Officially known as the Federal Democratic Republic of Nepal, this growing Asian country is situated between India and the Tibet Autonomous Region, or TAR. Nepal is home to over 29 million people and offers a steadily growing economy that is attractive to both domestic and foreign investors. The landlocked country is mainly situated in the Himalayan Mountains, which have contributed to its reputation as a beautiful destination for both tourism and commerce. 

Nepal is known for its vibrant mosaic of languages and cultures. The country is home to over 125 different ethnic groups, who speak over 100 different languages. Additionally, Nepal’s mountainous terrain is one of the country’s greatest points of pride. Nepal is home to eight out of the fourteen “eight-thousanders,” or mountains exceeding 8,000 meters in height. Most people have heard of Mount Everest, the world’s highest point above sea level, but Everest is far from the only mountaineering destination in Nepal. With its scenic vistas and burgeoning economy, Nepal is a strong contender for growing a foreign workforce.  

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Why Expand Your Business to Nepal

Strategic Advantages of the Nepali Market

Nepal’s economy and GDP have both been growing in recent years, and the country’s GDP now tops $40 billion. Agriculture is the primary economic driver of the region and contributes about ⅓ of Nepal’s GDP. The country is heavily investing in expanding other sectors, including tourism, hydropower, and information technology. Additionally, Nepal’s strategic placement between India and China offers an excellent location to do business with two of Asia’s strongest consumer markets. 

Nepal has a growing labor force of about 8.6 million people and has a tax code that is friendly to corporations. The overall environment is favorable for doing business, and there are many strategic advantages when it comes to expanding your workforce into Nepal. 

REMOTE PEOPLE FURTHER READING

For more detailed information on expanding into this region, you can review our Comprehensive Guide to Doing Business in Nepal.

Importance of Being Aware of Nepali Labor Laws

Nepal’s primary labor regulations are contained in the Labour Law of 2017 (2074, according to the Bikram Sambat calendar that is used in Nepal). It is focused on protecting the rights of employees working in various sectors in the country. It stipulates a number of protections that we will break down further shortly, including leave entitlements, mandatory social security contributions, and more. 

Being aware of these legal requirements is essential for anyone hoping to avoid potential legal problems and build a positive reputation as an employer in Nepal.

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Step 1: Define Your Hiring Needs

Before you begin the hiring process in Nepal, you should start by considering the long-term objectives of your company’s expansion into Nepal. Do you want to establish a small team to manage local operations, or are you looking to initiate a larger-scale hiring process? Knowing the answers to these questions will help guide your Nepali recruitment efforts. 

Next, it’s important to think carefully about the roles you need to fill. What skills do these roles require? How many employees will you need? What specific qualifications and experience are relevant or necessary for each distinct position? Determining these criteria in advance will help you effectively recruit employees in Nepal. You’ll be better equipped to find the right candidates and ensure that the roles you are hiring for correspond with your organization’s overall goals.

Step 2: Familiarize Yourself with Compliance Requirements

Understanding the labor laws, tax obligations, and mandatory benefits offered in Nepal is essential. The main labor law to familiarize yourself with is Nepal’s Labour Act of 2017 (2074), which outlines employee rights and rules that employers must abide by. 

Growing familiar with tax laws in Nepal is also advisable. Individual tax rates (personal income tax, or PIT) in Nepal range from 1% to 39% and are assessed on a progressive scale depending on how much income a person earns. Corporate tax rates depend on the industry in which a company is operating and range from 5% to 30%. 

Step 3: Choose Your Hiring Method

The next step in hiring Nepali employees involves deciding on the best hiring method for your needs. Will you establish a legal entity in Nepal, use an Employer of Record (EOR), or hire independent contractors? Each option comes with pros and cons. 

Establishing a Legal Entity

Establishing a legal entity in Nepal is not necessarily difficult, but it can be time-consuming and involve many administrative tasks.

First, foreign investors looking to do business in Nepal must obtain approval from the Department of Industry (DOI) or the Investment Board of Nepal (IBN). Which body you seek approval from depends on the size and the nature of the business.

