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Employment Laws in Nepal

Updated on:
16 Jan, 2024
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Nepal offers an ideal economy for expanding businesses, with the country’s total workforce expected to reach 9.32 million in 2024. The GDP of this South Asian country is also on the rise and is predicted to reach 64.21 billion USD by 2028.

Along with these economic benefits, Nepal’s low tax structure with high investment returns pose an added advantage. The employment laws in Nepal are governed by The Labor Act of 2017, which specifies guidelines on hiring, payroll, contracts, termination, and other aspects of employment.

If you plan to expand your business in this country, you must be acquainted with Nepal’s labor laws and regulations to stay compliant and avoid legal issues. So, before you begin hiring in Nepal, here’s a compact guide to Nepal’s unique hiring laws.  

Contractual Agreements

As per The Labor Act 2017 of Nepal, employees must sign an employment agreement with their respective employers. However, in the case of casual employment, the need for a contract is optional. 

As per the contract employment law in Nepal, the contract must include all necessary details such as employment terms, probation period, remuneration and benefits, incentives (if any), leaves and holidays, etc. 

Types of employment contracts in Nepal

There are different types of employment contracts available in Nepal, such as:

Contract Type Details
Regular employment contracts
  • Issued for all employees engaged in standard working hours.
Work-based employment contract
  • Issued to particular professionals allotted specific works by employers.
Time-based employment contract
  • Issued to employees engaged in time-bound tasks.
Casual employment contracts
  • Issued to those employees who will work for 7 days or less per month.
  • Contracts might not be mandatory In such a scenario.
Contracts for part-timers
  • Issued to those employees who will work 35 hours or less per week.

Obligations and rights for both parties

Employer obligations:

  • Providing local law-compliant work contracts.
  • Ensuring that employees are engaged in safe and healthy working environments.
  • Ensuring equality of work and pay for the employees. 

Employee obligations:

  • Meeting work standards prescribed by the employer.
  • Work diligence.
  • Regularity of work.

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Working Hours and Overtime

The Labor Act 2017 details the employment conditions for employees in Nepal. This Act is relevant across public and private firms, including cooperatives, registered foreign companies, and other entities. 

Regular working hours

  • According to the Nepal labor law, the standard working hours for an employee is 8 hours a day or 48 hours a week. 
  • Employees are provided a 30-minute break after every five working hours. If their work can not be interrupted in between, the employee will work in shifts and get a break in between.

Overtime regulations and compensation

Employment laws in Nepal mandate that an employee can work overtime. Here are the overtime regulations in Nepal:

  • The overtime work hours are fixed at 24 per week.
  • It should not exceed 4 hours per day.
  • The overtime pay is 1.5 times the regular salary.

Minimum Wage and Compensation

Nepal labor law mandates a minimum salary for employees, updated from time to time by the Ministry of Labor, Employment and Social Security. 

The minimum wage rate in 2024

As of 2023, the minimum wage rate in Nepal is NPR 17,300 a month. This wage rate varies with the occupation type.

Occupation type Minimum salary per month (in NPR) Dearness Allowance (in NPR) Total salary (minimum) (in NPR)
Domestic workers 13,450 - 13,450
General minimum salary 10,820 6,480 17,300
Tea estate workers 8,934 4,959 13,893

Factors Affecting Wage Determination

A few factors affecting wages in Nepal are:

  • Living standards in the country
  • Demand vs supply of labor
  • Employee expertise, experience
  • Nature of work
  • Country’s economy

Employee Benefits and Social Security

The work culture in Nepal is employee-friendly, with the government offering several statutory and social security benefits.

Statutory benefits

Gratuity

  • Employees in Nepal are entitled to gratuity, and the amount corresponds to the prevalent laws. 
  • Employees relieved of service beforehand are entitled to one month’s salary as gratuity remuneration.

Provident fund

  • Employees contribute 10% of their monthly salary towards PF, and their employer has to make an equal contribution.
  • The employee can not withdraw the total PF amount before they are relieved of duty from the organization. 
  • The concerned employee can take loans against their PF, amounting to at most 50% of the total PF value.

Insurance

  • The employer must ensure insurance coverage for their employees, including:
    • Medical insurance: A minimum of NPR 100,000 per year per employee (employer and employee bears premium at a 50:50 ratio)
    • Accident insurance: A minimum of NPR 700,000 per employee fully paid by the employer.

Disability or injury benefits

  • If an employee suffers workplace injury, they’re eligible for NPR 15,000 assistance. 
  • Additional sick leaves are also given if the employee needs medical treatment.

Additional perks and benefits

  • Medical facilities, of up to 2 months’ wages.
  • Dashin expenses equivalent to the employee’s monthly salary
  • Holidays and leaves
  • Maternity and paternity leaves
  • Severance pay
  • Festival allowance, once a year

Social Security contributions and requirements

The labor law in Nepal offers many social security contributions to employees:

Name of the scheme Total contribution by employer Total contribution by employee Fund allocation (%) in different schemes
Medical Treatment, Health, and Maternity Protection Scheme 20% of the basic salary 11% of the basic salary 1.00
Accident and Disability Protection Scheme 1.40
Dependent Family Protection Scheme 0.27
Old Age Protection Scheme 28.33

Vacations and Paid Time Off

As per the employment laws in Nepal, an employee is entitled to several paid and unpaid leaves. They are also permitted one weekly holiday. 

Annual leave entitlement

Every employee in Nepal is entitled to 1 leave per 20 days of work period they’ve performed. These are also termed ‘home leaves’ and can be accumulated over a maximum of 36 days.

