Complete Guide to Salary Law in Nepal: Rights, Wages, and Legal Framework

Salary law in Nepal plays a critical role in ensuring fair labor practices, protecting employees' rights, and regulating employer-employee relationships. With the increasing formalization of the labor market and the growing need for decent work conditions, the Government of Nepal has implemented various legal frameworks to address salary-related concerns. These laws aim to guarantee timely payment, equitable remuneration, and protection against unfair deductions or discrimination in wages. Salary laws are primarily governed by the Labour Act, 2074 (2017), supported by the Labour Rules, 2075 (2018) and other sector-specific regulations.

This article provides a detailed overview of the salary law in Nepal, including key provisions, minimum wage requirements, payment mechanisms, leave and benefits, dispute resolution mechanisms, and major challenges in its implementation.

1. Legal Framework Governing Salary in Nepal

The primary legal instruments governing salary and wages in Nepal include:

A. Labour Act, 2074 (2017)

The Labour Act, 2074 (2017) is the principal legislation that governs employment relationships, working conditions, and salary-related matters in Nepal. It lays the foundation for regulating the rights and responsibilities of both employers and employees. The Act mandates that all employees must be paid at least the government-set minimum wage and that salaries must be disbursed within seven days of the end of the wage period. It guarantees timely salary payment, establishes fair remuneration practices, and strictly prohibits wage discrimination based on gender, caste, religion, or ethnicity. The Act also ensures employees are compensated for overtime work and receive paid leaves such as annual leave, sick leave, maternity leave, and public holidays. Importantly, the Labour Act provides that employers must form workplace grievance committees to handle salary and wage-related disputes. It applies to all formal sectors, excluding civil servants and security personnel governed by separate rules. This Act is crucial in protecting employees from unfair wage practices and promoting decent work standards across Nepal.

B. Labour Rules, 2075 (2018)

The Labour Rules, 2075 (2018) were formulated to provide detailed procedures and practical guidelines to implement the provisions of the Labour Act effectively. These Rules clarify the methods of calculating salaries, allowances, overtime pay, and deductions. They also specify that salary payments can be made through cash, cheque, or bank transfers to promote transparency. Employers are required to maintain detailed wage records, payment registers, and related documentation that must be available for inspection by labor authorities. The Labour Rules also outline acceptable salary deductions, such as income tax, provident fund contributions, and employee-agreed deductions, while prohibiting unauthorized or punitive deductions. Additionally, the Rules provide guidance on workplace compliance, safety measures, and the formation of internal complaint handling mechanisms. By offering a step-by-step application of the Labour Act’s principles, these Rules help ensure uniformity and consistency in wage administration across various industries and organizations.

C. Minimum Wages Fixation Committee

The Minimum Wages Fixation Committee is a government-constituted body tasked with protecting the wage rights of workers by setting and reviewing the minimum wage in Nepal. This Committee operates under a tripartite system, including representatives from the government, employers, and labor unions to ensure balanced decision-making. The Committee regularly reviews the minimum wage, typically every two years, considering factors such as inflation, market wage trends, and the cost of living. The minimum wage recommended by the Committee is applicable to all workers across the country and is legally binding. It is a critical mechanism to prevent the exploitation of low-income workers and to ensure that wages can meet the basic living standards. The Committee may also recommend sector-specific wage structures for industries that have unique working conditions or labor demands. This body plays a vital role in maintaining wage fairness and enhancing workers' purchasing power in Nepal's labor market.

D. Social Security Act, 2074 (2017)

The Social Security Act, 2074 (2017) is a key legislative measure that complements the salary and wage system by introducing social protection for Nepalese employees. This Act established the Social Security Fund (SSF), a national program that provides long-term financial security to workers through mandatory contributions from both employers and employees. Under this Act, employees contribute 11% of their basic salary, and employers contribute 20% (covering provident fund, gratuity, and additional social security contributions). The funds collected are used to provide a range of social benefits, including medical treatment, maternity protection, accident insurance, pension benefits, and, in some cases, unemployment allowances. The Social Security Act aims to protect workers not just during their employment but also after retirement, during health crises, or in the event of workplace injuries. Failure to contribute to the Social Security Fund is a punishable offense, and the law strictly requires all eligible organizations to register their employees. The Act represents Nepal’s progress toward building a more inclusive and financially secure workforce.

2. Minimum Wage in Nepal

The minimum wage in Nepal is one of the most significant elements of salary law, aimed at ensuring that all workers receive a fair and livable income.

