Nepal Labour Act 2017: Plain-English Guide for HR & Founders

Q: Can we be a fully remote employer in Nepal?

Yes; the Labour Act applies regardless of physical office. You still need a registered business entity in Nepal to be a legal employer; alternatives include an Employer of Record (EOR).

Q: Are stock options legal in Nepal?

Equity grants to Nepalese employees of foreign-incorporated companies are legal but operationally complex due to Nepal Rastra Bank foreign exchange rules. See the 'Remitting equity to South Asian employees' article in this series.

Q: What's the minimum wage?

Revised periodically; Rs. 17,300/month total (Rs. 9,385 basic + Rs. 7,915 DA) as of the 2023 revision. Verify the current figure before contract execution.

Q: How do bonuses work?

The Bonus Act requires distribution of 10% of net profit to employees, capped at varying amounts by category. In practice, most small private companies pay festival bonuses (Dashain) and discretionary annual bonuses rather than formal Bonus Act distributions; transition becomes important post-profitability.

Q: What about labour inspections?

The Labour Office can inspect on complaint or randomly. Common triggers: SSF non-payment, terminated employee complaints, harassment cases. Maintain registers, contracts, and SSF receipts; produce on request.

60-Second Summary

Nepal's Labour Act 2074 (2017) plus the Labour Rules 2075 (2018) and the Contribution Based Social Security Act 2074 (2017) form the operating triangle. Every employer with 10+ employees must comply with all three.
Five employment categories: regular, work-based, time-bound, casual, and part-time. Misclassifying a regular employee as 'consultant' to avoid SSF contributions is the #1 enforcement target — and increasingly costly post-2024 inspections.
Statutory minimum is 8 hours/day, 48 hours/week, weekly rest of one day. Annual leave: 1 day per 20 worked (~13/year), sick leave 12 days/year, festival leave + Dashain bonus equal to one month's basic salary.
SSF contribution rates (verified against ssf.gov.np and the Social Security Regulations 2075): employee 11% of basic + employer 20% of basic = 31% total. This covers medical/maternity, accident/disability, dependents, and old-age pension (which absorbs the legacy gratuity and PF obligations for SSF-enrolled employees).
Termination requires a written notice period (1 month for regular employees post-probation), valid grounds, and severance equal to ½ month per year of service if terminated for reasons not attributable to the employee.

Nepal is one of the most under-documented HR jurisdictions in the English-language internet, which is a problem when 70% of Kathmandu-based startups are hiring without a clear sense of what the Labour Act actually requires. This article is the operating guide I wish I had when I started — written for founders setting up their first HR function and for HR generalists from outside Nepal who suddenly own people ops for a Nepal team.

Not legal advice

Nepal labour law is interpreted by the Labour Office, the Labour Court, and increasingly the Social Security Fund's enforcement arm. Always get a Nepal-licensed labour lawyer to review your handbook, employment contracts, and termination decisions. This article documents the framework; counsel applies it to your facts.

The three laws you must know

Nepal's HR legal triangle

1
Labour Act 2074 (2017)
The primary statute. Covers employment categories, working hours, leave, termination, occupational safety, collective bargaining, and labour court procedure. Replaced the Labour Act 1992 and is significantly more employee-protective.
2
Labour Rules 2075 (2018)
The implementing regulations. Specifies forms, registers, calculation methods, and procedural detail the Act references but doesn't spell out. You can't operate the Act without the Rules.
3
Contribution Based Social Security Act 2074 (2017)
Established the Social Security Fund (SSF). All employers with 10+ employees must register and contribute. For SSF-enrolled employees, the SSF replaces the legacy separate gratuity and PF requirements with a unified contribution scheme.

There's also the Bonus Act 2030 (1974), the Sexual Harassment at Workplace (Prevention) Act 2071 (2015), and various sector-specific rules (banking, hospitality, IT/BPO labour permits). For a typical Kathmandu tech startup, the triangle above plus the Harassment Act covers ~90% of compliance load.