Next, you will have to register your company with the Office of the Company Registrar (OCR), submitting key documents including a company memorandum and your official Articles of Association.

Other steps include registering with the Inland Revenue Department (IRD) to remain tax compliant. Some sectors require specific licenses for operation as well.

Using an Employer of Record (EOR)

An Employer of Record, or EOR, serves as a legal liaison between international businesses and Nepalese employees, ensuring compliance with all employment, payment, and human resources regulations. An EOR in Nepal handles everything related to employees, including hiring staff, payroll administration, tax compliance, HR functions, termination, and more.

Using a Nepali Employer of Record helps confirm compliance in every avenue and ensures that you are adhering to your responsibilities as an employer in this country. It also makes the hiring and onboarding process smoother for both you and your new employees, boosting satisfaction and retention rates and even cutting down on administrative costs. There’s really no downside!

Hiring Independent Contractors

Freelance work is legal in Nepal, and workers are subject to the same protections that anyone in a regular employment contract is entitled to. It’s worth keeping in mind that misclassification of employees in Nepal comes with hefty legal fines and even the potential for imprisonment. If you are not sure about the process of hiring independent contractors in Nepal, it is best to consult with experts like a trusted Employer of Record in the country. 

Step 4: Develop a Recruitment Strategy

Next, you need to ask yourself: How will I find the right talent for this job? First, you will need to write an effective job description that is aligned with local market expectations. Nepali is the official language of Nepal, but English and Hindi are also widely spoken and acceptable for business interactions and transactions. You’ll also want to make sure the job description aligns with local anti-discrimination codes and hiring requirements. 

In addition to writing an attractive job description that highlights the benefits you offer and the skills you require, you will also want to consider where to post your job. LinkedIn is a global job marketplace that is used in Nepal, but there are also more niche job boards specific to the country. Consider posting on boards like Jobejee, JobsNepal, Kumari Jobs, and Merojob. 

REMOTE PEOPLE FURTHER READING

Want to learn more about effective recruitment methods? Check out our research on strategies for successful hiring, which provides tips for drawing in top-tier candidates.

Our best tip? Work with a Nepali recruitment agency or partner with an EOR experienced in Nepal. These organizations have the local expertise you need to find candidates who are perfect for your unique roles. An experienced EOR can also help you navigate expectations on standard salaries, trends, and benefits that will attract potential employees in Nepal. 

Step 5: Conduct Interviews and Assessments

Once you have identified some potential candidates for your position, it is crucial to conduct interviews that adhere to cultural norms and help you fairly assess the capabilities of your candidates. Nepali culture blends indigenous, Hindi, and Buddhist traditions, promoting loyalty and family ties, respect for elders, hospitality, and religious tolerance. Business dealings often begin with small talk, and handshakes are a common greeting in professional settings. Sharing a cup of tea with a colleague and getting to know them is considered appropriate and polite before getting down to “shop talk,” so to speak. 

You will want to make sure that you structure interviews appropriately and assess candidates on a variety of different metrics. Consider including written or practical assessments, which can help you better evaluate a candidate’s readiness to hit the ground running in their new position.

Step 6: Perform Background Checks

Before hiring an employee, either domestically or abroad, it is often prudent to conduct a background check. This helps you verify that all of the candidate’s information is accurate and honest, including their educational history, past jobs, career trajectory, and more.

In Nepal, you can check these elements of a candidate’s background through references provided on their resumé/CV. To obtain a criminal background check, you need the employee’s written consent. You can obtain a person’s criminal history through the country’s central police headquarters in Kathmandu. 

Step 7: Draft Employment Contracts

Within 15 days of hiring an employee, employers in Nepal must provide a written employment contract. One copy must be given to the employee, and another copy must be submitted to the Labor Office. These employment contracts must include:

  • Names of both parties and basic contact information
  • Job title and responsibilities, including duties to be performed, working hours, and employment type (regular, fixed-term, or part-time)
  • Compensation, or the fee/salary to be paid, as well as agreed-upon benefits and leave
  • Termination requirements, including notice periods and severance pay eligibility
  • Other terms and conditions, such as confidentiality agreements

Casual employment agreements (in which the employee is working fewer than 7 days during each month) do not require a written employment contract submitted to the Labor Office.

