Key Provisions of Labor Law in Nepal You Must Know

Labor law in Nepal governs the relationship between employers and employees, ensuring fair treatment, safety, and justice in the workplace. It is designed to protect the rights of workers while also outlining the responsibilities of employers. Nepal’s labor law has evolved in response to social, economic, and political changes, to promote decent work, fair wages, and safe working conditions.

The cornerstone of labor regulation in Nepal is the Labor Act, 2017 (2074 B.S.), which replaced the earlier Labor Act of 1992. This comprehensive legislation addresses key aspects such as minimum wage, working hours, occupational health and safety, employment contracts, dispute resolution, and social security. It applies to all types of enterprises, whether private, public, or cooperative, across the country.

Additionally, the Social Security Act, 2017, and other related regulations have strengthened the legal framework by introducing provisions for employee welfare, such as retirement benefits, medical care, maternity protection, and unemployment support. Nepal is also a signatory to several international labor conventions under the International Labour Organization (ILO), reflecting its commitment to global labor standards and human rights.

Despite these legal provisions, challenges remain in implementation, particularly in the informal sector, where a large portion of the workforce is engaged without formal contracts or protections. Ensuring effective enforcement of labor laws and improving awareness among both employers and workers are crucial for promoting a just and equitable labor environment in Nepal.

Provisions mentioned in Labor Act 2074 are as follows:-

1. Types of employment

1. Regular Employment
2. Work-based employment: for the completion of certain work or the rendering of certain services.
3. Time-Bound Employment: Employment for a certain period is determined.
4. Casual Employment: employment for seven or fewer days in a month.
5. Part-time Employment: employment for 35 or fewer hours in a week.

2. Intern

The new labor act has introduced the concept of the intern, according to which any person may be allowed to work as intern under the approved syllabus of any educational institution. They shall be deemed regular employee if engaged in works other than as per their syllabus.

3. Working Hours

No worker or employee shall be deployed in work for more than 8 hrs per day or 40 hrs per week

If any worker or employee is engaged to work for more than eight hours in a day or 48 hours a week, he/she shall be paid overtime wages at the rate of one and half time of his/her ordinary rate of wages The overtime wages is also continued to be one and half time of his/her ordinary rate of wages.

The maximum overtime is 4 hours a day and 20 hours a week.

4. Probation Period

The probation period is unless he/she completes the continuous period of one year. Further, the continuous period of 1 year means 240 days engaged at work during twelve months in an Enterprise or a period served continuously in a Seasonal Enterprise.

5. Leave and Holiday

6. Benefits

a. Provident Fund

• Employers' Contribution: 10% of basic remuneration.
• Employee's Contribution: 10% of basic remuneration.
• Deposited to Social Security Fund.
• Eligible since the first day of employment.

b. Gratuity

There is no such restriction for the duration of service in the entity for the calculation of the amount of Gratuity.

• Rate: 8.33% of basic remuneration every month
• Eligible from the first day of employment.
• Amount to be deposited into the Social Security Fund.

c. Leave Encashment

Accumulated annual leave of up to 90 days and sick leave of up to 45 days can be encashed at the time of discontinuation of service.

d. Severance Compensation

Severance pay is a form of compensation that an employee receives when they are let go by a company. In other words, it is money or benefits that an employer pays an employee who loses their job through no fault of their own.

Rate: 1 month salary for every year of service

Eligible on a proportionate basis.

Not entitled to severance compensation if he/she is entitled to unemployment allowance under Social Security Act.

e. Festival Expenses

Amount equivalent to the monthly remuneration once a year. The employee not completing one year is entitled to the expenses on a proportional basis.

f. Compensation against injury

Compensation is to be provided from the insurance amount.

g. Disability Compensation

Employee or worker shall be paid from the insurance amount on the basis of the degree of disability.

h. Death Compensation

The nearest successor is entitled to the amount of accident insurance.

i. Medical Insurance

At least 1 Lakh per year for every worker. Premiums are to be paid equally by the employer and the worker.

j. Accident Insurance

At least 7 Lakh for every worker. Premiums are to be paid fully by the employer.

k. Bonus

10% of Net Profit.

7. Retirement

The age of compulsory retirement and can be retired after the age of 58 years.

Labor law in Nepal serves as a crucial instrument in maintaining balance and justice in employer-employee relations. With the enactment of the Labor Act, 2017, and supporting regulations like the Social Security Act, the country has taken significant steps to ensure decent work conditions, fair wages, and social protection for all workers. These laws cover vital aspects such as types of employment, working hours, leave provisions, benefits, insurance, and retirement, aiming to uplift labor standards in both formal and informal sectors. However, despite the robust legal framework, practical enforcement and compliance remain major challenges, especially in the informal workforce where many workers still lack job security and legal protection. For labor laws to be fully effective, there must be increased awareness, stronger institutional capacity, and collaboration among the government, employers, and workers. Strengthening enforcement mechanisms will be key to promoting dignity, safety, and equity in Nepal’s evolving labor market.