Current Minimum Wage

As per the government’s latest decision (effective from July 17, 2023), the minimum monthly wage in Nepal is NPR 19,550, which includes:

• Basic Salary: NPR 12,170
• Dearness Allowance: NPR 7,380

Additionally, daily wage workers must be paid a minimum of NPR 754 per day, and the hourly wage is set at NPR 101 per hour.

The minimum wage applies across all industries, and employers are legally required to comply with these rates. Paying employees below the minimum wage is strictly prohibited.

3. Salary Payment System

Nepalese salary law mandates specific guidelines on salary payment mechanisms to ensure fairness and transparency.

Payment Methods

• Salaries must be paid either in cash or through banking channels.
• Employers must ensure that wages are paid within the first seven days of the following month.
• Payments must be clearly itemized, showing basic salary, allowances, deductions (such as taxes and social security), and net payable amounts.

Allowances and Benefits

Besides the basic salary, employees are entitled to:

• Dearness Allowance
• Festival Allowance (minimum equivalent to one month’s salary per year)
• Overtime Pay (1.5 times the regular hourly wage)
• Social Security contributions from the employer

4. Salary Deductions

Salary deductions are legally regulated to protect employees from unfair wage reductions.

Permitted Deductions

The following deductions are allowed under Nepalese law:

• Income Tax (as per the prevailing tax slabs)
• Provident Fund Contribution (10% from employee and 10% from employer)
• Social Security Fund Contribution (total of 31% shared between employee and employer)
• Loans or advances taken by employees
• Authorized penalties for misconduct as per company policy and the Labour Act

Prohibited Deductions

Employers cannot make arbitrary deductions. Unauthorized penalties, deductions without consent, or wage withholdings as a disciplinary measure (except as allowed by law) are strictly prohibited.

5. Salary During Leave Periods

Nepal’s salary law also covers payments during various leave periods:

• Annual Leave: 1 day off for every 20 days worked, paid at regular salary.
• Public Holidays: Employees are entitled to paid leave on public holidays.
• Sick Leave: 12 days of paid sick leave per year.
• Maternity Leave: 14 weeks of maternity leave, with the first 60 days being fully paid.
• Paternity Leave: 15 days of fully paid paternity leave.
• Home Leave: Home leave of 30 days per year after one year of continuous service.

6. Contract and Probation Period Salaries

Even during the probation period or while working under a contract, employees in Nepal are entitled to receive the minimum wage. Probationary employees must not receive less than permanent staff for the same work. Contract workers, though not permanent, must also be compensated fairly, and their contracts should specify wage details transparently.

7. Salary and Equal Pay

The Labour Act guarantees equal pay for equal work regardless of gender, ethnicity, or caste. Salary discrimination based on race, religion, gender, or disability is strictly prohibited. The law specifically aims to eliminate the historical wage gap between male and female workers by ensuring that women are paid equally for performing the same duties as their male counterparts.

8. Social Security and Salary Contributions

Employers and employees are required to contribute to Nepal’s Social Security Fund (SSF), which provides additional benefits like:

• Medical treatment
• Maternity protection
• Accidental injury coverage
• Old-age pension

The contribution rates are:

• Employee’s Share: 11% (including provident fund)
• Employer’s Share: 20% (including gratuity and provident fund)

Failure to contribute to the SSF is a punishable offense under Nepalese law.

9. Salary Disputes and Legal Remedies

Employees have the right to seek legal remedies if salary laws are violated.

Common Salary Disputes:

• Non-payment or delayed payment of wages
• Underpayment compared to legal minimum wage
• Unauthorized salary deductions
• Salary discrimination
• Failure to pay for overtime or leave periods

Dispute Resolution Mechanisms:

• Workplace Grievance Handling Committees: Employers with 10 or more workers must establish this committee to address salary-related complaints.
• Labour Office: Workers can file complaints with the local Labour Office if disputes are unresolved.
• Labour Court: If administrative solutions fail, the dispute can be taken to the Labour Court.

The Labour Act also provides for penalties, compensation, and fines against employers who violate wage-related provisions.

Salary law in Nepal is designed to promote fairness, decent working conditions, and social justice in the labor market. Through the Labour Act, Labour Rules, and the establishment of the minimum wage, the government seeks to ensure that all employees receive timely and adequate compensation for their work. Provisions like paid leave, overtime pay, social security benefits, and equal pay further strengthen employee rights. However, the effective implementation of these laws remains a major challenge due to the dominance of the informal economy, limited enforcement, and low awareness among workers. Moving forward, stronger monitoring, educational campaigns, and more rigorous enforcement are essential to fully realize the protections offered by Nepal’s salary laws.