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Labor law in Nepal: Quick Overview of Labor Act, 2017 (2074)

Overview

This article explains the overview of the Labor Act, 2017 (the"Labor Act”)and Labor Rules, 2018(2075) (the"Labor Rules”) which are the primary legislation governing labor laws in Nepal.  The major highlights of the labor law in Nepal is explained in below paragraphs:

1. Applicability of Labor Act of Nepal:

ApplicabilityNon-Applicability
Labor Act is applicable in the following entities:
  • 1. Company;
  • 2. Private firm;
  • 3. Partnership;
  • 4. Cooperatives;
  • 5. Associations or other organizations;
  • 6. Entities registered in foreign countries and engaged in the promotion of business, sale of products, or promotion of other works in Nepal.
Labor Act is not applicable in the following entities:
  • 1. Civil Service;
  • 2. Nepal Army;
  • 3. Nepal Police;
  • 4. Armed Police Force;
  • 5. Prevailing special laws and under Special Economic Zones to the extent separate provisions are provided.

 

1.1. Head Count Threshold:

Previous Labor Act, 1992 (2048) of Nepal was applicable only to entities where 10 (ten) or more people were engaged in the work. However, this Labor Act has removed the head count requirement for applicability.

 

1.2. Applicability to Entity Registered in Foreign Country:

Labor Act is also applicable to the entities that are registered in a foreign country but hire labor in Nepal for undertaking sales and marketing activities. Branch Office and Liaison Office have the obligation to comply with the labor law of Nepal.

 

2. Types of employment:

Labor Act of Nepal has categorized different form of employment as mentioned below:

  • a. Regular employment:  Employee hired any type whatever other than work based, time based and causal employment.

  • b. Work-based employment: Employee hired for carrying out specific work or rendering specific service.

  • c. Time bound employment: Employee hired to perform the work or provide service for definite period.

  • d. Casual Employment: Employee hired to provide the work or service for 7 (seven) days or less within a period of one month.

  • e. Part Time employment: Employee hired in such a manner that the person works for 35 or less in a week. 

3. Provisions relating to Intern and Trainee:

Labor Act incorporates the provision relating to the intern and trainee. The working hours and facilities to be provided for the intern and trainee is as mentioned in below table;

ParticularsWorking HoursFacilities
InternWork not exceeding 8 (eight) hours a day and 48 (forty) hours a week.
  • a. Any person may be allowed to work as an intern as per the syllabus of educational and institutional after executing the agreement with educational institutions. 
  • b. Providing health and safety measures (medical expenses and compensation). Compensation must be provided in case of injury at work.
  • c. Deemed as a regular employee if engaged in work other than prescribed in the agreement between the educational institution and entity.
TraineePerson as trainee not more than 1 year.
  • a. Provide services entitled to social security benefits including provident fund and insurance, sick leave, gratuity, and basic remuneration.
  • b. There is no obligation to appoint trainee as employ after completion of training. If same trainee engages as employee in the company, probation period is not applied to him/her.

 

 

4. Execution of Employment Agreement:

The Labor Act of Nepal creates a compulsory obligation between employers and employees to execute the employment agreement, except for casual employment. The following details should be covered by the employment agreement:

a. Type of employment;
b. Major responsibilities and position of the employee;
c. Salary and other benefits to be received by the employee;
d. Terms and conditions of the employment;
e. Place and time of signing employment agreement;
f. Effective date of employment agreement;
g. Statement that the Bylaws shall be an integral part of employment agreement; and
h. Other terms and conditions of the employment.

Please note that the Labor Department has the right to impose a maximum fine of up to NPR 5,00,000, charged at the rate of NPR 10,000 per labor, in case the employer engages any employee without providing an appointment letter or employment agreement.

 

5. Provision relating to term of Probation in Nepal:

Labor Act provides legal provision regarding term of probation. The term of probation means evaluation period of employee.  Labor Act of Nepal provides 6 months’ probationtime period.

 

 

 

6. Obtaining work permit by foreign citizen in Nepal:

Labor Act of Nepal  has incorporated the legal provisions for obtaining the work permit by foreign citizen in Nepal. Employer can hire the foreign citizen when employer do not get the skilled manpower within the country. The below figure explains about the process of obtaining the work permit in Nepal:

 

Process of Obtaining Work Permit in Nepal

 

7. Working hours of Employee:

The working hours of labor pursuant to the Labor Act are as mentioned:

Working HoursOvertime
8 hours a day and 48 hours a week.Not exceeding 4 hours a day and 24 hours a week.

Employees shall be provided with a 30-minute break after five hours of continuous work. 

 

8. Remuneration:

Employee Salary and Benefits

 

  • a. Minimum Salary of Employee:

    Current minimum salary for employees as published in the gazette of the Nepal government is NPR 17,300/- (Seventeen Thousand and Three Hundred Rupees), applicable except for tea garden employees. The minimum salary includes the basic salary of NPR 10,820 and dearness allowances of NPR 6,480.

  • b. Annual Increment:

    The annual increment of the salary shall be at least half a day's basic salary.

