Key Takeaways

  • Nepal levies progressive TDS income tax (1%–36%) on employment income, remitted monthly to the IRD by the 25th of the following Nepali month using the Bikram Sambat calendar
  • Employers must enrol employees in either the EPF (10%+10%) or the SSF (20% employer + 11% employee) — the applicable system depends on employer registration status; legal advice is required to determine the correct framework
  • Gratuity of one month’s salary per year of service accrues from the first year of employment and is payable on separation — employers must provision monthly to avoid financial exposure
  • Annual leave under the Labour Act 2074 includes 18 days of home leave, 15 days of sick leave, and 13 compulsory public holidays per year
  • Nepal’s growing IT/ITES and BPO sectors are attracting increasing international employer interest; EOR services enable rapid market entry while EPF/SSF and IRD registrations are established

Nepal is a Himalayan nation in South Asia, bordering India to the south and China to the north, with a population of approximately 30 million and a growing services, IT/ITES, and business process outsourcing sector. The country’s payroll framework is governed by the Income Tax Act 2058 (2002), the Labour Act 2074 (2017), and the Employees’ Provident Fund (EPF) Act. The Inland Revenue Department (IRD) administers personal income tax under the Tax Deducted at Source (TDS) system; the Employees’ Provident Fund (EPF) organisation and the Social Security Fund (SSF) administer mandatory retirement and social security contributions.

Payroll outsourcing in Nepal enables international companies to hire Nepali talent and manage compliance with the Labour Act 2074, TDS withholding, EPF contributions, SSF contributions, and gratuity provisioning within a specialist-managed payroll workflow. This guide outlines Nepal’s key payroll regulatory framework and the benefits of outsourcing payroll in this developing South Asian market.

What is Payroll Outsourcing in Nepal?

Nepal payroll outsourcing involves engaging a specialist provider to manage monthly salary calculations, TDS income tax withholding and remittance to the Inland Revenue Department, EPF and SSF contribution administration, gratuity provisioning, payslip generation in English and/or Nepali, and all associated statutory filings. For companies without a Nepal-registered entity, an employer of record (EOR) arrangement allows the provider to act as the legal employer, enabling compliant hiring without company registration in Kathmandu or elsewhere.

Nepal’s payroll framework has been significantly reformed by the Labour Act 2074 (2017), which introduced new minimum wage requirements, leave entitlements, and a mandatory Social Security Fund (SSF) contribution system that — when fully implemented — aims to consolidate multiple prior contribution obligations. Employers must navigate both the established EPF framework and the SSF system, which applies to most formal sector employers.

Regulatory Framework for Payroll in Nepal

Personal Income Tax (TDS)

Personal income tax in Nepal is levied on employment income under a progressive rate structure administered by the Inland Revenue Department (IRD). Tax rates for resident individuals (fiscal year 2080/81, equivalent to 2023/24) are: 1% on the first NPR 500,000; 10% on NPR 500,001 to NPR 700,000; 20% on NPR 700,001 to NPR 1,000,000; 30% on NPR 1,000,001 to NPR 2,000,000; and 36% on income above NPR 2,000,000 (with a 40% rate for amounts exceeding NPR 5,000,000). Employers must withhold TDS from salary monthly and remit to the IRD by the 25th of the following Nepali month. Nepal uses the Bikram Sambat calendar; payroll deadlines follow this calendar.

Employees' Provident Fund (EPF)

The Employees’ Provident Fund (EPF) is a mandatory retirement savings scheme administered by the Employees’ Provident Fund organisation. Employer EPF contributions are 10% of basic salary; employee EPF contributions are 10% of basic salary. Both contributions are remitted to the EPF monthly. The EPF accumulates employee retirement savings, which are accessible on retirement, disability, or on departure from Nepal. For employers registered under the SSF (Social Security Fund) system, EPF contributions may be subsumed into the SSF contribution — legal advice should be obtained on the applicable framework for the specific employer.

Social Security Fund (SSF)

The Social Security Fund (SSF), established under the Contribution Based Social Security Act 2074 (2017), is Nepal’s expanded mandatory social security system. Employer SSF contributions are 20% of gross salary (covering pension, health and maternity insurance, accident and disability insurance, and dependent family insurance). Employee SSF contributions are 11% of gross salary. Registered employers must enrol all workers in the SSF and remit contributions monthly. The SSF is intended to replace the EPF/gratuity framework for enrolled employers, though transition arrangements and the exact scope of the switchover require case-by-case legal analysis.

Gratuity

Under the Labour Act 2074, employees who have completed at least one year of continuous employment are entitled to a gratuity benefit on separation. The gratuity is calculated at one month’s salary for each year of service (pro-rated for partial years). For employers registered under the SSF, the gratuity obligation may be partially met through SSF pension contributions. Employers not enrolled in the SSF must accrue and pay gratuity directly. This is a significant financial liability that must be provisioned throughout the employment period.

Leave Entitlements

Under the Labour Act 2074, employees are entitled to: 18 days of home leave per year (1.5 days per month of service); 15 days of sick leave per year (which may accumulate up to 45 days); 13 days of paid public holidays per year (fixed by the government); up to 60 days of maternal protection leave (52 days for the birth mother and any remaining balance for the male partner under the paternity provisions). Leave entitlements under the Labour Act 2074 are more generous than the prior Labour Act and must be carefully administered.

