Employer of Record in Nepal

Employment Laws and Regulations in Nepal

Employment Contracts

Employment in Nepal’s private sector is governed by the Labour Act 2017, administered by the Ministry of Labour, Employment and Social Security and the Department of Labour. Written contracts and an appointment letter are mandatory, and must set out the parties, job title, start date, wage, working hours, leave, probation, and the duration of the contract. Contracts are typically drafted in English or Nepali; English is standard for international employment.

Contracts can be for permanent, probationary, temporary, casual, or apprentice workers, each category defined in the Act. A worker who completes probation and is not formally terminated continues indefinitely as a permanent employee with all attendant statutory benefits.

Working Hours and Overtime

The standard private-sector workweek in Nepal is 48 hours, typically arranged as 8 hours per day over six days, with a rest break (minimum 30 minutes) required after 5 continuous hours of work under the Labour Act 2017. Overtime is permitted up to a maximum of 24 hours per week and 4 hours per day, compensated at 1.5 times the ordinary rate. Annual average working hours cannot exceed 48 hours per week as calculated across the year.

Under the Labour Act 2017 Section 31, overtime compensation is specified by work category and rest-day status. Weekday overtime is compensated at 1.5× the ordinary rate, while work on weekly rest days and public holidays commands higher premiums. The table below shows the complete overtime and premium pay rate schedule, including the weekly overtime cap and the base salary to which multipliers apply.

Minimum Wage

Nepal’s national minimum wage was raised to NPR 19,550 per month effective 17 July 2025.

The rate comprises NPR 12,170 as basic pay and NPR 7,380 as dearness allowance (an inflation adjustment component). Tea estate workers receive a lower floor of NPR 13,893 per month. Most professional, technology, and white-collar roles in Kathmandu and other urban centres exceed these statutory floors significantly.

Probation Period

The probation period in Nepal under the Labour Act 2017 is set at a maximum of 6 months.

During probation, either party may terminate employment with notice or compensation as set out in the contract (commonly 7–15 days’ notice). A worker who continues in employment after probation expires becomes a permanent employee with automatic confirmation of service and full statutory entitlements including gratuity accrual from day one. Only one probation period is allowed per employee with the same employer.

Leave Entitlements

Nepal’s statutory leave framework is set out in Sections 37–51 of the Labour Act 2017 and covers annual, sick, casual, maternity, paternity, and public holiday leave. The rules apply to all workers and employees in establishments covered by the Act, regardless of nationality.

Annual Leave

Under the Labour Act, workers are entitled to 18 days of paid annual leave per calendar year. Leave accrues and must be granted within the same calendar year or the following calendar year with employer approval. Untaken annual leave can be encashed in cash at the employee’s basic wage rate at the time of termination.

Sick Leave

Section 39 provides 12 days of fully paid sick leave per calendar year.

Sick leave is employer-funded and does not require social insurance involvement because the SSF medical component is employer-financed. A medical certificate from a registered practitioner may be required for absences exceeding two consecutive days. Sick leave cannot be carried forward and is not encashable at termination.

Casual Leave

Employees are entitled to 12 days of paid casual leave per calendar year under customary practice, which may be contractually adjusted. Casual leave is designed for unforeseen short absences and cannot be accumulated or carried over from one year to the next.

Maternity Leave

Section 37 of the Labour Act provides 14 weeks (98 days) of maternity leave, with 60 days fully paid by the employer.

The benefit is available to female employees who have completed at least one year of continuous service at the time of delivery. Maternity leave is compulsory for 2 weeks before expected delivery and 6 weeks after actual delivery. The employee also cannot be dismissed during maternity leave under Section 49, and payment is calculated on the employee’s basic wage at the time notice of pregnancy is given.

Paternity Leave

Section 37 of the Labour Act also provides 15 days of fully paid paternity leave when a male employee’s wife delivers a baby. Paternity leave must be taken within one year of the child’s birth and is provided by the employer.

Statutory Employee Benefits

Mandatory employee benefits in Nepal are organised around the Social Security Fund (SSF) system and the Labour Act 2017. The SSF is a contribution-based system funded equally (combined 31% of basic salary) by employer and employee, split across multiple schemes: 20% to pension, 8.33% to gratuity (end-of-service severance equivalent), and the balance to medical, maternity, accident, and disability benefits. Private health insurance beyond the SSF medical component is optional and often offered by larger employers as a voluntary benefit.

