Multiplier Logo
Loading Animation Image
Payroll in Nepal

Payroll in Nepal

Nepal is an emerging country in Asia. It is venturing into different industries. The country’s GDP stands at $36.29 billion in 2021, growing at a rate of 4.2%

The country has laws and regulations that welcome foreign investments. As a result, more and more companies want to be a part of this growth and are setting up their offices in Nepal. However, before onboarding employees, you must meet Nepal’s payroll requirements and understand the payroll in Nepal. 

You must establish a standard payroll process to onboard them without any hassle. When you incorporate a business, adhering to all payroll policies and procedures in Nepal is imperative. 

Different companies in Nepal have different payroll requirements based on their size, the number of employees, and the industry they operate in. Read on to understand the payroll rules and regulations in Nepal so that you can establish a compliant payroll in Nepal. 

How is Payroll Calculated in Nepal?

The HR payroll in Nepal comprises different components. All of these components are instrumental in defining the payroll system. Some standard components are gross salary, allowances, net salary, and payroll deductions in Nepal, like taxes, social security payments, etc. 

Companies in Nepal use payroll software to calculate all the payroll components in Nepal. However, several big companies in Nepal hire a specialized team to manage the Nepal payroll process. Therefore, before you choose a system for payroll in Nepal, you need to factor in things like your budget, the size of the company, etc. 

Important Elements of Salary Structure in Nepal

Let’s have a look at some of the most critical elements of the payroll in Nepal:

Cost to Company

The cost of the company, which is also known as the CTC of the employee, is the element that shows the total amount that the company spends on onboarding the employees. 

Gross salary

The gross salary comprises the employee’s fixed and variable pay. It showcases the maximum earning potential of the employee. However, the gross salary shows the amount before any mandatory payroll deductions in Nepal are made. 

Net salary

This is the amount employees receive in their bank accounts after all the mandatory payroll deductions are made. Some standard Nepali employer payroll taxes include income tax, social security deductions, etc. 

Basic salary

Nearly 40% of an employee’s pay comprises their basic compensation. It serves as a starting point for figuring out other aspects of the payroll in Nepal, like allowances, bonuses, etc. Basic compensation for employees is determined by corporate policy and current industry norms.

Allowances

Nepal offers different types of allowances to all employees. The primary purpose of these allowances is to provide extrinsic motivation to the employees. 

Bonus

The law in Nepal mandates that companies pay their employees bonuses.

How to Set Up a Payroll in Nepal?

Before establishing a payroll system, you must draft a payroll compliance checklist for Nepal so you can take all the steps. 

  • Step 1: Decide the type of subsidiary business you want to incorporate in Nepal. After factoring in different aspects like the budget and the nature of the activities, you must make a choice. 
  • Step 2: Collect all the essential documents like the Articles of Association and all other documents that will help you furnish the details of the directors and the shareholders. You must submit these documents to the relevant Government authorities.
  • Step 3: Ensure that you register all the employees with Nepal’s social security and taxation system. You should make timely payments to these authorities on behalf of the employees. 
  • Step 4: You must open a foreign currency bank account at the Rastra Bank of Nepal. Additionally, you can open another bank account in a local Nepali bank for transactions within the country. 
  • Step 5: You may now determine the overtime pay for each employee by checking their timesheets. Once the calculations are ready, you can begin calculating the employees’ gross salary. 
  • Step 6: Now, factor in the payroll deductions in Nepal to arrive at the net salary of the employees.  
  • Step 7: You must choose a payroll system in Nepal to help you with payroll processing. The system should also take care of all the company’s payroll needs. A payroll system will help you standardize a payroll procedure in Nepal. 
  • Step 8: After selecting a system, you must select a payroll cycle for the payments. Most companies in Nepal follow a monthly payroll.

A Step-by-step Process of Payroll Processing in Nepal

Let’s look at the Nepal payroll process to understand how to do payroll in Nepal. 

Select a payroll system

  • Nepal provides businesses with various payroll systems. You must establish the goals of the business and the overall budget for the activity before selecting the best payroll system. 
  • The size of the business affects the payroll system choice as well.
  • You have various manual, outsourced, and software systems to pick from. 

Create a payroll guide

  • You must have a guideline document that lists all the payroll policies and procedures.
  • While drafting the Nepal payroll guide, you must also factor in all the country’s labor laws and collective bargaining agreements. 

Register the employees 

  • As soon as you decide on a payroll system, you must onboard all of your employees to that system. 
  • You must add their personal information like date of birth, address, and other relevant information to the payroll system. 

Verification of timesheets

  • To ascertain the pay components, such as overtime, you must confirm the employees’ timesheets.
  • When calculating these figures, add all the other salary components and consider payroll deductions in Nepal. 

Reconciliation

  • Reconciliation of the payroll is one of the most crucial steps of Nepal’s payroll process. You must make any required real-time modifications to ensure the calculations are correct. 
  • Also, cross-check the employees’ personal information to ensure the payment is credited to the right person.

Distribute the payslips

  • Once you complete your payroll calculations, you must generate the employees’ payslips.
  • You should share the payslips of the employees via mail or should make them available on the payroll software.