  • c. Festival Allowance:

    The festival allowance is one month's basic salary per year.

  • d. Deduction of Salary:

    Applicable income tax, employee's contribution on social security (i.e., 11% of the basic salary), and salary for absence from work can be deducted.

  •  

9. Provisions relating to leave:

The below mentioned table illustrates type of leave applicable pursuant to Labor Act:

S.N.Types of LeaveTime Interval
1.Weekly LeaveThe employer should provide leave for 1 day in each week.
2.Public LeavePaid leave of 13 (thirteen) days in case of male labors and 14 (fourteen) days including International Women's Labor Day in case of female labors.
3.Substitute LeaveEmployee who has been engaged in work on weekly or public leave shall be provided with the substitute leave within 21 days of engagement of work.
4.Home LeavePaid home leave at a rate of 1 day for 20 days of the period.
5.Sick LeavePaid sick leave of 12 days a year.
6.Maternity LeaveTotal of 14 weeks before or after delivery. Shall compulsorily take leave from at least 2 (two) weeks to 6 (six) weeks after the date of delivery.
7.Mourning Leave13 (thirteen) days

 

10. Leave Encashment

Employee is entitled to accumulate unused home leave and sick leave upto 90 days and 45 days respectively. If the accumulated leave exceeds the mentioned period the employee shall encash the leave based on the basic remuneration of the exceeding date.

 

11. Provisions relating to Social Security Fund in Nepal

Labor Act has introduced the provision relating to Social Security Fund (“SSF”). Subsequently, Social Security Act, 2017 and Social Security Regulations, 2018 were enacted for the establishment and operation of SSF. The following percentage amount from the basis salary shall have to deposit by the employer and employee in SSF.

ParticularsEmployerEmployeeTotal
Provident Fund10%10%
Gratuity8.33%-
Social Security Tax-1%31% of basic salary
Medical Insurance1.67%-
Total20%11%

 

12. Supply of Labors:

The company that wishes to supply labors shall obtain a license from Department of Labor and Occupational Safety or Labor Office. The Company should deposit bank guarantee of NPR.15,00,000 (Fifteen Lakhs Rupees
only) to receive the labor supplier license.
 

13. Disciplinary action to employee:

Based on the nature of the misconduct done by the employee, the following disciplinary actions can be taken:
  • a) Warning: A formal warning can be issued.
  • b) Deduction of One Day’s Remuneration: One day's remuneration can be deducted.
  • c) Withholding of Annual Salary Increment or Promotion: Annual salary increment can be withheld for one year, or promotion can be withheld for one year.
  • d) Termination of Employment: The employment can be terminated.

 

13.1. Warning:

Warning shall be given by the employer for the following list of misconduct:

  • a)  To remain absent from work without having a leave sanctioned.
  • b) To leave the workplace without obtaining permission of the management.
  • c) To appear late in work frequently without obtaining permission.
  • d) To disobey any order given in relation to the work by the employer or any employee superior in level.

 

13.2. Deduction of One Day’s Remuneration:

Deduction of one day’s remuneration shall be given for the following misconduct:

  • a) Refuse to receive any letter or notice given by the employer or sentencing authority.
  • b) To take part in an illegal strike or force others to do so.
  • c) To cause loss or damage to the enterprise recklessly or negligently.
  • d) To make attempt to take benefits by submitting false documents.
  • e) Not using the equipment provided by the employer if responsible for using such equipment.

 

13.3. Withholding of Annual Salary Increment or Promotion:

Withholding of annual salary increment for one year or withholding promotion for 1 (one) year shall be given for the following misconduct:

  • a) To take any property outside the enterprise without permission.
  • b) To make attempt to make embezzlement in the employer’s transaction.
  • c) To damage the employer’s property recklessly or negligently.
  • d) To stop the supply of services or prevent movement within the workplace.
  • e) To intentionally misuse, or cause loss or damage to goods or provisions.
  • f) To commit other misconduct of similar nature as specified in the by-law.

 

13.4. Termination upon Misconduct or Employment Termination:

Termination of employment based on the seriousness of the offense:

  • a) To physically harm others, take hostages, cause unrest, or destruction in the area of the enterprise.
  • b) To take or give a bribe.
  • c) To steal property in the workplace.
  • d) To make financial misappropriation in the enterprise.
  • e) To intentionally cause damage to the employer’s property.
  • f) To remain absent from work for more than 30 (thirty) consecutive days without leave.
  • g) Fails to maintain confidentiality about enterprise information.
  • h) To get convicted by the court of any criminal offense involving moral turpitude during employment.
  • i) To submit fake educational certificates for appointment.
  • j) To consume narcotic substances or liquor during working hours or at the workplace.