All employees with an employment contract and at least one complete month of service must be registered with the SSF. Festival allowance (Dashain bonus) is also mandatory under Section 37 of the Labour Act for establishments with 10 or more workers and employees who have completed 6 months of continuous service: one month’s basic wage must be paid before the Dashain festival (typically September or October, date set by lunar calendar). Some employers extend festival allowance to other major festivals (Tihar, Nepali New Year) at their discretion or per employee request.

Recent Regulatory Updates 2026

The most significant recent change is the amendment to the Social Security Fund contribution remittance deadline. Effective from July 2025, employers now have 25 days (extended from 15 days) after the end of each month to deposit SSF contributions.

The Inland Revenue Department also raised the personal income tax exemption threshold from NPR 400,000 to NPR 500,000 for individuals (and NPR 600,000 for married couples) for fiscal year 2082-83 (July 2025–June 2026). The minimum wage was also increased to NPR 19,550 in July 2025, up from NPR 17,300 in 2023. Employers should monitor further IRD circulars and Department of Labour notices for 2026-27.

Work Permits and Visas in Nepal

Work Permit Requirements

Who Needs a Work Permit

All foreign nationals who intend to work in Nepal need a working visa and work permit before they can take up employment. Work permits for private-sector employees are issued by the Department of Labour under the Ministry of Labour, Employment and Social Security upon recommendation to the Department of Immigration. Nepalese nationals and citizens do not require a work permit.

Eligibility and Required Documents

To qualify, the sponsoring employer must conduct a labour market test (typically advertising the position in local newspapers for a specified period), demonstrate that no suitable local candidate is available, and provide an employment contract signed by both parties. The standard documentation bundle includes the signed contract, a copy of the employee’s passport valid for at least 6 months, academic and professional certificates, a recent passport photograph, a company resolution authorising the foreign hire, a declaration that local candidates were considered, proof of the employer’s business registration and tax status, and a statement of the employee’s job title and salary. The employer also typically requires police clearance and medical certificates for the candidate.

Processing Time and Validity

The Department of Labour typically processes work permit applications in 30 to 45 days from submission once the file is complete, though applications that raise security clearance questions or require additional Home Ministry review can take considerably longer. Work permits are initially issued for one year and are renewable annually. Foreign workers must also hold a valid Non-Tourist visa issued by the Department of Immigration, which is normally approved once the work permit is granted.

Renewal Process

Renewal applications should be filed at least 30 days before expiry and typically take 2–4 weeks to process. The employer must show continuing business activity, updated tax filings, and any changes to the employee’s role or salary. Late renewals expose the foreign worker to overstay penalties and can jeopardise future work permit applications and visa extensions.

Common Visa Types for Foreign Workers

Nepal’s Department of Immigration and Department of Labour administer several visa categories relevant to foreign workers. The Non-Tourist (NT) visa is the primary work visa, issued only upon labour market clearance from the Department of Labour and work permit approval. The table below summarizes the main work-eligible visa types, their validity periods, suitability for different employment scenarios, and whether they lead to long-term residency status.

Most relevant categories for companies hiring through an employer of record are the Non-Tourist (NT) work visa, issued for sponsored foreign employees with Department of Labour work approval and valid for 1 year initially and renewable. Business visas are for short-term commercial visits not exceeding a specified duration and do not authorize paid employment without a separate labour permit. Dependents of sponsored workers can reside in Nepal under a dependent visa but need their own work permit and Non-Tourist visa if they later take up paid employment.

How an EOR Handles Work Permits

An employer of record in Nepal is the legal sponsor for work permit purposes, which means it conducts the labour market test, files the work approval application with the Department of Labour, coordinates with the Department of Immigration for visa issuance, and manages renewals.

The EOR handles employer-side steps including the labour market justification, contract drafting, documentation collection, and coordination with Home Ministry for security clearance. The employee still needs to provide personal documents, medical certificates, and complete any in-person immigration and biometric steps at the Department of Immigration. Because the Department of Labour application plus security clearance typically adds four to eight weeks for applicants outside Nepal, expatriate onboarding runs closer to six to nine weeks end to end rather than the one to two weeks quoted for Nepalese hires.

Payroll, Taxes, and Social Security in Nepal

Employer Contributions

Employer statutory costs in Nepal are determined by the Social Security Fund contribution system, which mandates a combined 31% of basic salary split 20% employer and 11% employee. The 31% is allocated across multiple schemes: 20% to pension (old age, survivor, disability), 8.33% equivalent to gratuity (end-of-service benefit), and the balance to medical, maternity, paternity, accident, and permanent disability schemes.

Employee Contributions

Employee-side deductions in Nepal come from two sources: the employee share of the Social Security Fund (11% of basic salary) and personal income tax withheld at source by the employer. There is no separate public pension, no health insurance withholding beyond the SSF medical component, and no unemployment insurance.