Categories of employment

Category	Definition	Typical use	Key obligations
Regular (नियमित)	Permanent employment with no fixed end date	Most full-time roles after probation	Full Act applies — gratuity, leave, severance, all benefits
Work-based (कामअनुसार)	Tied to a specific deliverable; ends when the work ends	Project-scoped specialists	Most Act provisions apply pro-rata
Time-bound (समयबद्ध)	Fixed-term contract with start and end dates	Maternity covers, defined consulting engagements	Cannot exceed 6 months unless renewed; chained renewals can be deemed regular
Casual (कामचलाउ)	Less than 7 days of work in a month	Event staff, one-off help	Limited Act coverage; cannot be used to disguise regular work
Part-time (अंशकालीन)	Less than 35 hours per week	Pro-rated benefits	Pro-rata leave, gratuity, SSF if covered

The contractor trap

Hiring someone as a 'consultant' on a service agreement to avoid SSF, PF, and termination protections is the #1 enforcement issue. If the person works set hours, takes direction, uses your equipment, and works only for you, they're functionally an employee regardless of the contract title. The Labour Office and SSF use a 'substance over form' test. Back-pay of contributions plus penalties of up to 100% of unpaid amounts is the typical outcome.

Probation and confirmation

Probation period for regular employees is up to 6 months under the Act (Section 12). During probation, either party can terminate with shorter notice (typically 15 days, set in the contract). After probation, the employee is automatically confirmed unless a written extension is communicated before the period ends.

Communicate confirmation in writing — silence after 6 months = automatic confirmation.
Probation extension is rare in practice and must be justified; courts dislike open-ended probationary status.
Confirmation triggers full Act protection including the 1-month termination notice requirement.

Hours, overtime, and leave

Item	Statutory minimum	Common practice (Kathmandu tech)
Working hours	8 hours/day, 48 hours/week	8h × 5 days (Sun–Thu OR Mon–Fri); Saturday off
Weekly rest	1 day (typically Saturday in Nepal)	Saturday off; some firms also Friday afternoon
Overtime cap	4 hours/day, 24 hours/week	Rarely tracked formally at tech startups — risk area
Overtime rate	1.5× regular wages	Often paid as flat bonus, technically out of compliance
Annual leave (paid)	1 day per 20 days worked (~13 days/year)	Most tech firms offer 15–25 days
Sick leave (paid)	12 days/year (half-pay after exhaustion of full-pay)	Most firms match statutory
Festival leave	Varies; typically 6+ public holidays + Dashain	10–15 public holidays plus Dashain bonus
Maternity leave	98 days fully paid (post-2017 amendment); funded partly by SSF for enrolled	Most firms match statutory; some add unpaid extension
Paternity leave	15 days paid (Labour Act § 47)	Increasingly offered; was added in 2017 amendment
Mourning leave	13 days for immediate family death	Statutory
Bereavement (Kriya leave)	Up to 15 days for religious mourning obligations	Common, often unpaid beyond statutory

Salary components and payslip basics

Nepalese payslips typically split salary into Basic + Allowances. This split matters because gratuity, SSF, and PF contributions are calculated on Basic only — not total CTC. The legal minimum proportion of basic is generally 60% of total wages (Labour Rules § 21).

Standard Nepalese payslip components

1
Basic salary
Foundation for all statutory calculations. Must be at least 60% of gross. Above the national minimum wage (Rs. 17,300/month as of 2025 revision; verify current rate).
2
Dearness allowance (DA)
Cost-of-living adjustment, typically the remaining ~40% of gross. Together with Basic forms 'Basic + DA' which some statutory calculations reference.
3
Other allowances
Transport, communication, food, festival allowance (Dashain bonus). Festival allowance is one month's basic, paid annually.
4
Statutory deductions
TDS (income tax), SSF employee contribution (11% of basic), provident fund (if not on SSF, 10% of basic).
5
Employer contributions (shown but not deducted)
SSF employer (20% of basic), gratuity provision, festival bonus accrual.

SSF, provident fund, and gratuity

The Social Security Fund (SSF, established 2018, operationalized late 2019) is the unified social-security scheme. Employers with 10+ employees MUST enroll. Once enrolled, the SSF replaces the separate legacy gratuity, PF, and accident insurance obligations with a unified contribution scheme covering medical, maternity, disability, dependent, and old-age pension.

Verified against ssf.gov.np and the Social Security Regulations 2075 (2018). The 20% employer share absorbs the legacy gratuity (8.33%) and provident fund (10%) obligations for SSF-enrolled employees. For sub-10-employee firms on the legacy regime, calculate gratuity and PF separately.

