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Payroll in Nepal

Comprehensive Guide to Employment Laws in Nepal

Located in South Asia, Nepal is an up-and-coming country with notable progression in its economic infrastructure. The country recorded an annual GDP of 39 billion USD in 2022. Furthermore, it showed a growth of 5.1% in its GDP for the fiscal year 2022-2023. All these reasons, along with Nepal’s low tax rates and high returns on investments, have made the country an attractive location for businesses all over. 

The Labor Act 2017 (2074) and the Labor Rules 2075 (2018) govern all aspects of Nepal’s employment. The Labor Act 2017 (2074) effectively replaced the Labor Act 2048 (1992) in 2017. Some of the essential features of Nepal’s labor laws are:

  • 48-hour work weeks
  • Mandatory health insurance
  • Paid sick leave

To understand the labor code in Nepal, better, continue reading this guide to Nepal’s labor laws. 

Who is Covered by the Employment Act?

The Nepali labor laws cover all individuals employed in the country. All kinds of business establishments, such as co-operatives, private firms, partnerships, or associations, should follow the Labor Act and Labor Rules outlined, irrespective of the number of employees they have hired. 

However, the labor regulations in Nepal exempt a few categories of people. They are:

  • Working journalists
  • Individuals in the country’s Civil Services
  • Individuals in the Nepalese army, police, or armed forces
  • Individuals employed in special economic zones

Employment Contract

According to the labor code in Nepal, creating written employment contracts in Nepal is mandatory. The details given below should be a part of such contracts:

  • Type of employment (Regular, work-based, part-time, or casual)
  • Salary and other benefits
  • Job title and responsibilities
  • Date of employment agreement
  • Place and time of signing the contract
  • A statement indicating that company bylaws apply to the concerned employee
  • Other relevant terms and conditions

As per the labor code in Nepal, the following types of employment are allowed in the country:

  • Regular employment: In such employment, the contracts have no end dates, and the company regularly requires the work. 
  • Part-time employment: Individuals who work less than 35 hours a week are part-time employed. 
  • Work-based employment: In this case, employees perform any specific work or job. 
  • Casual employment: In such cases, an employer hires an employee to work for seven days or less in a month. 
  • Fixed-term employment: These are employment contracts that have a specific end date. However, an employer can extend such employment based on the situation.
  • Other work opportunities that employers can provide are:
    1. Trainee: Employers can use trainee positions to recruit individuals to train them for specific job positions for a maximum period of 1 year. Giving trainees sick leave, minimum salary, and other benefits is mandatory. 
    2. Intern: Companies can sign agreements with educational institutions and engage interns per their curriculum.

If an employment contract has to be created for a foreign national, it should be in English or in a language the individual understands. While hiring a foreign national, one must abide by the following labor regulations in Nepal. 

  • One can hire foreign nationals in Nepal if no skilled Nepalese individual is available for the post despite posting job advertisements in national journals and newspapers. 
  • Foreign nationals should have a valid work permit to work in Nepal.

Key Provisions of the Act

The Labor Act, 2074, and the Labor Rules, 2075, effective from 2017 and 2018, respectively, are Nepal’s primary instruments governing employment relations. Furthermore, for employees aged between 14 to 18, the Child Labor (Prohibition and Regulation) Act, 2056, and Child Labor (Prohibition and Regulation) Rules, 2062, are also applicable. 

Working hours

  • According to Nepal’s labor laws, maximum working hours are 8 hours daily and 48 hours weekly.
  • Employees under the age of 18 should work for a maximum of 6 hours a day and 36 hours a week. 
  • Employees are entitled to at least 30 continuous breaks after 5 hours. 
  • Minor employees must receive breaks every 3 hours. 
  • Female employees who are pregnant or have a child below three years of age are entitled to 30 minutes of additional break. 


  • According to section 30 of the labor code, employees are prohibited from working more than 24 hours of overtime each week. 
  • Overtime is payable at 1.5 times the average salary. 
  • In managerial positions, overtime work can be compensated in other ways, as agreed upon in the employment contracts. 
  • Minors are not allowed to be engaged in overtime work. 

Public holidays

January 11

Prithvi Jayanti

January 16

National Day of Mourning

February 13

People’s War Day

February 18

Maha Shivratri

February 19

National Democracy Day

March 8

Nari Divas

April 14

Nepali New Year

May 1

Majdoor Divas

May 5

Buddha Jayanti

May 29

Ganatantra Divas

August 30

Janai Purnima

September 1

Gai Jatra

September 6


September 19

Constitution Day

October 15


October 21


October 22


October 23


October 24


October 25


November 12

Laxmi Puja

November 14

Govardhan Puja

November 15

Bhai Tika

November 19

Chhat Parwa

Leave schemes

Annual leave

  • Employees are entitled to 18 days of annual leave in a year, per the Nepali labor law. 
  • Employees can accumulate up to 90 days of unused annual leaves. 

Sick leave

  • Employees over one year in service are entitled to 12 days of paid sick leave. 
  • For employees who have been working for just a year or less than that, paid sick leave is calculated proportionately by the employer. 
  • It is mandatory to provide a valid medical certificate for any employee who has missed work for three days or more due to health-related issues. 
  • Employees can accumulate up to 45 days of unused sick leave days.  

Maternity leave

  • The labor act rules in Nepal mandates 14 weeks of maternity leave. Employees can take this leave before or after the baby’s birth. 
  • However, employees must take at least two weeks off before the due date and six weeks off after their baby’s birth. 
  • Employees are entitled to total remuneration for the first 60 days of maternity leave, as per Nepal’s paid maternity leave law.
  • In case of birth-related complications, employees receive an additional month of unpaid maternity leave. 
  • If an employee faces a miscarriage after seven months of pregnancy, they are still entitled to maternity leave. 
  • When the mother of a child has died before the 60 days, the husband can take a paid leave to care for the child. 
  • Apart from miscarriages, new mothers or fathers must submit the birth registration certificate of their child to their employer to get all the benefits stated in the labor regulations in Nepal.

