• Reviewing Individual Employment Contracts

Begin by delving into individual employment contracts, and meticulously examining the terms and conditions outlined for each employee. This review aims to ensure that the content accurately reflects the current roles and responsibilities of individuals within the organisation.

• Scrutinising Company Policies

Simultaneously, scrutinise company policies to confirm their compliance with legal requirements while remaining practical and relevant to the evolving work environment.

• Staying Informed about Legal Changes

Staying informed about any changes in labour laws and regulations is paramount. Regularly monitor legislative updates at both the national and state levels to align employment contracts and policies with the latest legal standards.

• Transparent Communication

Transparent communication is a cornerstone of this process. If adjustments are necessary, clearly convey these changes to employees. Whether it’s modifications to employment contracts or updates to company policies, providing transparent information ensures that employees are well-informed and have the opportunity to seek clarification.

• Reflecting Changes in Contracts and Policies

Several instances may warrant changes in employment contracts and policies, ranging from adjustments in statutory benefits, such as minimum wage rates, to modifications in remote work policies or updates in leave procedures. The key is to reflect any pertinent changes in these documents to maintain clarity and consistency.

• Encouraging Employee Input

Encourage employee input during this process by establishing channels for feedback, such as surveys or feedback sessions, to gauge how proposed changes may impact the workforce. This inclusive approach not only provides valuable insights but also fosters a sense of involvement and transparency.

• Seeking Legal Consultation

In cases where legal intricacies are involved, seeking legal consultation is advisable. Legal experts can offer guidance to ensure that employment contracts and policies comply with the latest legal standards, minimising potential risks.

Ultimately, systematic and communicative approach to reviewing employment contracts and policies demonstrates an organisation’s commitment to compliance and fair practices. By keeping these foundational documents aligned with the current legal landscape, employers contribute to a positive workplace environment and mitigate the risk of legal disputes.

9. Budgeting for the Next Year

You should start planning your budget for the new year. You can do this by proactively engaging with your finance teams. This collaborative effort is pivotal in ensuring financial preparedness and aligning payroll expenses with organisational goals as the current year concludes. The process involves a careful consideration of various factors, including salary adjustments, anticipated new hires, and potential changes in employee benefits.

To effectively execute this budgeting process, you can adopt the following practical steps:

• Salary Adjustments

Initiate the budgeting process by assessing potential salary adjustments for the upcoming year, particularly considering the economic context. This evaluation encompasses various components, such as cost-of-living adjustments, merit increases, data allowances, transport allowances, or any other modifications related to employee salaries. Foster open discussions with department heads and the HR department to gather valuable insights into current market trends and industry standards, ensuring that your organisation maintains competitive and fair compensation practices.

• New Hires and Workforce Changes

Collaborate closely with the HR department to forecast and incorporate the impact of new hires into the payroll budget. Consider any expected changes in workforce size, including expansions or contractions, and analyse their financial implications. Additionally, account for associated costs such as recruitment, onboarding, and training expenses.

• Benefits Changes

Review the existing employee benefits package and assess the potential for changes or additions. This may involve consulting with benefits providers, analysing employee feedback, and staying informed about regulatory changes that may affect benefit offerings. Factor in any adjustments to health insurance premiums, retirement contributions, or other ancillary benefits.

• Historical Data Analysis

Leverage previous payroll data to identify patterns and trends. Analyse past years’ payroll expenses to identify any seasonality or recurrent patterns that may impact the budget. This data-driven approach enhances accuracy in predicting future payroll costs.

• Regular Communication with Finance Teams

Establish open and ongoing communication channels with the finance team throughout the budgeting process. Regular check-ins help ensure that all relevant factors are considered, and any adjustments can be made in real-time based on the organisation’s financial strategy and objectives.

• Scenario Planning

Anticipate potential scenarios and fluctuations in the workforce. Develop contingency plans to address unexpected changes, such as increased turnover or the need for additional hiring. This forward-looking approach enhances the flexibility of the budget and ensures preparedness for various workforce scenarios.

By collaboratively considering these factors and adopting a strategic approach to budgeting, organisations can create a comprehensive payroll budget that not only meets financial constraints but also aligns with broader organisational objectives. This proactive effort contributes to financial stability, effective resource allocation, and successful planning for the upcoming year.

