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Nepal's labour law framework underwent a significant transformation with the enactment of the Labour Act, 2017 (Muluki Shram Ain 2074). This legislation replaced the Labour Act 1992, Industrial Trainee Training Act 2039, and Retirement Fund Act 2049, consolidating employment regulations into a single comprehensive statute. Whether you are an employer establishing a business in Nepal or an employee seeking to understand your rights, this guide provides an authoritative overview of the country's labour law provisions.
Scope and Applicability of the Labour Act 2017
The Labour Act 2017 applies to all companies, private firms, partnership firms, cooperatives, associations, NGOs, and INGOs operating in Nepal regardless of whether they operate for profit. Foreign entities engaged in business promotion or product sales within Nepal also fall under this law. Unlike the previous legislation that applied only to establishments with ten or more employees, the current Act covers all entities irrespective of workforce size.
Certain sectors remain exempt from this Act, including the Civil Service, Nepal Army, Nepal Police, Armed Police Force, and entities covered under special laws such as the Working Journalists Act 2051 where separate employment agreements exist.
Categories of Employment Under Nepal Labour Law
The Labour Act classifies employment into five distinct categories, each carrying specific rights and obligations for both parties involved.
| Employment Type | Definition |
|---|---|
| Regular Employment | Ongoing employment not classified under other categories; provides full statutory benefits |
| Work-Based Employment | Engagement for a specific task or project; terminates upon completion |
| Time-Bound Employment | Fixed-term contract for a defined period |
| Casual Employment | Engagement for seven days or less within a month |
| Part-Time Employment | Working 35 hours or less per week; entitled to social security benefits |
Every employer must provide a written employment contract before engaging any worker, except for casual employment where verbal agreements are permissible. The contract must specify remuneration, benefits, and conditions of service.
Probation Period and Employment Confirmation
Employers may place new employees on probation for a maximum of six months. During this period, the employer can terminate the contract if performance is unsatisfactory. If the employment is not terminated within the probation period, the employee automatically becomes a confirmed regular employee with all associated rights and protections.
Working Hours and Overtime Provisions
The standard working hours under Nepal labour law are eight hours per day and 48 hours per week. Employees must receive a 30-minute break after five consecutive hours of work, and this break counts as part of working hours.
Overtime work cannot exceed four hours per day or 24 hours per week. For any overtime work, employers must pay remuneration at 1.5 times the regular hourly rate. Compelling employees to work beyond standard hours without consent is prohibited, except in emergencies affecting life, safety, or causing serious loss to the employer.
Minimum Wage in Nepal 2025
The Government of Nepal revises minimum wages every two years as mandated by Section 107 of the Labour Act. The latest revision, effective from July 15, 2025 (Shrawan 1, 2082 BS), reflects adjustments for inflation and living costs.
| Component | Monthly (NPR) | Daily (NPR) | Hourly (NPR) |
|---|---|---|---|
| Basic Salary | 12,170 | 470 | 63 |
| Dearness Allowance | 7,380 | 284 | 38 |
| Total Minimum Wage | 19,550 | 754 | 101 |
Employers must also provide an annual increment equivalent to half a day's salary based on the monthly basic remuneration for employees who have completed one year of service. Additionally, every employee is entitled to a festival allowance equal to one month's basic salary each year.
Leave Entitlements Under Labour Law
Nepal's labour legislation provides comprehensive leave entitlements to protect employee welfare and work-life balance.
| Leave Type | Entitlement |
|---|---|
| Weekly Holiday | One day per week |
| Public Holidays | 13 days for male employees; 14 days for female employees (includes International Women's Day) |
| Home Leave | One day for every 20 working days; accumulation up to 90 days |
| Sick Leave | 12 days per year (paid); accumulation up to 45 days |
| Maternity Leave | 14 weeks total; 60 days fully paid |
| Paternity Leave | 15 days fully paid |
| Mourning Leave | 13 days fully paid |
Accumulated home leave and sick leave beyond the specified limits must be encashed at the end of each year based on the employee's basic remuneration.
