Employer of Record Guide in Nepal
Nepal's growing tech sector and skilled workforce present incredible opportunities, but navigating local employment laws and cultural nuances requires careful planning. This guide breaks down everything you need to know to hire compliantly and build your team in this dynamic South Asian market.
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From Kathmandu's bustling tech scene to emerging talent in software engineering and digital marketing, Nepal offers competitive advantages for global teams. Understanding the local market dynamics, from tax structures to cultural considerations, sets the foundation for successful expansion.
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Your EOR guide in Nepal
Getting payroll, benefits, and compliance right in Nepal means understanding everything from festival bonuses to Social Security Fund requirements. Here's your roadmap to managing compensation, leave policies, and onboarding processes that respect local customs while meeting legal obligations.
Minimum Wage
Nepal's minimum wage is set nationally and applies across all sectors and regions.
| Category | Minimum Wage (NPR/month) | Effective Date |
|---|---|---|
| All Sectors | NPR 17,300 | July 2023 |
Note: The minimum wage is reviewed annually by the government and adjusted based on economic conditions and cost of living.
Payroll Cycle
- Monthly: Most common payment frequency in Nepal
- Bi-weekly: Less common but acceptable
- Weekly: Rare, typically for daily wage workers
Note: Employers must ensure consistent payment schedules and comply with the Labour Act, 2074 (2017).
Individual Income Tax
| Income Bracket (NPR) | Tax Rate |
|---|---|
| Up to NPR 500,000 | 1% |
| NPR 500,001 to NPR 700,000 | 10% |
| NPR 700,001 to NPR 2,000,000 | 20% |
| NPR 2,000,001 to NPR 5,000,000 | 30% |
| Over NPR 5,000,000 | 36% |
Note: Tax rates are subject to annual budget changes and may include additional surcharges.
Tax Residency Criteria
Individuals who reside in Nepal for 183 days or more in a fiscal year are considered tax residents and must pay Nepali income tax on their worldwide income. Non-residents are taxed only on Nepal-sourced income.
Employer Payroll Contributions
Employers in Nepal are required to make several mandatory contributions beyond the employee's gross salary:
| Contribution Type | Employer Rate | Employee Rate | Total |
|---|---|---|---|
| Social Security Fund (SSF) | 20% | 11% | 31% |
| Provident Fund (Alternative) | 10% | 10% | 20% |
| Accident & Disability Insurance | 0.25% | - | 0.25% |
Note: Companies can choose between SSF or traditional Provident Fund schemes. SSF is mandatory for companies with 10+ employees.
Working Hours
The standard work schedule in Nepal is 8 hours per day, 48 hours per week, typically Monday through Saturday with Friday being a half-day in many organisations.
Standard Schedule:
- Monday-Thursday: 8 hours per day
- Friday: 4-6 hours (half-day)
- Saturday: Full working day
- Sunday: Weekly holiday
Note: Some international companies operate Monday-Friday schedules, but Saturday work remains common in local businesses.
Overtime Pay
- Overtime is paid at 1.5× the employee's regular hourly rate
- Daily Limit: Work beyond 8 hours per day qualifies for overtime
- Weekly Limit: Work beyond 48 hours per week
- Maximum Overtime: 4 hours per day, 20 hours per week
- Calculation: Based on basic salary divided by total working hours
Bonus Payments
- Festival Bonus: Mandatory annual bonus equivalent to one month's salary, typically paid during Dashain festival
- Performance Bonus: Discretionary, based on company policy
- 13th Month: Some companies provide additional annual bonus
Full-Time vs. Part-Time
- Full-time: Employees working 48 hours per week
- Part-time: Employees working fewer than 48 hours per week
- Contract Workers: Fixed-term employment with specific end dates
Annual Leave
- Standard Entitlement: 18 working days per year after completing one year of service
- Accrual: Earned monthly basis (1.5 days per month)
- Carry Forward: Up to 45 days can be accumulated
- Encashment: Unused leave must be paid out on termination
Sick Leave
- Entitlement: 15 days per year with full pay
- Medical Certificate: Required for leave exceeding 3 consecutive days
- Accumulation: Can be carried forward up to 45 days
- Extended Illness: Additional unpaid leave may be granted
Maternity Leave
- Duration: 98 days (14 weeks)
- Payment: Full salary for entire period
- Eligibility: After 6 months of continuous service
- Additional Benefits: Nursing breaks for one year post-delivery
Paternity Leave
- Duration: 15 days
- Payment: Full salary
- Timing: Must be taken within 6 months of child's birth
- Eligibility: After 6 months of continuous service
Festival Leave
- Major Festivals: 13 days annually for major Hindu festivals (Dashain, Tihar, etc.)
