Key Takeaways

  • Employer of Record services in Nepal allow foreign companies to legally hire employees without the need for a legal entity while ensuring compliance with Nepalese labor laws.
  • The relationship between a client company and the EOR allows businesses to simplify their payroll processes due to the EOR handling employee salaries, tax obligations, and social security responsibilities.
  • The Employee of Record (EOR) provides HR support by managing contracts, employee benefits, leave allowances, and severance payments, maintaining employees’ legal rights.
  • Businesses should evaluate the fees, HR control restrictions, and expertise in Nepalese labor markets before working with an EOR.

Nepal is a South Asian country globally recognized for its valuable cultural significance and natural beauty. Nepal is located between two economic powers of the world, India and China.

Recently, Nepal’s economy has started to move beyond its former dependence on farming and tourism through international remittances, manufacturing, and technological industries. Furthermore, increasing internet connectivity and talent skill levels make Nepal ideal for international employers who wish to hire staff, especially from the IT and business processing outsourcing sectors.

Foreign organizations encounter significant barriers when attempting to recruit Nepalese professionals due to the unfamiliarity with Nepalese labor regulations. These companies can solve their hiring requirements by using an Employer of Record service to provide guidance.

International enterprises can hire Nepalese talent through an Employer of Record service without needing a permanent legal structure in the country. This detailed report about Nepal’s EOR system shows how to select the most suitable EOR and presents all relevant information about its advantages and limitations.

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What is a Nepal Employer of Record?

An EOR in Nepal is a third-party agency that foreign businesses work with to provide legal employee management services. They assume full legal responsibility in Nepal for the foreign company providing services such as payroll processing, tax outsourcing, and employee benefit provisions.

In Nepal, an EOR makes sure employment contracts align with every law and statutory rule for labor. An EOR must also handle workplace disputes and terminations, ensuring strict compliance with Nepalese employment laws.

Nepal EOR

What is the Difference Between a Nepal EOR and a Nepal PEO?

The structural organization between an Employer of Record (EOR) and a Professional Employer Organization (PEO) remains different despite common features. An EOR takes complete legal responsibility for the client company, but PEOs operate by sharing responsibility with the employer, contributing to employee human resource (HR) management and compliance functions.  

Companies without legal entities in Nepal use EOR services to hire employees, whereas foreign companies with local subsidiaries use PEO to outsource HR services. A business seeking to expand in Nepal temporarily without a legal entity should select an Employer of Record.

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How Does a Nepal Employer of Record Work?

The Employer of Record serves as a legal liaison between international businesses and Nepalese employees, ensuring compliance with all employment, payment, and human resources regulations. The absence of a legal entity requirement makes an EOR convenient for international companies to enter business operations within Nepal. An Employer of Record handles everything related to employees, including hiring staff, payroll administration, tax compliance, Human Resources (HR) functions, and termination formalities, among others.

The standard procedure for hiring begins with job posting and candidate screening. After a candidate is identified, the EOR prepares legally binding employment contracts that follow Nepalese labor law requirements Employment contracts between the EOR and workers contain necessary details, including employee salary, job requirements, minimum standards, and termination guidelines. An EOR works with new employees to finish all required documentation consisting of tax forms, social security registration, and bank information for payroll operations.

The payroll process in Nepal contains multiple legal standards that international businesses must learn before starting operations. Employers in Nepal need to fund the Social Security Fund (SSF) Nepal, which is responsible for benefits like pensions, health insurance, and workplace injury support. The EOR ensures correct processing for employer and employee contributions. Additionally, the EOR takes full responsibility for correct salary delivery and tax preparation while following the Nepalese legal framework. 

The EOR provides complete HR assistance to manage these workflow systems, including employee benefits administration, labor law adherence, and performance management. Additionally, the EOR also handles Termination Procedures, Dispute Resolution, and Exit Documentation.

What Labor Laws Apply to Hiring in Nepal?

In Nepal, labor laws are designed to safeguard employee rights while guiding employers on fair workplace practices.

Employment Contracts

Written employment contracts are mandatory in Nepal, in accordance with the Labour Act, 2074 (2017). It governs the relationship between employer and employee and must include a formal appointment letter. The one exception to this rule is if the work requires seven days or fewer per month.

