Employment Laws in Nepal – A Guide

Are you planning to expand your business in Nepal? The country has a rich talent pool and a good business environment, but it is essential to know the fine print of labor laws to comply with them. The Labor Law Act 2074 was passed in 2017, replacing the revoked Labor Act 2048 after establishing the federal republic and drafting a new constitution.

Not complying with Nepal’s labor laws could be subject to hefty fines, legal disputes and damage to your company’s reputation. Not having the right knowledge or oversight can lead to expensive mistakes that will hold your business back in terms of growth and success.

In this blog, we will explore some of the most important labor laws that every HR professional needs to know while working for your business. We will also discuss how Global Squirrels as a platform can help you adhere to all the laws in the country and beyond. Being aware of these regulations can protect your business’ growth and success in the country.

Why hire talent in Nepal?

Hiring from Nepal offers numerous advantages for businesses looking to expand their workforce internationally.

Cost-effectiveness

Hiring in Nepal is more affordable than in many developed countries. The minimum wage in Nepal helps your business manage labor costs while still having competitive salaries. Your business can then utilize its resources more effectively and remain profitable.

Cultural fit and work ethic

The talent in Nepal is hard workers who are adaptable and dedicated. Respect, hard work, and collaboration are cultural hallmarks that help lead to a reliable and committed workforce. In addition, Nepal professionals have friendly behavior, which can improve team dynamics and positively influence workplace culture.

A skilled and educated workforce

Nepal has a young and educated population, with a literacy rate of approximately 68%. Many Nepali professionals possess degrees in IT, engineering, and business from reputable universities. This growing talent pool is not only technically proficient but also fluent in English, facilitating effective communication in international teams.

Labor laws in Nepal

Minimum wages

The minimum wage in Nepal is $128.62 (NPR 17,300) a month. This includes a basic salary of $80.45 (NPR 10,820) and a dearness allowance of $48.18 (NPR 6,480). In addition, the daily wage has been fixed at $4.97 (NPR 668) per day, the hourly wage at $0.66 (NPR 89), and part-time workers should get $0.74 (NPR 95) per hour, according to section 106 of the Labour Act, 2017.

Working hours and overtime laws

Under the regulations, employees are required to work eight hours a day and forty-eight hours a week. Employers cannot make their employees work overtime unless non-performance causes significant business losses.

Employees may work up to four additional hours per day and twenty-four additional hours per week for overtime. Overtime pay must be compensated at 1.5 times the basic remuneration. Employers must provide transportation to and from the workplace for female workers working after sunset or before sunrise.

Leaves

Nepal has comprehensive leave entitlement under its labor laws, which ensures a good work-life balance for employees. The workers are entitled to have one day of weekly leave and public leave, 13 paid public holidays per year for all employees, and one extra leave for female workers (International Women’s Day). Substitute leave must also be granted if a worker is required to work on a public holiday or weekly day off, and the worker must take it within 21 days. Workers are also entitled to sick leave of 12 days of the year, which they can accumulate for up to 45 days, but if they take sick leave for more than three days, they must provide a medical certificate.

Female employees are entitled to 14 weeks of maternity leave, from which only 60 days are paid. If there are miscarriages or stillbirths, the leave is counted as normal delivery. Male employees whose wives deliver a baby are given 15 days of paid maternity care leave. In addition, employees mourning the death of close family members are given 13 days of mourning leave, and employers are obligated to remunerate full pay during this period. The laws also permit the accumulation of leave to up to 90 days of home leave and 45 days of sick leave. If an employee is relieved of service or passes away, they or their designated family member will receive a lump sum payment based on the last drawn basic remuneration for all accumulated home and sick leaves. Additionally, if accumulated leave exceeds the allowable limit, the employee is entitled to compensation for the excess leave, calculated annually based on their basic pay. While these leaves offer benefits, the laws also confirm that leave (except for sick, mourning, and maternity leave) is considered a facility, and therefore, the employer has the right to refuse or change leave as appropriate.

Benefits

Nepal’s labor laws are favorable for the employees, and hence, they have financial security and well-being.

1. Severance compensation

Employees are entitled, under Section 145, to severance compensation at one month’s salary for each year of service, pro rata. It is a benefit that offers financial help during the time the employees are transitioning out of a job. Nevertheless, employees who have a right to unemployment allowances under the Social Security Act are not entitled to severance compensation.

2. Festival expenses

According to Section 37, employees are entitled to festival expenses equivalent to one month’s remuneration once a year. The proportional amount is due to employees who have not completed one year of service, which is to be computed in proportion to the length of service. This is a benefit that helps employees not to spend money on festivals.

3. Bonus

The employees are eligible to get a bonus of 10% of the company’s net profit. The objective is to share the success of a company with its workers, and it provides an incentive for the workers to work by sharing that success.

4. Death compensation

If an employee dies from an accident, the nearest successor gets compensation from the accident insurance to support his family during difficult times.

Provident Fund (PF), gratuity, and insurance

Provident Fund (PF), gratuity, and insurance laws require employers to contribute to the welfare of their employees. Employers must deduct 10% of the basic remuneration of each worker for the PF, match that amount, and deposit the total in the Social Security Fund.