Income Tax

Nepal taxes residents on worldwide income under a progressive slab system. For fiscal year 2082-83 (July 2025–June 2026), the tax-free threshold is NPR 500,000 for single taxpayers (NPR 600,000 for married couples), and rates rise progressively to 36% on income above NPR 2,000,000, with an additional 3% surtax on income above NPR 5,000,000 (bringing the top marginal rate to 39%). Non-resident foreign nationals are typically taxed at a flat 30% on all Nepal-sourced income unless a tax treaty applies.

A 1% Social Security Tax applies below the exemption threshold as a contribution to the Social Security Fund even if no regular income tax is due. Rebates are available for charitable donations and certain investment categories. Employers withhold tax monthly from gross salary and file quarterly and annual returns with the Inland Revenue Department by specified deadlines.

Payroll Cycle

Wages are paid monthly under Nepal’s payroll and income tax rules, no later than the final working day of the wage month under the Labour Act 2017. Payment is made in Nepalese rupees through a scheduled commercial bank, which is the standard channel for formal employment in Kathmandu and other centres.

Payslips must be provided and should show gross pay, SSF deductions (broken down by component), personal income tax withheld, any other deductions, and net pay. Income tax withheld during the month must be deposited with the IRD within a specified timeframe (usually monthly), and employers file annual salary certificates by 31 December covering the preceding fiscal year ending 30 June.

13th Month Salary and Festival Allowance

A single 13th-month salary is not a statutory requirement in Nepal, but the Dashain festival allowance (mandated under Section 37 of the Labour Act 2017 for establishments with 10 or more workers and employees with 6+ months service) serves as the closest equivalent: one month’s basic wage must be paid before Dashain (typically September or October, date set by lunar calendar). Employees in smaller establishments or with less than 6 months tenure do not qualify for the mandatory Dashain allowance, though some employers offer it as a matter of policy. Many employers also extend voluntary festival allowances to Tihar, Nepali New Year, or other religious observances at their discretion.

Discretionary performance bonuses, incentive pay, and annual bonuses are common in technology, finance, and commercial services. When bonuses are paid, they are generally included in taxable income and subject to income tax withholding under the regular slab schedule.

Cost of Hiring Through an EOR in Nepal

EOR Service Fees

Employer-of-record services in Nepal typically cost between $300 and $600 per employee per month in USD, depending on provider, complexity, headcount, and whether work permit sponsorship for foreign hires is included. The fee generally covers compliant contract drafting, monthly payroll administration, SSF contribution management and remittance, personal income tax withholding and IRD filing, leave administration, festival allowance handling, work permit sponsorship where applicable, benefits enrollment, and offboarding. Visa fees, work permit application costs, and medical insurance are usually passed through at cost.

Total Employment Cost Breakdown

The example below shows how a gross base salary of USD 1,000 per month translates into fully-loaded employer cost once Nepal’s mandatory SSF contributions and statutory allowances are added. Use it to benchmark offers and budget accurately when hiring in Nepal.

At a $1,000 monthly gross salary for a formal-sector hire, the total employer cost works out to roughly $1,579 per month, or about 57.9% above gross once SSF contributions and festival allowance provision are included. Personal income tax is withheld from the employee’s pay rather than added on top, so it does not increase the employer’s cost line. All USD amounts are approximate conversions at 1 USD = 132 NPR (April 2026 rate).

Contact RemotePeople to get started with an employer of record in Nepal. We handle employment contracts, payroll, income tax withholding, SSF administration, festival allowance, work permits for foreign hires, and full Labour Act 2017 compliance, with no local entity needed.

Benefits of Using an EOR in Nepal

The strongest argument for an employer of record in Nepal is speed to market. A full business registration (company or sole proprietorship), bank account setup, Social Security Fund registration, Inland Revenue Department registration, and work permit sponsorship typically takes two to four months when coordinated through a local lawyer or company formation agent, whereas an EOR can onboard a first Nepalese hire in one to two weeks. That difference is often the deciding factor when a project has a narrow hiring window or uncertain market timeline.

Compliance assurance is the second big win. The Labour Act 2017, the Contribution-Based Social Security Act 2017, the Income Tax Act (updated annually), Department of Labour rules, and Department of Immigration visa policies all evolve on their own timelines, and every misstep carries administrative penalties, back-SSF assessments, income tax adjustments, labour court exposure, or visa cancellations. An EOR absorbs that regulatory maintenance, reducing the ongoing burden on the client’s legal and finance teams and removing the risk that payroll or work permit mistakes lead to fines, employee disputes, or visa complications.