Step 8: Register with Authorities and Set Up Payroll

Before any of your employees begin work, it’s important to complete a few registration steps with the Nepali authorities to ensure that you comply with the country’s labor regulations. 

  • Register employees with the Labor Office: This step includes submitting a written and signed copy of the employment contract and must be completed within 15 days of hiring.
  • Set up documentation: You will need to document and remit withholdings for social security and personal income taxes to the appropriate government offices.
  • Set up payroll: Make sure you are ready to pay out your employees’ salaries at least once per month. Employers in Nepal are responsible for withholding and remitting individual contributions like Social Security and PIT.
  • Schedule onboarding: We will dive deeper into onboarding momentarily, but it is important to consider how you want your new hire’s journey with your company to begin.

Completing these steps prior to the new hire’s first day is crucial for ensuring a smooth transition as well as complying with Nepali labor laws.

Step 9: Onboard Your New Employees

Onboarding your new employees effectively will help them smoothly integrate into your company’s unique culture. Forbes reports that a strong onboarding strategy will increase employee engagement and retention rates, which will in turn impact customer satisfaction. With that in mind, it’s crucial to design an onboarding process that includes the following:

  • Provide the necessary training and resources
  • Introduce the new team member to peers and key stakeholders
  • Explain company policies, procedures, and expectations
  • Immerse the new hire in the company culture and discuss company values
  • Set clear objectives and goals for the new hire’s role

Understanding the Nepali Employment Landscape

Nepal’s Labour Act of 2017 (2074)

The main labor law to abide by in Nepal is the Labour Act of 2017. You’ll also see this act numbered as 2074 – that is because Nepal uses the Bikram Sambat calendar, which is about 57 years ahead of the Gregorian calendar. Thus, in 2017, according to the Gregorian calendar, the Bikran Sambat calendar was in the year 2074. 

Regardless of the numbering conventions of the law, the Labour Act of 2017 explains the rights and regulations that both employees and employers are subject to in a working environment. It replaced some dated regulations that were outlined in the previous Labour Act of 2048 (1991 according to the Gregorian calendar). The new labour law provides a framework for collective bargaining agreements and adds new employee protections, including mandated leave entitlements, holiday allowance, overtime compensation, and the right to a minimum wage. 

Social Security Regulations

Nepal operates a Social Security Fund, abbreviated as SSF. The SSF was established to manage social security collections and reduce both economic and social risks for the country’s growing workforce. SSF contributions are mandatory for both employers and employees and are used to fund social services like old-age pensions, disability benefits, and work injury benefits. Both employees and employers pay 10% of payroll toward the country’s SSF. 

Types of Employment Contracts

Understanding the different types of employment contracts in Nepal is important when hiring in the country. There are four broad categories to describe employment in Nepal. 

Regular Employment Contracts

These are the most common types of employment contracts. They do not specify an end date and go on in perpetuity, requiring regular, full-time work from the employee. 

Fixed-Term Employment Contracts

Fixed-term employment contracts do have a specified end date, although they can be extended if the situation requires it. These types of contracts are often used for seasonal work or coverage while a permanent (regular) employee is out on leave.

Part-Time Employment Contracts

For employees who work less than 35 hours per week, part-time employment contracts can be used. These are typically associated with different tiers of benefits. 

Casual Employment Contracts

For extremely limited employment setups, casual employment contracts can be used in Nepal. These encompass employees who work for less than seven days per month and may be utilized for side gigs or second jobs.

Working Hours and Overtime

Standard Working Hours

Nepali companies typically operate a six-day workweek, with a maximum of 8 hours of work per day or 48 hours per week.