The PF contributions apply from the worker’s start date and will continue until the Social Security Fund is fully operational. In cases where contributions cannot be deposited, employers are required to pay an additional 10% of the basic remuneration. Any pre-existing PF contributions must also be transferred to the Social Security Fund.

Additionally, employers must contribute 8.33% of each worker’s basic pay for gratuity, which is deposited into the Social Security Fund from the full-time employee’s start date. Special provisions exist for situations where the Social Security Fund is not operational, and in such cases, the employer must pay gratuity directly. Employees entitled to pensions are exempt from receiving gratuity benefits.

For insurance, employers must provide annual medical insurance of at least $743.49 (NPR 100,000), with premiums shared between the employer and worker. Accidental insurance of at least $5,204.40 (NPR 700,000) must also be procured, covering all accidents, with premiums entirely borne by the employer.

In case of death or permanent incapacity due to an accident, the worker or their legal heirs are entitled to full insurance compensation. Injured workers receive compensation based on the percentage of incapacity. If the employer fails to procure insurance, they must pay an amount equivalent to the insurance benefits directly to the worker or their dependents. Employers and workers contributing to social security are exempt from additional contributions for these benefits under the Social Security Fund.

Termination laws

The law of labor does not permit arbitrary termination of employment, and any employer must provide sufficient reasons for every dismissal. Under Section 140, employment of time-based or work-based workers can be terminated only after the expiry of the period of the employment contract or the project. The employment can be terminated by either the employer or the casual worker at will. Not only that, termination requires proper notice, and the length of the notice period varies with the employment, from one day (for short-term employment) to thirty days (more than one year of employment).

Employment cannot be terminated while the employee is under medical treatment. The employer must continue to pay the employee’s full remuneration during the treatment period unless the employer is covered by the Social Security Fund. Employers must try to provide suitable work for workers who are injured or disabled. These laws are written for a 30-day notice to be served with the consultation with trade unions or labor committees before retrenchment begins. The compensation is based on years of service, and employees secure re-employment if the company returns to work within two years. The purpose of these provisions is to balance the interests of the employers and the employees while protecting the rights of workers.

What are the consequences of not adhering to the labor laws in Nepal?

Non-compliance with the labor laws in Nepal has sanctions that have legal, financial, and operational impacts on employers. Some of these provisions include termination regulations, payments of wages, benefits, or reasonable remuneration for provident funds, and gratuities where employees may take legal action.

Where an employer dismisses an employee unfairly or fails to give the notice required under the terms of the employment contract, the employer may be liable for any damages or compensation, including wages and benefits to which the employee was entitled at the time of dismissal. Further, the employer who fails to make the required contribution to social security, gratuity, or insurance, shall be required to make payment for such contributions together with other penalties that may be imposed by the labor authorities.

Non-compliance can also lead to severe reputational damage and workforce instability. Workers bearing violations of their rights have a right to lodge complaints with the Labor Court, with possible investigation of, legal proceedings, and sanctions. This can deteriorate the working morale of the crew and between employers and employees, creating the possibility of strikes, protests, or labor unrest. They may also be subject to penalties, suspensions, or business closures ordered by labor officers, which will disrupt normal business operations and potentially incur long-term financial burdens. Nepal also, overall, puts businesses at risk of both legal consequences and loss of trust in their workforce due to non-compliance with labor laws.

How does Global Squirrels help you comply with Nepal labor laws?

Global Squirrels is a staffing and payrolling platform that helps you hire employees who meet all your business requirements. Our platform also enables you to manage all HR functions, such as payroll, benefits, performance management, timesheets, and compliance with local and international labor laws. Global Squirrels offers your business solutions that are cost-effective and efficient. This cost-effective solution allows you to save up to 20% on hiring, ensuring that you are able to offer above-the-industry standard compensation to the professional. To hire in Nepal, all you need to pay is the payroll cost and a flat platform fee.

Global Squirrels acts as your legal entity in Nepal, ensuring that you do not face any legal risks. There is also no need for you to set up any legal entity when hiring in Nepal, saving you costs such as rent, electricity bills, etc. Our platform prioritizes important labor laws in Nepal while also being updated with the latest employment laws. For instance, hiring talent from Nepal through our platform will ensure 100% compliance with all of Nepal’s labor laws.

Our platform offers you various plans to help you meet your business needs without a hassle.

• Purple Plan: Our purple plan helps you in terms of managing all HR functions such as payroll, benefits, performance management, timesheets, compliance, and offer letter generation. With this plan, our platform can help you onboard an already-sourced professional or convert your current freelancers to a full-time employee.
• Orange Plan: The Orange plan allows your business to find and onboard full-time employees who meet all your business requirements by giving you complete control over the hiring process. For instance, once you sign up and choose the Orange plan, you will be asked to provide information about the job role, the salary you want to provide, the educational background you expect, and the mandatory and preferred skills. Once you submit this, our platform will share curated profiles of top candidates that have been background verified and pre-screened, allowing you to select the ones you want to interview. Finally, after the interview, you can choose the candidates you want to onboard, and our platform will begin the onboarding process. Thereafter, our platform will handle all HR functions and ensure 100% compliance with Nepal labor laws and zero risks to your business.

Are you ready to hire while also complying with all the labor laws in Nepal? Request a demo today!