Paternity care leave

  • If a male employee’s wife is going to give birth, the male employee is entitled to 15 days of paid maternity care leave.

Mourning leave

  • Per the labor code in Nepal, employees receive 13 days of paid mourning leave to mourn the death of a family member, such as their child, spouse, parents, or in-laws. 

Compensatory leave

  • Employees who have to do additional work on a public holiday or weekly day off are entitled to a compensatory leave day. 
  • They receive such leave within 21 days. 


Income tax

The following income tax rates are applicable in Nepal:

Income slab

Tax rate

Up to 400,00 NPR 


Next 100,000 NPR


Next 200,000 NPR 


Next 1,300,000 NPR 


Balance greater than 2,000,000 NPR 


Corporate income tax

  • 25% flat rate for all businesses 
  • Goods and Services Tax (GST)
  • 13% VAT applies to businesses. 

Employee Benefits

Provident fund

  • The employers should deposit the amount collected for the provident fund to the Social Security Fund in Nepal. 
  • Following the labor code in Nepal, employees and employers should contribute 10% of the basic remuneration towards the provident fund. 


  • Employers should deduct 8.3% of an employee’s basic salary and deposit it for gratuity.
  • The employer must deposit the gratuity amount to the Social Security Fund.

Medical insurance

  • A key benefit of the labor regulations in Nepal is that employers should provide medical insurance amounting to at least 1 lakh NPR for each employee. 
  • The premium has to be paid by both parties, equally. 

Accident insurance

  • Employers must make accident insurance amounting to at least seven lakhs NPR for each employee. 
  • In this case, the premium must be paid by the employer. 

Leave encashment

  • Employees can encash up to 90 days of unused annual leave and 45 days of unused sick leave during termination. 


According to the labor regulations in Nepal, some of the causes that can lead to an employee dismissal are:

  • Offering or accepting a bribe
  • Causing bodily harm to the employer
  • Stealing or damaging the employer’s property
  • Providing false documents for employment
  • Consuming drugs or alcohol at work
  • Being absent from work without notice for 30 days or more
  • Unsatisfactory work performance
  • Mandatory retirement

Notice period

For the termination of employment, employees must complete a minimum notice period according to the Nepali labor laws. The notice period is not applicable for termination due to disciplinary reasons. 

Employment period

Notice period

Up to 4 weeks

1 day

4 weeks to 1 year

7 days

More than 1 year

30 days


The following penalties may be imposed on employers by the Labor Office, Labor Department, or Labor Court if they fail to comply with the labor code in Nepal:

  • If an employer fails to provide an employment contract or appointment letter to an employee, they must pay a fine between 10,000 NPR and 500,000 NPR.
  • If an employer hires an individual as an intern or a trainee without following the legal provisions laid out by the labor code in Nepal, the employer will be fined 10,000 NPR per trainee or intern. 
  • For engaging any foreign individual without a valid work permit, the employer must pay up to 200,000 NPR. For repeating this offense, an additional 5,000 NPR will be fined for every foreign national every month. 
  • Employers pay a fine of up to 100,000 NPR for discriminating among their employees. 
  • For engaging in bonded labor, employers can face imprisonment, a fine of up to 500,000 NPR, or both. 
  • Suppose an employer deducts an employee’s remuneration (against the prevailing laws) or fails to deposit provident fund or gratuity. In that case, the employee must receive double the amount deducted or unpaid. 

Compliance Strategies for Employers

Employers can comply with the labor regulations in Nepal using these methods:

In-house HR

  • Since the labor act rules in Nepal are thorough and detailed, employers can prepare an outline of the regulations themselves and undertake employment activities accordingly. 
  • Additionally, employers can easily navigate the labor regulations in Nepal by creating an in-house HR team who knows the nitty gritty of the labor laws. 

Hire an HR agency

  • Another beneficial option for employers is to hire an HR agency to take care of all the hiring processes in Nepal, according to Nepal’s labor laws. 
  • The primary benefit of hiring a professional HR agency is that they will be thorough with the labor code in Nepal, and hence, will save your enterprise from facing any penalties. 
  • This option is especially relevant for companies that want to hire a large number of people in the country. 

Hire an EOR

  • By hiring an Employer of Record or EOR, employers can delegate all tasks related to hiring and managing employees as per the labor code in Nepal to a professional organization well-versed with the local regulations. 
  • This option saves time, money, and resources and reduces compliance costs and legal liabilities. 

How Can Multiplier Help?

The labor act rules in Nepal govern all aspects of employment and outline strict penalties in case of non-compliance. Therefore, businesses often hire Employer of Record (EOR) firms to navigate the Nepali labor laws. 

If you wish to expand your business to Nepal, contact us at Multiplier, a global EOR/POR solutions provider. Operating in over 150 countries, we make hiring and managing employees easy while complying with local regulations and taxation rules. Furthermore, we will help you automate employment contracts, manage payrolls, obtain work permits for foreign workers in your company, and so much more, all in one place. 

To establish your company in Nepal successfully, join us!

Frequently Asked Questions

As per the new amendments to the labor code in Nepal, the maximum probation period in Nepal is six months.

Nepal’s labor laws states Employees are entitled to one month’s salary for every year of their service as severance pay. However, if any employee is entitled to an unemployment allowance per the Social Security Act, then they cannot claim any severance pay.

The current minimum wage per the Nepali labor law is 15,000 NPR per month (effective in July 2021).

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