Each contract must include details like:

  • Each party’s identifying details
  • Employment type
  • Responsibilities
  • Wages
  • Annual leave
  • Other benefits
  • Employment terms and conditions
  • Probationary clauses (if relevant) 

If the employment contract involves a foreign employee, the contract must either be written in English or in a language the worker understands.

Probation Periods

Probationary periods for new hires are permitted in Nepal, but they must be written down within the contract itself to be legally valid. The latest incarnation of the Labour Act sets a hard cap on probationary periods of six months.

Employers are entitled to end the employment relationship during probation if they feel the worker hasn’t performed to the required standard. If the worker isn’t terminated before the end of their trial phase, the relationship is immediately considered to be permanent.

Social Security 

Contributions to the country’s social security fund are required for all employers and employees within Nepal’s formal employment sector. These payments must be made to the Social Security Fund (SSF), and it’s the employer’s responsibility to withhold and remit these payments every month.

Employers must contribute 20% of an employee’s monthly salary, whereas the employee contributes 11%, for a total of 31%. This covers a range of benefits, including old-age security, disability payments, and paid maternity leave, among other benefits.

 Public Health Insurance and Medical Coverage

The SSF provides health and maternity protection, but Nepal also operates a national health insurance program managed by the Health Insurance Board (HIB). The program’s roadmap indicates that a family-based premium for up to five members costs NPR 3,500 per year, with extra amounts for any additional family members.

 Currently, contributions to the HIB aren’t a payroll tax, meaning the contributions fall entirely on the employee. However, it’s not uncommon for companies to sponsor enrollment as an extra benefit.

Working Hours

The Nepalese work week is 48 hours split into eight-hour days. All employees are entitled to one paid rest day per week, with an extra 13 paid public holidays. If employees are required to work on rest days or paid leave days, not only must they be paid at the required overtime rate, but they must have their leave substituted within 21 days.

Overtime rates in Nepal are paid at 150% of a staff member’s basic wage. Additionally, overtime is capped at four hours per day and 24 hours per week.

Payroll and Employment Taxes in Nepal

Minimum Wage

The current Nepalese minimum wage sits at NPR 19,550 per month, which comprises NPR 12,170 in basic salary plus NPR 7,380 in dearness allowance. This increase came into effect in April 2025. The national minimum wage applies to all workers with some exceptions, such as tea estate workers.

In Nepal, the standard practice is to review and revise the national minimum wage every two years, with the Wage Fixation Committee’s next review expected in 2027.

Income Taxes

The country’s tax system is managed by the Nepal Inland Revenue Department (IRD). It’s the job of employers to withhold tax and social security contributions at source from workers’ paychecks and remit these payments to the relevant authority. 

Income tax brackets are set each fiscal year. Here are the current income tax brackets in Nepal:

Annual Taxable Income (NPR)Tax Rate
Up to 500,0000% (1% social security tax only)
500,001 – 700,00010%
700,001 – 1,000,00020%
1,000,001 – 2,000,00030%
2,000,001 – 5,000,00036%
Over 5,000,00039%

Note that if an employee is married and filing jointly, they’re entitled to an extra NPR 100,000 in tax exemptions, so they wouldn’t pay any tax on their income until they earn NPR 600,000.

13th-Month Pay

13th-month pay isn’t required by law in Nepal, but companies usually offer an annual festival allowance. It can be paid in advance of the employee’s primary religious/cultural festival, but it’s more common to provide it before the Dashain festival. It’s equivalent to a one-month salary or prorated for employees with under a year of service.

Work Permits and Visas in Nepal

Applying for work permits requires going through two steps of applying for a work permit and an immigrant work visa.

Employers are required to demonstrate that they’ve attempted to hire a Nepali citizen of equivalent qualifications before they can hire a foreign worker. If a Nepali worker cannot be found, an employer can then apply for approval to hire a foreigner through the Department of Labour and Occupational Safety.

Initial contracts must be written in English or a language understood by the worker. Furthermore, contracts without fixed terms are treated legally as a three-year contract, unless otherwise stated.