Contribution	% of basic salary	Who pays
Social Security Fund — employee	11%	Employee (deducted at source)
Social Security Fund — employer	20%	Employer
Total SSF contribution	31% of basic	Combined

If you have <10 employees

SSF enrollment becomes voluntary. Most early-stage Kathmandu startups remain on the legacy regime: 10% employer PF + 8.33% gratuity provisioned on exit + private medical insurance. Migrate to SSF when you cross 10 employees OR when employees ask for portable pension benefits (increasingly common with educated mid-career hires).

Termination, notice, and severance

Termination of a regular employee post-probation requires three things: (1) valid grounds, (2) due process, and (3) correct notice and severance. Skipping any of these creates Labour Court exposure that can run 18–24 months and end in reinstatement plus back-wages.

Valid termination grounds (Labour Act § 145–148)

1
Misconduct (with due process)
Theft, fraud, repeated insubordination, abuse, etc. Requires written charge sheet, employee response opportunity (typically 7 days), an inquiry, and a written decision.
2
Poor performance (with PIP)
Requires documented performance issues, a written performance improvement plan, time to improve, and ongoing review documentation.
3
Redundancy / restructuring
Genuine business reason, no replacement hire for the same role, severance equal to ½ month basic per year of service.
4
Continued absence
30+ consecutive days unauthorized absence with no response to notice.
5
Inability to work due to permanent disability
Subject to disability law and medical certification; severance applies.

Item	Regular employee post-probation
Notice period (employer)	30 days written notice OR 30 days pay in lieu
Notice period (employee)	30 days written notice
Severance (no-fault termination)	½ month basic salary × years of service
Gratuity at exit	Settled via SSF (if enrolled) or calculated and paid separately (legacy)
Unused annual leave	Cashed out at exit
Outstanding wages	Within 7 days of last working day
Experience letter	Must be provided on request (Labour Act § 158)

Harassment, grievance, and discipline

The Sexual Harassment at Workplace (Prevention) Act 2071 (2015) requires every workplace with any employees to: (1) have a written policy displayed prominently, (2) establish an internal complaints committee with at least one female member (chair must be senior), (3) handle complaints within 45 days, and (4) report annually to the Labour Office. Most Kathmandu startups do not comply with the committee requirement — it's the second-most-common Labour Office finding after contractor misclassification.

Written sexual harassment policy in Nepali (Devanagari) AND English, displayed in the office
Internal Complaints Committee (ICC) formed in writing, named members, chair is senior
Annual ICC training for all employees, documented
Complaint handling within 45 days of receipt
Annual report to Labour Office (typically June/July submission)

The realistic compliance bar at 20 people

Here's the honest minimum compliance kit for a 20-person Kathmandu startup, in priority order. The full Labour Act has dozens more requirements; this is the 80/20.

Employment contracts in writing for every employee, in Nepali (a bilingual version is fine, but the Nepali version controls).
SSF registration if >10 employees; legacy PF + gratuity tracking if <10. Pay monthly on time — late SSF contributions accrue interest at 10% p.a.
Payroll with proper Basic/DA split, TDS withholding, SSF/PF deductions, and monthly payslips in Nepali + English.
ICC formed and harassment policy displayed.
Leave tracking system (even a Google Sheet) with annual, sick, festival, and maternity/paternity properly categorized.
Dashain bonus (one month basic) paid before Dashain. Non-payment is a #1 employee complaint and a Labour Office trigger.
Termination process: written notice, severance calculated correctly, full and final within 7 days, experience letter on request.
Annual filings: SSF annual return, harassment committee report, labour office annual return.

Common mistakes

Mistake	Consequence	Fix
Hiring 'consultants' who function as employees	SSF back-pay + 100% penalty + reclassification	Use proper time-bound or work-based contracts for genuine project work; convert to regular for ongoing work
Basic salary <60% of gross	Statutory benefits underpaid; back-pay risk	Restructure pay components to comply
No Dashain bonus	Employee complaints; Labour Office inspection	Budget and pay one month basic before Dashain
No ICC under harassment law	Statutory penalty + reputational risk	Form ICC; document in writing; conduct annual training
Termination without notice or severance	Labour Court reinstatement + back-wages	Always: written notice, calculated severance, due process
English-only contracts	Contracts may be unenforceable in dispute	Bilingual or Nepali-controlling version

FAQ

Frequently asked questions

Can we be a fully remote employer in Nepal?

Yes; the Labour Act applies regardless of physical office. You still need a registered business entity in Nepal to be a legal employer; alternatives include an Employer of Record (EOR).

Are stock options legal in Nepal?