Finally, EOR services scale cleanly in both directions. Adding a second or tenth hire follows the same onboarding path as the first, and scaling down requires nothing more than serving a compliant notice period and processing final settlement, rather than dissolving a local entity or dealing with company wind-down formalities. That flexibility, combined with local HR expertise, better employee experience through timely payments and correct benefits, and cost efficiency for small teams where entity overhead would dwarf salary budget, makes the EOR model the default choice for most companies testing Nepal for the first time.

Termination and Offboarding in Nepal

Notice Periods

Under Section 142 of the Labour Act 2017, either party must give 30 days’ written notice to terminate a permanent monthly-rated worker’s employment without cause. The notice period applies equally to both employer and employee. During the notice period, the employee remains on full pay and continues to accrue benefits including SSF contributions and leave.

The Labour Act 2017 specifies different notice periods based on tenure and employment status.

Section 142 sets the 30-day notice requirement for permanent workers with service exceeding one year. Probationary workers and those with shorter tenures have different notice requirements. The table below outlines the statutory notice periods by employee tenure and position level, with special provisions for disciplinary termination and collective dismissal.

Termination on disciplinary grounds under Section 140 follows a separate procedure and may not require a notice period if grounds are serious misconduct, provided the employer conducts a written charge, explanation, and inquiry in line with fair labour practices. Termination during probation can be effected with shorter notice (commonly 7–15 days) as specified in the employment contract.

Severance Pay

Under Section 145 of the Labour Act 2017, an employee terminated without cause is entitled to severance pay of one month’s basic wage for each completed year of service, calculated proportionately for incomplete years. The severance base is the basic wage (not gross salary, and excluding allowances and bonuses) at the time notice is given. Severance is paid in addition to accrued gratuity from the Social Security Fund and untaken leave encashment, together forming the final settlement owed on exit.

The table below shows worked examples of severance calculations based on years of service, illustrating how the one-month-per-year formula applies across different tenure lengths. The base salary column explains what counts as “basic wage” for severance purposes under Nepal law.

Calculation Method

Under Section 145 of the Labour Act 2017, an employee who is terminated without cause is entitled to severance pay of one month’s basic wage for each completed year of service. For employees with incomplete years, the severance is calculated proportionately (e.g., 6 months of service = 0.5 months’ pay). The calculation base is the basic wage at the time notice is given.

Gratuity and Final Settlement

The SSF gratuity component (accumulated monthly at a rate equivalent to 8.33% of basic wage per year) is payable separately from severance and is in addition to statutory severance pay under Section 145. Employees also receive encashment of untaken annual leave at their basic wage rate. The total final settlement comprises severance (if applicable), gratuity (if service exceeds one year), leave encashment, and any accrued festival allowance pro-rated to the termination date.

Grounds for Termination

The Labour Act 2017 allows termination with or without cause.

Termination without cause requires 30 days’ notice and the statutory one-month-per-year severance plus gratuity. Termination for cause under Section 140 is allowed for specific misconducts including theft, dishonesty, wilful damage to property, habitual absence without leave, insubordination, violation of safety rules, and conviction for a criminal offence involving moral turpitude.

The employer must serve a charge sheet, allow the worker to respond, and conduct a domestic inquiry before issuing dismissal. Protected categories include pregnant workers during and after maternity leave (Section 49) and workers on approved sick leave. Unlawful dismissal claims go to the Labour Court and can result in reinstatement, back wages, or compensation up to the full severance formula if the termination is found to be without just cause.

EOR vs. Other Hiring Models in Nepal

EOR vs. Setting Up a Local Entity

Opening a private limited company in Nepal involves Office of Company Registrar filings, Inland Revenue Department registration, a paid-up capital deposit, and ongoing accounting and audit obligations. The table below compares the core economics of an EOR engagement against incorporating your own subsidiary.

For companies hiring fewer than 15 people in Nepal, the EOR model is almost always more cost-effective than opening a local company.

Avoided setup costs, company registration fees, legal and accounting retainers, and ongoing corporate administration and compliance usually exceed a full year of EOR service fees for the first one or two hires. Only when a business needs to bid for government contracts, operate in restricted sectors, or has a headcount large enough to justify in-house HR, finance, and compliance staff does the balance tilt toward a local entity. RemotePeople’s transparent EOR pricing allows you to compare exact costs before you commit.

Companies planning regional South Asian expansion often run an EOR in India alongside Nepal to serve both markets before opening entities. A common pattern is to start with an EOR, validate the Nepal market and build a local team, and then transition to a company-owned entity once headcount crosses 15–20 people. A good EOR supports that migration and coordinates the transfer of employees with no break in tenure, preserving annual leave balances, SSF membership, and gratuity accrual.