- Religious Accommodation: Additional days for other religious observances
- Cultural Significance: Festival leave is deeply important in Nepali culture
Bereavement Leave
- Immediate Family: 13 days for spouse, parents, children
- Extended Family: 7 days for siblings, grandparents
- Payment: Full salary during bereavement period
Summary
| Leave Type | Duration | Paid? | Notes |
|---|---|---|---|
| Annual Leave | 18 days/year | Yes | Can accumulate up to 45 days |
| Sick Leave | 15 days/year | Yes | Medical certificate required >3 days |
| Maternity Leave | 98 days | Yes | After 6 months service |
| Paternity Leave | 15 days | Yes | Within 6 months of birth |
| Festival Leave | 13 days/year | Yes | Major Hindu festivals |
| Bereavement | 7-13 days | Yes | Varies by relationship |
Termination Types
Termination With Cause:
- Serious misconduct, theft, fraud, or gross negligence
- No notice or compensation required
- Must follow proper disciplinary procedures
Termination Without Cause:
- Redundancy, restructuring, or performance issues
- Requires notice period and severance pay
- Must follow Labour Act procedures
Notice Period Requirements
Notice periods vary based on length of service and position level:
| Length of Employment | Notice Period |
|---|---|
| Less than 1 year | 1 month |
| 1-5 years | 1 month |
| 5-10 years | 2 months |
| 10-20 years | 3 months |
| Over 20 years | 4 months |
Note: Senior management positions may require longer notice periods as specified in employment contracts.
Severance Pay
Mandatory Severance:
- 1 month's salary for each year of completed service
- Minimum payment even for termination with cause in some circumstances
- Based on last drawn salary including allowances
Additional Compensation:
- Unused annual leave encashment
- Festival bonus (pro-rated)
- Provident fund/SSF benefits
Probationary Periods
- Standard Duration: 6 months for most positions
- Extension: Can be extended up to 1 year with mutual consent
- Termination: 15 days notice required during probation
- Conversion: Automatic confirmation after successful completion
Final Pay Requirements
- Timeline: Within 30 days of last working day
- Components: Final salary, unused leave, festival bonus, severance
- Documentation: Proper clearance and experience certificates required
Disciplinary Procedures
Before termination for cause, employers must:
- Issue written warning
- Provide opportunity to respond
- Conduct fair investigation
- Document all proceedings
- Follow company disciplinary policy
National Public Holidays
Nepal follows both solar and lunar calendars, resulting in varying holiday dates:
| Holiday | Approximate Date | Type |
|---|---|---|
| New Year's Day | January 1 | Fixed |
| Prithvi Jayanti | January 11 | Fixed |
| Basant Panchami | January/February | Lunar |
| Maha Shivaratri | February/March | Lunar |
| Holi | March | Lunar |
| Ram Navami | March/April | Lunar |
| New Year (Bikram Sambat) | April 13-15 | Fixed |
| Buddha Jayanti | April/May | Lunar |
| Republic Day | May 28 | Fixed |
| Janai Purnima | August | Lunar |
| Gai Jatra | August/September | Lunar |
| Krishna Janmashtami | August/September | Lunar |
| Teej | August/September | Lunar |
| Indra Jatra | September | Lunar |
| Dashain | September/October | Lunar (10 days) |
| Tihar/Deepawali | October/November | Lunar (5 days) |
| Chhath | October/November | Lunar |
Regional Variations
- Terai Region: Additional festivals specific to Madhesi communities
- Mountain Regions: Sherpa and Tibetan Buddhist festivals
- Newari Community: Specific cultural observances in Kathmandu Valley
Holiday Pay Rules
- Eligibility: All permanent employees entitled to holiday pay
- Rate: Full day's salary for each public holiday
- Working on Holidays: Double pay plus compensatory leave
- Religious Accommodation: Flexibility for minority religious observances
Required Documents for Employment
Employment Contract Requirements:
- Job description and responsibilities
- Salary and benefits structure
- Working hours and location
- Probation period terms
