May 21, 2019
Employee compensation can be said to be the benefit or payment made to an employee by the employer, for service rendered by the employee based on the terms of the contract of employment of the employee. Employee compensation, also referred to as employee emolument, may come in various forms ranging from cash emolument such as salary, bonus, allowances etc., to non-cash emolument such as employee share-award, provision of accommodation, assets, etc. for the employee’s benefit. These emoluments leave different tax footprints, depending on the form of such items and how they are implemented by the employer.
In Nigeria, employers of labour have certain regulatory obligations with respect to their employees. These could be tax-related, such as deduction and remittance of Pay-As-You-Earn (PAYE) tax on employee emolument, or related to social security provisions for employee benefit such as pension fund contributions and employee compensation relief.
This article, which is sequel to our previous article on effective payroll management system in an organisation, discusses the various forms of employee compensation and some of the related tax and regulatory obligations of the employer.
Organisations desire to adopt the best practices in relation to compensation packages for their employees. This usually comes at a huge cost to such organisations. Hence, various methods for compensating employees are developed in order to reduce employment cost whilst attracting best hands in the labour market. These methods may be in the form of cash compensations, non-cash compensations or use of both methods.
This is the most common form of compensation. It is made in form of basic salary, transport allowance, housing allowance, lunch allowance etc., all of which sum to an employee’s gross remuneration.
This type of remuneration comes in various forms. Non-cash compensations are usually referred to as benefit-in-kind. It arises in instances where an employee is granted the use of the organisation’s asset; where a sale of the organisation’s asset is made to the employee at a discounted price; where certain employee expenses are paid by the organisation etc. For instance, an employee can be said to have obtained a benefit-in-kind from his employer where the employee obtains a loan facility from the employer without interest or with lower-than-market interest rate. Another instance is where an employee is compensated by issuance of shares at no cost or at value lower than the market value of such shares. In both instances, the value of the benefit is the opportunity cost to the organisation for the loan facility granted or the share issued to the employee