 

14. Termination of Employment:

Following are the grounds based on which the employer can terminate the employee:

  • a) Time-Based Employment: Employment which expires at the time specified in the employment contract.
  • b) Work-Based Employment: Employment which expires after completion of work specified in the employment contract.
  • c) Voluntary Termination: Voluntarily termination of employment by submitting a written resignation and serving a notice period as prescribed in the employment contract.
  • d) On the Ground of Health: If a labor is physically or mentally incapacitated or injured and it affects work, the employer may terminate the employment based on medical recommendation.
  • e) Compulsory Retirement: Any labor in regular employment shall get compulsory retirement after completing the age of 58 (fifty-eight) years.
  • f) Unsatisfactory Work Performance: If the employee's performance is unsatisfactory in three or more consecutive performance reviews, employment may be terminated.
  • g) Termination Based on Disciplinary Action: Termination can be done if an employee is involved in misconduct as mentioned in paragraph 13 of the Article.

 

15. Retrenchment:

An employer can retrench its employees under the following conditions:

  • a) Financial Problems: If an enterprise faces financial problems in its operations.
  • b) Merger of Enterprises: If labor becomes redundant due to the merger of more than 1 (one) enterprises.
  • c) Partial or Complete Closure: If the enterprise needs to be partially or completely closed down.

 

15.1. Process of Retrenchment:

The process of retrenchment involves the following steps:

  • Employer should provide the details of retrenchment at least 30 (thirty) days before the date of retrenchment.
  • Details should include reasons, possible date, and probable number of labors to be retrenched, to employees and authorized trade unions (if any).

 

15.2. Compensation:

Employees are entitled to retrenchment compensation at the rate of 1 (one) month basic remuneration for each year of service. Similarly, if the service period is less than 1 (one) year, compensation shall be provided proportionately.

 

16. Sanctions for non-compliance:

The Labor Act provides the sanctions which includes fine, imprisonment and both for violation of the provision of the Act. Labor Court , Labor Department and Labor Office has authority to impose the sanction depends on the nature of violation which as listed in below paragraph.

 

16.1. Sanction by Labor Department

The Labor Department may conduct necessary inquiry into a complaint made on any of following matters and imposed the mentioned sanction in case of non-compliance:

Non-ComplianceConsequences of Non-Compliance
The person who supplies labors without obtaining any license and any person that hires and employs labors through such a labor supplier.Compensation not exceeding NPR 200,000.
The person who employs a foreigner without obtaining the labor permit.On the basis of the number of such labors, a fine shall not exceed NPR 200,000. If the same misconduct is repeated, then an additional fine of NPR 5,000 per person per month.
The person who discriminates labor at the time of employment or during employment.Fine not exceeding NPR 100,000 and an order to maintain equality.
The persons who employ a labor without giving an appointment letter or without entering into an employment contract.Fine not exceeding NPR 500,000 at the rate of NPR 10,000 per labor. An order can be provided to conclude an employment agreement and provide an agreement letter.

 

16.2. Sanction by Labor Office

The Labor Office may conduct necessary inquiry into a complaint made on any of following matters and imposed the mentioned sanction in case of noncompliance:

Non-ComplianceConsequences of Non-Compliance
Deduction of remuneration or benefits contrary to this Act or rules framed under this Act.Indemnify the concerned worker with an amount double the deducted remuneration and other facilities.
Obstructing or hinders a government employee by submitting false description.Fine not exceeding NPR 200,000.
Employer, who engages any person as an intern against the provision of Labor Act.Fine at the rate of NPR 10,000 per intern or trainee.
Failure to deposit the gratuity amount or in the provident fund or Social Security Fund or to arrange medical or accidental insurance.Indemnify the worker with an amount double the amount to be paid.
Employers who make retrenchment contrary to this Act or in a discriminatory manner.Refrain from doing so.
Terminating employment from attending work contrary to this Act.Issue necessary directions.

 

16.3. Sanction by Labor Court

The Labor Court may conduct necessary inquiry into a complaint made on any of following matters and imposed the mentioned sanction in case of noncompliance:

Non-CompliancesConsequences of Non-Compliance
If any person engages anyone in forced labor.Imprisonment for a term not exceeding 2 years or a fine not exceeding NPR 500,000 or both and require such a person to pay remuneration, allowance, and benefit including damages double of such amount.
If any entity does not make health and safety arrangements knowingly and as a result, the worker dies or suffers physical or mental injuries.Imprisonment not exceeding and pay appropriate compensation to the aggrieved party.

 

17. Composition of the Labor Court:

As per the Labor Act, labor court can be established by publishing the notification in Nepal Gazette.The labor court shall consist of 1(one) chairperson and 2(two) members. Pursuant to the Labor Act, the labor dispute must be resolved within 90(ninety) days of filing the application in the Labor Court. The Government of Nepal is responsible for enforcing the decision provided.  Any party dissatisfied with order or judgement made by the labor court may appeal in Supreme Court within 35 days from the  knowledge of such an order or judgement.

 

Date of Publication: 21  August 2023

 

Disclaimer: Bhandari Law and Partners is one of the leading law firm in Nepal  with team of best professional lawyers in Nepal.This article published on website of the law firm is just for information purpose only. It shall not be taken as the legal advice, advertisement, personal communication, solicitation or inducement. Bhandari Law and Partners or any of the team members of the firm shall not be liable for the consequence arising of the information provided. As the factual situation may be different on your case, thereof if you need further legal advice on the subject matter, please Contact Us.

 

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