- Termination clauses
Government Documentation:
- Citizenship certificate or passport
- Tax registration (PAN) number
- Social Security Fund registration
- Bank account details for salary transfer
Work Authorization
For Nepali Citizens:
- Citizenship certificate required
- No additional work permits needed
For Foreign Nationals:
- Work visa and permit required
- Labour approval from Department of Labour
- Tax registration mandatory
- Renewal required annually
Background Verification
- Education Verification: Academic credentials must be verified
- Experience Verification: Previous employment confirmation
- Character Certificate: Police clearance for sensitive positions
- Medical Certificate: Health clearance for certain roles
Language Requirements
- Official Language: Nepali is the official language
- Business Language: English widely used in corporate settings
- Documentation: Contracts can be in English or Nepali
- Translation: Legal documents may require certified translation
Social Security Registration
Mandatory Registration:
- Employee and employer SSF registration
- Contribution calculation setup
- Beneficiary nomination
- Medical insurance activation
Onboarding Timeline
| Step | Timeline |
|---|---|
| Job offer acceptance | Day 0 |
| Document collection | Day 1-3 |
| Contract signing | Day 3-5 |
| Government registrations | Day 5-10 |
| SSF and tax setup | Day 7-10 |
| Payroll system entry | Day 10-12 |
| First salary processing | Month 1 |
What the EOR Handles
Borderless AI manages:
- Employment contract preparation
- Government registration processes
- SSF and tax compliance
- Payroll setup and processing
- Legal documentation
- Ongoing compliance monitoring
Worker Classification
Nepal distinguishes between different types of workers under the Labour Act:
Permanent Employees:
- Indefinite employment contracts
- Full benefits and job security
- Standard notice periods apply
Contract Workers:
- Fixed-term employment (maximum 3 years)
- Renewable with mutual consent
- Limited job security protections
Casual Workers:
- Daily wage or piece-rate work
- Minimal benefits
- No job security
Note: Misclassification can result in penalties and conversion to permanent status.
Labour Unions
- Right to Organize: Workers have constitutional right to form unions
- Collective Bargaining: Common in larger organisations
- Strike Rights: Legal but with procedural requirements
- Dispute Resolution: Labour courts handle employment disputes
Cultural Considerations
Festival Season Impact:
- Dashain (October): 2-week holiday period, minimal business activity
- Tihar (November): 5-day festival following Dashain
- Planning Required**: Major festivals significantly impact work schedules
Communication Style:
- Hierarchical respect important
- Indirect communication common
- Relationship-building valued
- Patience required for decision-making
Remote Work Framework
Legal Status:
- No specific remote work legislation
- Employment contracts must specify work arrangements
- Labour protections apply regardless of location
Practical Considerations:
- Internet infrastructure varies by region
- Power outages common (load shedding)
- Equipment provision may be challenging
- Tax implications for cross-border remote work
Compliance Risks
Common Violations:
- Inadequate SSF contributions
- Improper overtime calculations
- Festival bonus non-payment
- Insufficient leave provision
Penalties:
- Fines up to NPR 100,000
- Criminal liability for serious violations
- Employee compensation orders
- Business license suspension
WRITER NOTE: Please verify all information above against current Nepali labour law and regulations, as the source research contained some discrepancies that require fact-checking.
Built-in benefits packages for Nepal
When the world is your competition, it pays to incentivize new hires and existing alike. Borderless AI benefits packages typically inlucde:
Medical Insurance
Dental Insurance
Retirement Contribution
Life Insurance
Vision Insurance
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