Payroll Contributions

The payroll contributions are decided based on the payroll rules and regulations in Nepal. Let’s look at these contributions:

Minimum wages

  • The minimum wage is the base component of the payroll in Nepal. All employers must pay a salary that is at least equal to the minimum wage.
  • The Minimum Remuneration Committee and the Government of Nepal decide the minimum salary for all employees nationwide. 
  • All employees in Nepal are entitled to a monthly minimum payment of NPR 15,000. 

Overtime

  • All Nepal employees must work 8 hours a day, six days a week. However, employees who work beyond these regular hours are entitled to overtime pay. 
  • Employers are required to pay 150% of the regular wage for overtime. 
  • The maximum weekly and daily overtime hours should be 20 hours.
  • Every business must register the employee’s daily working hours. 

Social Security contribution

Employer contribution

All the employers in Nepal contribute to social security to safeguard their employees from externalities. These contributions are an important part of the compensation structure and are directly paid to the relevant authorities by the company. 
The employer contributes 20% of the employee’s basic salary towards social security.

Employee contribution

The employees also contribute to different social security schemes in Nepal. They contribute 11% of their basic salary towards different social security accounts.
Therefore, 31% of the basic salary is contributed towards different social security schemes. Now, let’s look at the allocation of this contribution in Nepal. 

Social security scheme

Allocation

Medical treatment, health, and maternity protection scheme

1%

Accident and Disability Protection Scheme

1.4%

Dependent Family Protection Scheme

0.27%

Old Age Protection Scheme

28.33%

Total Contribution

31%

Taxes

All the employees have to pay taxes on their income in accordance with Nepal’s payroll tax rate. Nepal follows a progressive taxation system where the tax rate increases with income. 

Annual income

Tax rate

<5,00,000

1%

5,00,001 – 7,00,000

10%

7,00,001 – 10,00,000

20%

10,00,001 – 20,00,000

30%

>20,00,000

36%

However, the income tax rates for a married couple in Nepal differ slightly:

Annual income

Tax rate

<6,00,000

1%

6,00,001 – 8,00,000

10%

8,00,001 – 11,00,000

20%

11,00,001 – 20,00,000

30%

>20,00,000

36%

Bonus

  • All employees in Nepal must receive bonuses under the Bonus Act of Nepal. However, the individual must have worked for the company for at least six months. 
  • The bonus sum equals eight months of income for employees who make at least double the monthly minimum wage. 
  • However, the bonus equals six months’ income for workers making less than twice the minimum wage.

Payroll Cycle

Companies in Nepal follow a monthly payroll cycle, so they receive their salaries at the end of every month. All employees must issue a pay slip to their employees once their salaries are credited. 

Nepal Payroll Options for Companies

Internal payroll

Large businesses in Nepal employ a sizable workforce with a devoted team to handle payroll. The procedure is manually managed within the company. 

Remote payroll

The parent firm’s payroll may be expanded to include all of the employees of a subsidiary company. However, all employees will be subject to payroll policies in Nepal.

Payroll processing companies

Several payroll processing businesses in Nepal can assist you. However, you must deal with matters pertaining to compliance. 

Global PEO

If you want to delegate control of the payroll to someone else so that you may concentrate on the growth of your business, get in touch with a worldwide PEO like Multiplier. 

Entitlement and Termination Terms

The employment contract should outline the employee’s rights and contain termination provisions to avoid problems. Employees’ rights, including pay, working conditions, vacation time, and other benefits, should be included. The employer must justify an employee’s termination. Before firing employees, employers should have a robust legal justification in the following instances:

  • The employer and the employee must agree upon the termination of the contract.
  • If the employee broke the law while they were employed there.
  • If a company’s internal structure has significant changes.

The employer must state the cause for termination in the letter the employer gives to the worker. Businesses are required to provide severance pay as a perk to sacked employees.

Nepal Payroll Processing Company

Even if starting a business in Nepal is simple, you still need to be familiar with the local customs and laws. You can get over-phone or in-person assistance from experts while you complete the process.

Contact a PEO business like Multiplier for more details on the local laws and regulations governing Nepal’s payroll systems. Keep your options open if you’re looking for the most effective and smooth payroll services. 

How Multiplier Can Help with Global Payroll

Following local labor rules and regulations is essential when setting up a payroll in Nepal. But with the correct guidance and expert assistance, you can quickly set up a legal payroll system.

Multiplier is used by companies worldwide to construct successful payroll systems. With the help of our team of experts, you can set up a payroll system that meets the needs of both the employer and the employees. To discover more about your payroll requirements, contact a global PEO like Multiplier. 

Frequently Asked Questions

The VAT in Nepal is levied at the rate of 13%. However, there are several goods and services in Nepal that are tax-free.

Employees receive compensation equal to 30 days’ salary as severance pay. However, the final amount also depends on the number of years the employee has served the company.

The contributor’s minimum contribution period should be 180 months or 15 years, and they must be at least 60 years old.

Need Reliable Help In Obtaining A Work Visa?

Table of Contents

World’s Preferred EOR/PEO Platform for a Global Workforce