Public holidays and special leaves

The following public holidays are available to employees in Nepal:

  • Nepalese New Year
  • Eid ul Fitr 
  • Buddha Jayanti 
  • Republic Day of Nepal 
  • Raksha Bandhan 
  • Independence Day of India 
  • Shrikrishna Janmashtami 
  • Constitution Day (National Day of Nepal)
  • Ghatasthapana 
  • Phulpati/ Gandhi Jayanti 
  • Maha Ashtami 
  • Maha Navami 
  • Vijaya Dashami 
  • Laxmi Puia (Diwali) 
  • Govardhan Puia 
  • Bhai Tika 
  • Guru Nanak's Birthday 
  • New Year 2023 
  • Republic Day of India 
  • Maha Shivaratri 
  • Democracy Day of Nepal 
  • Phagu Purnima or Holi

Labor laws of Nepal specify the following special leaves to an employee:

Sick leave

  • Every employee can get at most 24 days of sick leave per year with full payment.
  • Previous information must be provided to the employer, and medical certificates are required for leaves of more than 7 days. 

Obsequies leave

  • Employees in Nepal get obsequies leaves for 15 days at most.
  • These leaves are paid with full salary.

Educational leave

  • Employees in school can take 10 days of educational leave in a year for their examination.
  • The employer has to ensure school hours and working hours are not overlapping.

Maternity and paternity leaves

  • An employee can avail up to 14 weeks of maternity leave.
  • The initial 60 days are fully paid.
  • An employee can avail up to 15 days of fully paid paternity leave.

Replacement Leaves

  • This unique leave is given to those employees working on any public or weekly holiday.

All these leaves can be accumulated and encashed, depending on the company policy.

Termination and Severance

According to employment laws in Nepal, the employer has to provide a notice period and justify reasons for terminating an employee. So, before you decide to terminate your workers, here’s what you need to know:

Grounds for termination

These are some common termination grounds for Nepalese employees:

Termination grounds Provisions
Misconduct Warning, suspension, followed by termination.
Voluntary termination The employee provides the employer with their resignation letter and serves the due notice period.
Compulsory retirement The employee has reached their serviceable age (in Nepal, it is 58).
Work-based employee The employee’s work is completed as mentioned in the employment contract.
Time-based employee The employment contract mentions that the employee’s work time is over.
Failed to meet work standards Employees can be terminated due to poor performance.
Incapability due to ill-health If a medical expert recommends that the employee is unfit for work, they can be terminated.

Notice period and severance pay

The employer or employee, whoever is terminating the contract, must provide a notice period. The notice period length varies with the employee's tenure. 

Employee’s tenure Length of notice period
4 weeks 1 day
4 weeks to a year 7 days
More than a year 30 days

According to the labor law in Nepal, employers must provide severance pay to their employees. 

  • According to Section 145 of Labor Act 2017, an employee is entitled to 1 month’s salary per service year as severance pay. 
  • For employees with tenure of less than a year, the severance pay is calculated proportionately.

Discrimination and Equal Opportunity

Nepal has passed legislation banning gender-based employment discrimination. A global EOR can help ensure compliance with local laws.

Prohibitions against workplace discrimination

The employment laws in Nepal are stringent against discrimination. The Labor Act of 2017 in Nepal imposes strict penalties on employers found guilty of discrimination against employees. Fines can reach a maximum of NPR 100,000.

Health and Safety Regulations

The 2017 Labor Act ensures the health and safety of employees in Nepal. It mandates that employers arrange safety measures in the workplace. Labor suppliers must also ensure the same and suggest the employer comply with the law if such measures are absent.

Non-compliance with the law could result in up to 2 years of imprisonment for the employer, and they also need to compensate the injured employee.

Stay Compliant with Skuad

International business expansion requires much knowledge about local laws. Partnering with a global EOR like Skuad is best to ensure compliance.

With Skuad, you can seamlessly expand your business in 160+ countries, including Nepal. Our team streamlines your hiring essentials like payroll, HR operations, and much more. With us, you can effortlessly pay the local employees in their currency of choice and easily calculate taxes and deductions on a single platform. 

From calculating your hiring costs to sending locally compliant contracts, Skuad helps guarantee the best HR practices. 

Get started with Skuad! Book your demo today!

FAQs

Q1: What are the labor laws in Nepal?

A1: The Labor Act of 2017 lays down the employment laws in Nepal. These laws detail the employment types in Nepal, probation period, agreement terms, remuneration, etc.

Q2: How many paid leaves are allowed in Nepal?

A1: Employees in Nepal are entitled to paid or home leave. Labor laws of Nepal state that all employees get 1 paid leave per 20 days of work. 

Q3: What is the termination policy in Nepal?

A1: The termination policy in Nepal dictates that prior notice must be given to the employees, the duration of which varies with an employee’s tenure. It also mandates severance pay for the notice period. 

Q4: What is the no work, no pay policy in Nepal?

A1: In the Industrial Policy of 2011, the ‘no work, no pay’ policy states that if employees are not working, then they will not get paid. 

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EOR in 
Nepal
Monthly
best value
Annually
Pay monthly at a discounted rate with a 12-month commitment
$
249
/month
(billed annually)
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limited-offer-banner
EOR in 
Nepal
Monthly
$
299
/month
(billed annually)
Annually
Pay monthly at a discounted rate with a 12-month commitment
$
249
/month
(billed monthly)
G2 badge

Employ contractors and employees in 160+ countries

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