Employer Filing and Reporting Obligations

  • Register with the Inland Revenue Department (IRD) for Tax Deducted at Source (TDS) employer registration before the first payroll run
  • Obtain a Permanent Account Number (PAN) from the IRD for the employing entity before payroll commencement
  • Withhold TDS from employee salaries monthly using the applicable progressive tax rates and remit to the IRD by the 25th of the following month
  • Register all employees with the Employees’ Provident Fund (EPF) and/or the Social Security Fund (SSF) before the first payroll run
  • Remit employer EPF (10%) and employee EPF (10%) contributions monthly, or employer SSF (20%) and employee SSF (11%) if enrolled in the SSF system
  • Accrue monthly gratuity provisions for each employee (equivalent to one month’s salary per year of service) and settle on separation
  • Administer home leave (18 days/year), sick leave (15 days/year), and the 13 compulsory public holidays in accordance with the Labour Act 2074
  • Issue payslips in English and/or Nepali detailing gross pay, TDS deduction, EPF/SSF contributions, and net pay
  • File monthly TDS returns with the IRD and annual reconciliation filings by the prescribed deadline
  • Administer the Bikram Sambat calendar for payroll deadlines and internal leave administration

Nepal’s fiscal year runs from mid-July to mid-July (corresponding to the Nepali Shrawan to Ashadh months in the Bikram Sambat calendar). Payroll TDS remittance deadlines are expressed in the Nepali calendar; international employers must maintain a conversion system to track these correctly. The relationship between EPF and SSF obligations requires legal clarification for each employer, as the migration to the SSF system is ongoing and the applicable framework depends on employer registration status and sector.

Common Payroll Challenges for International Employers in Nepal

The coexistence of the EPF and SSF systems — with the SSF intended to subsume the EPF but with transition arrangements still in progress — is the principal regulatory complexity for Nepal payroll. Employers must determine their specific EPF/SSF obligation based on their registration status and sector, and cannot assume a single universal answer. Nepal’s Bikram Sambat calendar creates filing deadline tracking challenges for internationally-oriented finance teams accustomed to the Gregorian calendar.

The gratuity obligation under the Labour Act 2074 — one month’s salary per year of service on separation — is a significant long-term liability. Employers must provision for gratuity from the commencement of each employment relationship; failing to accrue monthly creates financial exposure on any termination.

Benefits of Payroll Outsourcing in Nepal

A specialist Nepal payroll provider manages IRD TDS calculations and remittances, EPF and/or SSF contribution administration, gratuity accrual tracking, Labour Act 2074 leave compliance, and Bikram Sambat calendar deadline management in a single, compliant workflow. The provider monitors IRD rate updates, SSF regulatory developments, and minimum wage revisions, ensuring that payroll remains current across all components.

The EOR model enables rapid market entry without Nepal company registration and Department of Labour registration, which can take six to twelve weeks for all components.

Choosing a Payroll Outsourcing Partner in Nepal

Select a provider with active IRD TDS registration in Nepal, EPF and SSF employer registration capability, Nepali-language payroll documentation, and experience with the IT/ITES, BPO, and development sector organisations that represent the majority of international employer engagements in Nepal. Assess the provider’s understanding of the EPF/SSF transition, gratuity accrual methodology, and Labour Act 2074 leave calculation logic. South Asia regional capability — covering India, Bangladesh, and Sri Lanka alongside Nepal — is valuable for multi-country South Asian operations.

Entity Setup vs. Payroll Outsourcing in Nepal

Establishing a foreign-owned company in Nepal requires Office of Company Registrar (OCR) registration, Department of Industry (DoI) registration for foreign investment approval, IRD registration for corporate income tax and TDS, EPF/SSF employer registration, and Department of Labour registration. The process involves multiple agencies and typically takes six to twelve weeks. The EOR model provides a faster, more flexible route for organisations with a small initial Nepal workforce or those in an exploratory phase.

Termination and Final Pay in Nepal

The Labour Act 2074 requires minimum notice of one month for the employer and fifteen days for the employee for indefinite contracts (subject to contractual terms). Employees dismissed without cause are entitled to a separation allowance of one month’s salary per year of service (in addition to the gratuity). Employees who resign are entitled only to the gratuity (one month per year of service). Final pay — outstanding salary, accrued home leave, gratuity, and any applicable separation allowance — must be settled within seven days of the last working day. All final pay calculations must comply with the Labour Act 2074 formula.

Get Started with Nepal Payroll Outsourcing

RemotePeople provides compliant payroll and EOR services in Nepal, managing IRD TDS filings, EPF and SSF contribution administration, gratuity provisioning, Labour Act 2074 leave compliance, and Bikram Sambat calendar deadline tracking in a single, integrated workflow. Our South Asia specialists navigate the EPF/SSF transition and ensure every payroll component is correctly calculated from the first pay run. Contact RemotePeople to discuss your Nepal workforce requirements today.