Calling them “consultants” won’t protect you

The label does not decide

Nigeria has no statutory checklist for telling an employee from a contractor. The National Industrial Court looks at what the relationship is really like, using a handful of common tests:

• Control. Who decides how, when and where the work is done?

• Integration. Is the person part of the business (on the team, on the org chart, using a company email) or providing a service to it from outside?

• Economic reality. Does the person run their own business, with other clients, their own tools and their own risk of profit or loss?

• Mutual obligation. Are you expected to keep giving them work, and are they expected to keep doing it?

The Court has also accepted that new ways of working stretch these old categories, which means the outcome in any one case is hard to predict.

What misclassification costs

If someone you called a contractor turns out, in law, to be an employee, you may owe:

• pension contributions that were never paid;

• income tax that should have been deducted under PAYE, plus penalties;

• employees’ compensation contributions and the cost of group life cover;

• notice pay, terminal benefits and compensation if the relationship ended unfairly.

The Court may also treat a company’s failure to give those protections as a reason to increase damages.

Why it matters more now

The Nigeria Tax Act 2025 and its companion administration law took effect on 1 January 2026, with a much stronger focus on enforcement and data. Employees are taxed through PAYE. Genuine contractors invoice for their work and suffer withholding tax. The tax authority is also moving businesses onto electronic invoicing. A “consultant” with one client, a fixed monthly fee and no invoices will stand out in that system.

Our view

Most misclassification is not fraud. It is a shortcut taken under cost pressure, often with the worker’s full agreement. But the risk sits entirely with the business, and it tends to surface years later, when the relationship ends badly.

Two changes would help:

1. A simple, official status check. There is currently no official way to confirm in advance whether a role is employment or contracting. A voluntary status ruling from the Ministry of Labour or the Nigeria Revenue Service, based on a short questionnaire, would give honest businesses certainty and cut down disputes.

2. Clearer rules for genuine flexible work. Short, project-based engagements need simple contracting rules, so that businesses are not tempted to disguise employment as consultancy.

A quick self-test

If you answer yes to most of these, a court may well see an employee:

• Do they work hours that you set?

• Do they use your laptop, your email address or your ID card?

• Do they work only for you?

• Are they paid the same amount each month, whatever they deliver?

• Would you object if they took on another client tomorrow?

• Have they been with you for more than a few months, with no end date?

What to do now

Businesses

• List everyone you pay who is not on the payroll, and run the self-test for each person.

• For genuine contractors: use project-based contracts with clear deliverables, insist on invoices, and leave them free to work for others.

• For people who fail the test: move them onto proper employment terms now. It is cheaper than a claim later.

Workers

• If you are a consultant in name only, keep records of your hours, instructions and payments. They matter if a dispute arises.