Social Security Fund Contribution in Nepal
The Labour Act mandates employer contributions to the Social Security Fund at a combined rate of 31 percent of basic salary. Employers contribute 20 percent while 11 percent is deducted from the employee's salary. This contribution covers medical treatment, health and maternity protection, accident and disability protection, dependent family protection, and old-age security.
Employers must also arrange medical insurance of at least NPR 100,000 and accidental insurance of at least NPR 700,000 for each employee. The medical insurance premium is shared equally between employer and employee, while accidental insurance is entirely the employer's responsibility.
Employment Termination and Retrenchment
Employment can be terminated through voluntary resignation, compulsory retirement at age 58, completion of fixed-term contracts, poor performance over three consecutive appraisals, or health grounds based on medical recommendation. Employers must provide notice before termination: one day for employment up to four weeks, seven days for employment between four weeks and one year, and 30 days for employment exceeding one year.
Retrenchment due to financial difficulties or restructuring requires 30 days advance notice to the Labour Office and relevant trade unions. Retrenched employees are entitled to compensation at the rate of one month's basic salary for each year of service.
Labour Court and Dispute Resolution
The Labour Court, established under this Act, adjudicates employment disputes. It consists of one chairperson and two members with qualifications equivalent to High Court judges. Decisions must be rendered within 90 days of filing. Appeals against Labour Court decisions can be made to the Supreme Court within 35 days.
Penalties for Non-Compliance
The Labour Act prescribes substantial penalties for violations. Employing workers without written contracts attracts fines up to NPR 500,000 at NPR 10,000 per worker. Employing foreigners without work permits results in fines up to NPR 200,000 with additional monthly penalties. Engaging bonded labour carries imprisonment up to two years, fines up to NPR 500,000, and mandatory compensation at double the entitled remuneration.
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Frequently Asked Questions
The minimum monthly wage in Nepal effective July 15, 2025 is NPR 19,550. This includes NPR 12,170 basic salary and NPR 7,380 dearness allowance. The daily wage is NPR 754 and hourly wage is NPR 101.
The Labour Act 2074 (2017) is Nepal's primary employment law that governs employer-employee relationships. It replaced the Labour Act 1992 and covers employment contracts, wages, working hours, leave, social security, and dispute resolution for all businesses in Nepal.
The standard working hours in Nepal are 8 hours per day and 48 hours per week. Employees must receive a 30-minute break after 5 consecutive hours of work, which counts as part of working hours.
The maximum probation period under Nepal labour law is 6 months. If the employer does not terminate employment within this period, the employee automatically becomes a confirmed regular employee with full benefits.
Female employees in Nepal are entitled to 14 weeks maternity leave, with 60 days fully paid. Maternity leave is compulsory from 2 weeks before delivery to 6 weeks after delivery.
Male employees in Nepal receive 15 days of fully paid paternity leave when their wife delivers a baby.
The Social Security Fund contribution in Nepal is 31% of basic salary. Employers contribute 20% and 11% is deducted from the employee's salary. This covers medical, maternity, accident, and old-age protection.
Overtime pay in Nepal is 1.5 times the regular hourly wage. Overtime cannot exceed 4 hours per day and 24 hours per week.
The compulsory retirement age in Nepal's private sector is 58 years for employees in regular employment under the Labour Act 2017.
Employees in Nepal are entitled to 13 paid public holidays per year. Female employees receive 14 days including International Women's Day.
Employees in Nepal are entitled to 12 days paid sick leave per year. Unused sick leave can be accumulated up to 45 days and encashed upon termination.
Notice period in Nepal is 1 day for employment up to 4 weeks, 7 days for 4 weeks to 1 year, and 30 days for employment exceeding 1 year.
Employers must deposit 8.33% of basic salary monthly as gratuity contribution to the Social Security Fund for each employee.
Employers must provide medical insurance of minimum NPR 100,000 (premium shared equally) and accidental insurance of minimum NPR 700,000 (employer pays full premium) for each employee.
Retrenched employees in Nepal receive one month's basic salary for each completed year of service as compensation. This applies to enterprises with more than 10 employees.
