By simply grabbing a copy of a newspaper or sitting before the television to keep abreast of happenings in the country, cases on deferred compensation would usually pop up. Oftentimes we find pensioners crying to the government for their entitlements. Imagining this scenario which is a common happening in Nigeria, helps us to understand the plight of employees who’ve experienced deferred compensation.
What is Deferred Compensation?
Deferred compensation refers to a type of employee benefit plan where an employer promises to pay an employee a certain amount of money at a future date, usually after the employee has retired or separated from the company. Usually, the people we see carrying placards and demanding their compensation were promised a certain amount of money at a future date, according to our definition of deferred compensation. This type of plan allows employees to defer receiving a portion of their compensation until a later date, often in exchange for tax benefits or other incentives.
Deferred compensation can take many forms, not just the demonstration put out by pensioners as we have grown accustomed to. These deferred compensations can take the form of deferred bonuses, deferred stock options, and supplemental executive retirement plans.
Why is Deferred Compensation Plan Complex?
Deferred compensation plans can be complex and subjected to various rules and regulations. This is why it is important for employers to design and administer their deferred compensation plans to ensure compliance with these issues.
Authorities on this subject matter advise that employees should do their due diligence by carefully considering the terms and conditions of any deferred compensation plan before participating, as these plans can have significant tax and financial implications. Though identified as having some benefits, nonetheless due diligence is still required on the part of employees before engaging it.
Deferred compensation is beneficial to employees seeing that it can provide employees with a source of retirement income or a lump sum payment at a future date. Employers, through the HR, may also offer deferred compensation plans as a way to attract and retain top talent, as these plans can be a valuable benefit for employees.
Handling Deferred Compensation in Nigeria
As observed in various parts of the world, deferred compensation is regulated by different laws which must be complied with. Deferred compensation in Nigeria is governed by various laws and regulations. For instance, we have laws such as the Personal Income Tax, the Companies Income Tax, and the Pension Reform Act regulating deferred compensation in Nigeria.
Employers are therefore required to deduct Pay-As-You-Earn also known as PAYE tax from deferred compensation payments made to employees.Handling deferred compensation in Nigeria demands that employers are to comply with the existing laws and regulations guiding this compensation.
Employers are to ensure compliance with the relevant laws and regulations; they must maintain accurate records of deferred compensation plans, including plan documents, employee agreements, and payment schedules.
Clear disclosure of the terms and conditions of the deferred compensation plan to employees is considered important. In doing this, retired employees are saved the trouble of carrying placards demanding their compensation.