Employees must be allowed to take a 30-minute break after 5 hours of continuous work, and a 1-hour break is required for workdays over 6 hours. One day a week must be allotted for rest, and that day is typically Saturday. In Nepal, the standard work week starts on Sunday and ends on Friday. 

Overtime Regulations

Any hours worked beyond an employee’s normal contracted hours (up to 8 hours per day and up to 48 hours per week) are considered overtime. Employees have to consent to working overtime hours, and these hours must be paid at 1.5 times the employee’s normal salary. Overtime hours are capped at 4 per day and 24 per week. 

Leave Entitlements

Workers in Nepal are legally entitled to certain types of leave during their time in the workforce. These leave entitlements are guaranteed by law. In addition to the four types of leave outlined below, workers also must be given paid public holidays should the holiday in question fall on a working day. 

Home Leave

Annual leave in Nepal is known as “home leave.” Workers accrue 1 day of home leave for every 20 days that they work, reaching up to a maximum of 18 days per year. If leave is unused, it can carry over to the next calendar year – the maximum limit on accumulated home leave is 90 days. Workers are also entitled to paid days off on public holidays, and this is considered separate from the home leave that workers earn. 

Sick Leave

Employees in Nepal are entitled to 12 days of paid sick leave each year. Sick leave can be rolled over through calendar years up to 45 days. If an employee has more than 45 days of sick leave at the end of a calendar year, the employer must pay out those extra sick leave days. 

Bereavement Leave

In addition to sick leave, employees receive 13 days of bereavement leave each year. This type of leave cannot be rolled over. 

Maternity and Paternity Leave

Female employees in Nepal can take up to 14 paid weeks of maternity leave. This leave typically starts 2 weeks before the birth of the baby, and the mother cannot return to work until the baby is at least 6 weeks old. The first 60 days of maternity leave are paid by the employer, while the SSF pays for the next 38 days. Maternity leave can typically be taken only twice during an employee’s tenure with one company – should a mother have 3+ deliveries, maternity leave for the third and onward will not be paid. 

Fathers are granted 15 days of paternity leave, which begins when labor starts. This paternity leave is paid in full at 100% of the employee’s normal rate and is covered by the employer.

Termination and Severance

Notice Periods

In Nepal, the required notice period to terminate employment is determined by the length of service. It’s important to note that these requirements apply to both the employee and the employer. In the case of termination due to wrongful conduct, notice is not required.

Length of EmploymentRequired Notice Period
Less than 1 month1 day
1 month to 1 year7 days
More than 1 year30 days

Severance Pay

Certain employees in Nepal are eligible for severance pay, which is typically paid out at one month of pay per year of service with the company. If an employee is covered by the Social Security unemployment benefits scheme, however, they are typically not eligible for severance pay. 

Mandatory Contributions

Social Security and Pension Contributions

Both social security and pension contributions in Nepal are mandatory. Both employers and employees pay 10% of the employee’s salary to the SSF, or Social Security Fund. There are both contributory and non-contributory pension arrangements available in the country. The retirement age to receive a pension in Nepal depends on the sector in which one works. 

Optional Benefits

In addition to the selection of mandatory benefits that employees are legally entitled to, optional benefits can sweeten the deal and help your company attract top talent. Some common optional benefits that you will see in Nepal include:

  • Performance-based bonuses
  • Additional days of annual leave
  • Use of a company car
  • Stipends for food, clothing, housing, or transport
  • Private pension opportunities that go beyond the national scheme
  • Flexible working hours or structure (e.g., work from home days)

How to Hire Employees in Nepal — Our Take

When you are hiring employees in Nepal (or any foreign country), you will have to work through complex and unfamiliar legal requirements, including labor laws, mandatory contributions, and employee protections set in stone by civic codes. Vetting and understanding these regulations and ensuring you are complying with the country’s laws is crucial to avoid lawsuits and build a positive reputation in Nepal. This might sound daunting… but you do not have to manage international labor law compliance alone! 

If juggling the labor regulations in Nepal on your own sounds overwhelming, working with an Employer of Record (EOR) in Nepal can simplify the process, saving you time, money, and effort along the way.