If the request is granted by the Department of Labour and Occupational Safety, both the employer and worker must apply to the Department of Immigration for a work visa. It’s a lengthy and potentially complex process, which is why our consultants are there to help you manage the two-stage process, engaging with the authorities and preparing documentation on your behalf. In some cases, we can even act as a local sponsor if you choose not to set up a formal Nepalese entity.

Request a Nepal EOR Proposal

Ready to simplify your hiring process in Nepal? Let us handle the complexities of compliance and payroll while you focus on growing your team.

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Hiring Contractors in Nepal

Working with freelancers or independent contractors is a valid way to do business in Nepal, but they don’t fall under the protections of the Labour Act. Instead, they fall under a confusing array of business and tax registration rules.

Contractors are required to file their own taxes and charge VAT on all taxable supplies. Additionally, they must file regular returns with the IRD when their income rises above a certain level. The standard VAT rate in Nepal is 13% and most supplies fall under the umbrella of VAT.

Note that Nepal takes disguised employment extremely seriously, so you can’t turn to independent contractors to get around employment protections. Working with an EOR in Nepal helps you navigate the regulations and ensure you don’t fall victim to penalties associated with employee misclassification.

Workers' Compensation in Nepal

Workers’ compensation coverage in Nepal is provided by the Labour Act and the SSF to protect workers from injuries and illnesses they might sustain in the workplace. It’s in place to ensure they receive proper medical care and compensation. Additionally, the SSF provides accident and disability insurance. All these benefits are covered via standard social security contributions made by both employers and employees.

Time Off and Leave in Nepal

Statutory leave periods for employees in Nepal are required under law. Alongside paid time off, other forms of leave may apply. Here’s a breakdown of the different types of leave in the country:

Mandatory Leave Entitlements

Nepal requires employers to give their workers one paid day off for every 20 days worked, up to a maximum of 18 days per year. Any accrued leave can be carried forward for up to 90 days. If the employee leaves or dies with any unused leave, it must be paid out at their basic hourly rate.

Sick Leave

Employees can also take advantage of up to 12 days of fully paid sick leave every year. However, a medical certificate from a licensed practitioner must be presented after two consecutive days of absence. Sick leave may be accumulated up to 45 days, with any balance paid out in the event the employee leaves or dies.

Maternity & Paternity Leave

Maternity leave is set at 14 weeks, but only 60 days must be fully paid, with the rest taken as unpaid leave. SSF benefits can fill this gap to enable extra paid leave days. Two weeks before childbirth and six weeks after childbirth are compulsory, with the remaining weeks used as the employee chooses. In contrast, male employees are entitled to 15 days of paid paternity leave.

Other Leave

Other forms of leave may also need to be paid out, or at least offered in an unpaid capacity. Bereavement, or kriya leave, upon the death of a spouse, parents, or parents-in-law, is fully paid for up to 13 days.

In some cases, employees may be entitled to 13 days of obsequies leave, depending on their family customs. Moreover, certain types of special leave can be taken each year. This amounts to 30 days of unpaid special leave, with no more than six months of special leave taken during the employee’s entire employment tenure.

Terminations and Severance in Nepal

Notice Periods

Notice periods are obligatory in Nepal, and legal minimums are based on the employee’s tenure. These notice periods are calculated like this:

Length of ServiceNotice Period
Up to 4 weeks1 day
4 weeks to 1 year7 days
Over 1 year30 days

Note that employers can opt for more extended notice periods, but if this option is chosen, it must be incorporated into the worker’s employment contract.

Severance Pay

Employees are entitled to receive a severance package equivalent to a month of their salary per year of service. This doesn’t apply in cases of gross misconduct, where employees may be terminated without notice.

Engage a Nepal Employer of Record with Remote People

Businesses looking to hire employees in Nepal can rely on Remote People for efficient, compliant Employer of Record (EOR) services. As a trusted global partner, we simplify hiring and payroll while ensuring full adherence to Nepal’s labor regulations—making the process smoother for both employers and employees.

Contact Remote People today to streamline your hiring in Nepal and expand confidently with tailored EOR support that fits your business goals.