10. Continuous Professional Development for Payroll Teams

Investing in the continuous professional development of your payroll team is paramount to ensure they stay abreast of the latest industry trends, tax regulations, and best practices. This proactive approach not only enhances their individual skills but also contributes to the overall efficiency and accuracy of payroll operations in the organisation.

To implement this effectively, implement the following:

• Training Programs

Investing in regular training programs is essential to keep your payroll team well-equipped with the knowledge needed for effective payroll management. Enroll them in workshops that specifically focus on tax regulations, payroll processes, and software updates. These programs, whether conducted by industry experts or tailored to address your team’s specific challenges, contribute significantly to their professional development.

For instance, consider collaborating with tax consultants for in-depth training on recent changes in tax laws and regulations pertinent to payroll processing. This collaborative effort ensures that your team stays abreast of the latest tax requirements, enhancing their capability to implement accurate tax calculations seamlessly.

These training initiatives not only serve as educational opportunities but also empower your payroll team to adapt to evolving regulations and industry best practices. By staying informed through targeted training programs, your team can confidently navigate complexities and contribute to the efficient and accurate management of payroll processes.

• Utilise Technology for Training

Incorporating innovative tools and platforms into your training strategy is essential for fostering continuous learning within your payroll team. Online courses, webinars, and e-learning modules stand out as valuable resources, providing a dynamic approach to keeping your team enlightened on the latest features in payroll software, emerging trends, and industry benchmarks.

The roPay payroll software, is particularly effective for integration into your continuous professional development program. Renowned for its user-friendly interface, roPay simplifies the learning process. With several guides available, it ensures a seamless user experience, enabling your team to explore and harness the full capabilities of the software. This not only optimises efficiency but also guarantees that your team remains well-informed about any updates, empowering them to leverage the software effectively in the evolving landscape of payroll management.

• Cross-Functional Exposure

Encouraging cross-functional exposure is a strategic initiative to broaden the perspectives of your payroll team within the organisation. By providing opportunities for collaboration with other departments, such as HR or finance, your team gains valuable insights into broader organisational processes and challenges.

One effective way to implement cross-functional exposure is by organising joint workshops. For instance, facilitating collaboration between the payroll team and the finance department can yield substantial benefits. Through these workshops, the payroll team delves into the financial implications of their decisions, fostering a deeper understanding of how payroll intricacies intertwine with broader financial considerations.

This cross-functional experience goes beyond the separate nature of payroll operations. It gives team members a full view of how the organisation works. This helps them understand how different parts of the company are connected and lets them adjust payroll practices to fit overall organisational goals. This broader perspective not only improves their skills but also adds to a more cooperative and integrated company culture.

• Regular Knowledge-Sharing Sessions

Create a culture of knowledge sharing within your payroll team to foster collaboration and continuous learning. Encourage team members to openly discuss insights, challenges, and best practices during regular meetings.

For instance, conduct monthly team meetings where members actively engage in discussions. This provides a platform for sharing recent updates in tax regulations, exchanging experiences, and offering valuable tips for streamlining processes. By doing so, you cultivate a dynamic learning community within the team, where each member contributes to the collective growth and expertise of the group.

• Certification Programs:

Empower your payroll team by supporting their pursuit of certifications in Accounting, Payroll Management and Tax Compliance. These certifications not only validate their expertise but also serve as a testament to their commitment to staying informed about industry standards.

By sponsoring team members to pursue these certifications from reputable institutions, you make a strategic investment in the proficiency of your payroll operations. This initiative not only enhances individual skills within the team but also elevates the credibility of your organisation in the realm of payroll management.

In essence, these certifications act as a mark of excellence for your payroll team, positioning them as knowledgeable professionals equipped to navigate the intricacies of payroll management and uphold the highest industry standards.

As the year draws to a close, it’s time to buckle up for a seamless transition into the new year. By carefully following this comprehensive End-of-Year Payroll Checklist, you’ll not only ensure legal compliance but also foster a thriving workplace culture in the coming year. Transparency, accuracy, and meticulous planning form the foundation of a successful payroll process. Embrace the new year with enthusiasm, knowing that you’ve set the stage for a prosperous journey ahead. Stay proactive, stay compliant, and watch your business flourish!