EOR vs. Hiring Independent Contractors

Engaging Nepalese workers as contractors can look cheaper on paper, but the Labour Act 2017 and Inland Revenue Department treat genuine employees as misclassified if they work under employer direction, use company equipment, or perform core functions. The comparison below highlights when an EOR protects you against reclassification risk.

Independent contractors are only appropriate in some cases, such as short-term project work, specialised consulting, or roles with genuine autonomy where the worker controls their own schedule, tools, and other clients. The misclassification concern in Nepal arises when a contractor behaves like an employee (fixed hours, exclusive relationship, integration into the team, work on employer premises), which can expose the client to back SSF contributions, penalties, unpaid leave, and potential gratuity if a labour court or the Department of Labour recharacterises the relationship.

For core team members who work full time on your business, the EOR route is cleaner. It eliminates classification risk, provides the employee with full statutory benefits including SSF, annual leave, maternity/paternity leave, and festival allowance, gives the client stronger IP protection through employment-law default rules, and simplifies ongoing administration because everything runs through the EOR’s payroll rather than a mix of invoices and ad-hoc payments. When contractors are genuinely the right fit, RemotePeople can help you hire contractors in Nepal compliantly through our dedicated contractor management solution.

EOR vs. PEO (Professional Employer Organization)

Nepal does not recognise co-employment, so a traditional US-style PEO model cannot legally operate in the country. The table below clarifies the differences and explains why an employer of record is the appropriate structure for hiring in Nepal without an entity.

Nepal does not have a formal Professional Employer Organization (PEO) framework in the way that exists in some developed markets. The “PEO” label is sometimes used loosely by local HR outsourcing firms, but the underlying service is usually HR administration and payroll processing for a client that already holds its own business registration, TIN, Social Security Fund registration, and IRD files. The key legal distinction is who the IRD, Department of Labour, and Department of Immigration recognise as the employer of record for payroll, work permit, and inspection purposes, and in the true PEO model that remains the client company.

Because PEO-style services only work for companies that already have an entity in Nepal, they are not a market-entry option. The practical choice for a business without a local presence is between an EOR (employ through a third party) and setting up a local company. Once a client has its own Nepalese entity, PEO-style payroll outsourcing becomes a reasonable option for reducing HR overhead.

Public Holidays in Nepal

Nepal recognises a blend of national, religious, and cultural holidays under the Labour Act 2017, with many following the lunar calendar and confirmed by government notification shortly before each date. The table below lists the main gazetted holidays for 2026 so you can plan payroll, project timelines, and leave coverage.

Nepal observes approximately 13 national gazetted public holidays per year for 2026, combining national, religious, and cultural observances.

Many holidays follow the lunar calendar and are confirmed by government notification shortly before the observance. Work performed on a public holiday entitles the worker to an additional day of compensatory leave or payment at 1.5 times the ordinary rate (or 2.0 times for night-shift work) under the Labour Act 2017. The EOR tracks all public holidays and ensures correct payroll coding and scheduling so that employees are paid correctly on these days.

How to Get Started with an EOR in Nepal

Getting started with RemotePeople as your employer of record in Nepal is a short, repeatable process:

• First, share the job description, target salary range, and candidate details so we can confirm Labour Act 2017 compliance and quote an accurate monthly fee.
• Second, sign the service agreement and we draft a compliant English-language employment contract under the Labour Act 2017.
• Third, we register the employee with the Social Security Fund, file the Department of Labour work approval application (if applicable for foreign hires), and set up payroll through a scheduled commercial bank.
• Fourth, the employee signs the contract, submits KYC documents, and begins work on a scheduled start date.
• Fifth, we run monthly payroll, withhold and remit income tax, administer SSF contributions and gratuity accrual, manage benefits, and handle any termination or renewal events for as long as the employment continues.

Contact our team to build your Nepal team without a local entity. RemotePeople handles the contracts, payroll, and compliance so you can focus on hiring the right people.

Where companies hiring in Nepal expand next

Companies hiring in Nepal commonly expand across South Asia, drawing on shared English proficiency and deep tech talent pools. After building a team in Nepal, employers often look to operations in Pakistan for Asia-Pacific connectivity and English-proficient hires, then Bangladesh for the Asia-Pacific gateway with multilingual workforce. Hiring in Sri Lanka follows with access to pan-Asian talent and supply-chain clusters, and an EOR partner in India typically closes the regional footprint via deep Asian tech and services talent.