Navigating Nepal’s labor laws is crucial for every HR professional. Ensuring compliance not only protects your company but also fosters a positive and productive work environment for your employees. Here are five key areas to keep in mind:
Working Hours and Overtime
Standard Workweek: The legal maximum is 48 hours per week, with a daily limit of 8 hours. Be mindful of special provisions for employees under 18, who have a reduced workweek of 36 hours and a daily limit of 6 hours.
Rest and Meal Breaks: After every 5 hours of continuous work, employees are entitled to an uninterrupted 30-minute break. This is essential for preventing burnout and maintaining productivity.
Overtime Regulations: Overtime is capped at 24 hours per week and must be compensated at 1.5 times the regular hourly rate. However, managerial roles may have alternative arrangements for overtime compensation as per their employment contracts. Remember that minors are strictly prohibited from working overtime.
Leave Schemes
Understanding leave entitlements is vital for employee satisfaction and retention:
Annual Leave: Every employee, regardless of their position, is entitled to 18 days of paid annual leave per year. Unused leave can be accumulated up to a maximum of 90 days. Encourage your employees to utilize their annual leave to recharge and avoid burnout.
Sick Leave: Employees who have completed one year of service are eligible for 12 days of paid sick leave annually. If an employee has worked for less than a year, their sick leave entitlement will be calculated proportionately. Mandate a doctor’s note for absences exceeding three days to prevent misuse.
Maternity and Paternity Leave: Nepal has robust provisions for parental leave. Mothers receive 14 weeks of paid maternity leave, while fathers are entitled to 15 days of paid paternity leave. Familiarize yourself with the specific requirements for eligibility and timing of these leaves.
Additional Leave Types: Don’t forget about mourning leave (13 days for immediate family members) and compensatory leave for work performed on public holidays or weekly rest days.
Taxes
Stay informed about the tax landscape to ensure accurate payroll deductions:
Income Tax: Variable tax rates as follows:
| Income Slab | Tax rate |
| Up to 40,000 NPR | 1% |
| Next 1,00,000 NPR | 10% |
| Next 2,00,000 NPR | 20% |
| Next 13,00,000 NPR | 30% |
| Balance greater than 20,00,000 NPR | 36% |
Corporate Income Tax: Businesses face a flat rate of 25%.
Goods and Services Tax (GST): The standard VAT rate is 13%.
Termination
Termination, while sometimes unavoidable, should always be handled with sensitivity and legal compliance with labor laws:
Grounds for Termination: Familiarize yourself with the valid reasons for terminating an employment contract, including misconduct (e.g., bribery, theft), non-performance, or mutual agreement.
Notice Periods: The required notice period varies depending on the employee’s length of service. However, notice periods do not apply in cases of disciplinary termination for gross misconduct.
| Employment Period | Notice peroid |
| Up to 4 weeks | 1 day |
| 4 weeks to 1 year | 7 days |
| More than 1 year | 30 days |
Severance Pay: In certain situations, employees may be entitled to severance pay. Understand the eligibility criteria and calculation methods for severance pay to avoid disputes.
Penalties for non-compliance
Failing to adhere to Nepal’s labor laws can result in severe penalties for employers:
Unlawful Deductions/Non-Payment: Employers must pay double the amount wrongly deducted or unpaid to the employee.
No Employment Contract: Fines ranging from NPR 10,000 to NPR 500,000.
Illegal Interns/Trainees: NPR 10,000 per intern or trainee.
Hiring Foreigners Without Permits: Up to NPR 200,000, with additional fines for repeat offenses.
Discrimination: Fines up to NPR 100,000.
Bonded Labor: Imprisonment, fines up to NPR 500,000, or both.
Why Digital HRS might be big help:
Modernizing your HR processes with a robust HRMS like our Digital HRS platform can revolutionize your approach to labor law compliance in Nepal. By automating key tasks like leave management, tax calculations, and payroll, you ensure adherence to Nepal’s complex regulations while freeing up your HR team to focus on strategic initiatives.
How Digital HRS Simplifies Compliance:
- Automated Leave Management: Set your leave policies once, and Digital HRS will automatically calculate and track employee leave entitlements, ensuring accurate balances and compliance with statutory requirements.
- Accurate Tax Calculations: Our system integrates with Nepal’s tax regulations to ensure precise payroll deductions, eliminating the risk of errors and potential penalties.
- Comprehensive Compliance Reports: Generate detailed reports on working hours, overtime, leave balances, and tax deductions for effortless auditing and regulatory reporting.
By leveraging Digital HRS, you not only mitigate compliance risks but also empower your HR team to focus on creating a positive employee experience, driving engagement, and fostering a workplace where both your company and your employees thrive.
We trust that this guide has provided you with valuable insights into Nepal’s essential labor laws. As you strive to build a fair and compliant work environment, remember that Digital HRS is here to support your journey towards HR excellence.
For a deeper dive into the Nepali Labor Laws, we encourage you to check Labor Law Act, 2017(2074).
