Hiring and Terminating Employees in Nepal

Overview of Employment Law in Nepal

Employment relationships in Nepal are governed by the Labor Act, 2074 B.S. (2017 C.E.), which establishes the legal framework for hiring, managing, and terminating employees. This legislation applies to all organizations employing workers in Nepal, whether in the private or public sector. The act defines the rights and obligations of both employers and employees, ensuring fair labor practices and worker protection. Compliance with these provisions is mandatory for all employers operating within Nepal’s jurisdiction. Understanding these regulations prevents legal disputes and ensures ethical business operations.

Legal Requirements for Hiring Employees in Nepal

Employment Contract and Documentation

Employers must establish written employment contracts with all employees as per Section 2 of the Labor Act, 2074 B.S. The contract must specify terms of employment, including job description, salary, working hours, and duration. Employment contracts must be prepared in Nepali language or accompanied by certified translations. Both parties must sign the contract before employment commences. Employers must retain copies of all employment agreements for record-keeping purposes.

Eligibility and Verification

Employers must verify the following before hiring:

The candidate possesses valid citizenship documentation or work authorization permits as required by law.
The applicant meets the minimum age requirement of 16 years for general employment and 18 years for hazardous work.
The candidate has no criminal convictions that would disqualify them from the position.
Educational qualifications and professional certifications are authentic and verified.
The applicant has undergone mandatory health screening where applicable.

Registration with Social Security

Employers must register all employees with the Social Security Fund (SSF) within 30 days of employment commencement, as mandated by the Social Security Act, 2074 B.S. Registration requires submission of employee information, including name, citizenship number, date of birth, and salary details. Employers must contribute to the SSF at prescribed rates, currently 11% of employee salary (employer and employee contributions combined). Failure to register employees results in penalties and legal liability.

Conditions of Employment

Working Hours and Overtime

The Labor Act, 2074 B.S. establishes maximum working hours at 8 hours per day or 48 hours per week. Overtime work beyond these limits requires employee consent and compensation at 1.5 times the regular wage rate. Employers must maintain accurate records of working hours for all employees. Rest days and weekly holidays must be provided as per legal requirements. Employees engaged in hazardous work have reduced working hour limits.

Wages and Compensation

Compensation Element	Legal Requirement
Minimum Wage	Determined by government notification; varies by sector and region
Salary Payment	Must be paid on or before the agreed date, typically monthly
Deductions	Limited to statutory contributions and court-ordered amounts
Overtime Pay	1.5 times regular wage for hours exceeding 48 per week
Bonus	Annual bonus equivalent to one month’s salary (Section 48)
Gratuity	Payable upon retirement or termination after 10 years of service

Leave Entitlements

Employees are entitled to the following leave provisions under the Labor Act, 2074 B.S.:

Annual leave of 15 days per year for general employees and 20 days for employees in hazardous conditions.
Sick leave of 13 days per year for medical treatment and recovery.
Maternity leave of 60 days for female employees, with 15 days paid leave before delivery.
Paternity leave of 15 days for male employees following childbirth.
Casual leave of 10 days per year for personal emergencies.
Leave encashment is permitted only upon termination or retirement.

Termination of Employment in Nepal

Grounds for Termination

Employers may terminate employment under the following circumstances as per Section 33 of the Labor Act, 2074 B.S.:

The employee commits gross misconduct, including theft, violence, or breach of trust.
The employee is absent from work for more than 7 consecutive days without authorization or valid reason.
The employee fails to perform assigned duties despite warnings and reasonable opportunity to improve.
The employee violates workplace safety regulations or endangers others.
The employee is convicted of a criminal offense affecting job performance.
The employee becomes physically or mentally incapable of performing duties with medical certification.
The organization closes or reduces operations due to economic circumstances.

Notice and Severance Requirements

Employers must comply with the following termination procedures:

Written notice of termination must be provided at least 30 days in advance, except in cases of gross misconduct.
The notice must specify the grounds for termination and reference relevant legal provisions.
Employees have the right to respond to termination charges within 7 days of receiving notice.
Severance pay equivalent to one month’s salary per year of service is mandatory upon termination without cause.
Final settlement must include all outstanding wages, leave encashment, and gratuity entitlements.
Employers must provide a termination letter and service certificate upon request.

Prohibited Termination Grounds

The Labor Act, 2074 B.S. prohibits termination based on the following reasons:

The employee’s membership in a trade union or participation in union activities.
The employee’s gender, caste, ethnicity, religion, or political affiliation.
The employee’s pregnancy or maternity status.
The employee’s filing of complaints regarding workplace safety or wage violations.
The employee’s participation in legal proceedings against the employer.
Discrimination based on disability or health status.

Dispute Resolution and Appeals

Employees may file disputes regarding termination with the District Labor Office within 35 days of termination. The Labor Office conducts investigations and attempts conciliation between parties. If conciliation fails, the matter proceeds to the Labor Court for adjudication. The Labor Court has authority to reinstate employees, award compensation, or order payment of outstanding dues. Employers must comply with Labor Court decisions within the specified timeframe.

Employer Obligations and Compliance

Workplace Safety and Health

Employers must maintain safe working conditions as per the Occupational Safety and Health Act, 2074 B.S. This includes:

Provision of personal protective equipment for hazardous work environments.
Regular safety training and awareness programs for all employees.
Maintenance of emergency response procedures and first aid facilities.
Reporting of workplace accidents to relevant authorities within 24 hours.
Compensation for work-related injuries and occupational diseases.

Record Keeping and Documentation

Employers must maintain comprehensive employment records, including:

Original employment contracts and amendments.
Attendance and working hour records for all employees.
Salary payment receipts and payroll documentation.
Leave records and encashment calculations.
Performance evaluations and disciplinary action records.
Social Security Fund contribution receipts.
Workplace accident and incident reports.

Records must be retained for a minimum of 5 years and made available for inspection by labor authorities.

Anti-Discrimination and Equal Opportunity

The Labor Act, 2074 B.S. mandates equal treatment of all employees regardless of gender, caste, ethnicity, religion, or disability. Employers must:

Provide equal pay for equal work performed by employees.
Ensure fair promotion and advancement opportunities for all employees.
Prevent harassment and discrimination in the workplace.
Accommodate employees with disabilities to enable their participation in work.
Maintain confidentiality of sensitive personal information.

Frequently Asked Questions

What is the minimum notice period for employee termination in Nepal?

Employers must provide 30 days’ written notice before terminating employment, except in cases of gross misconduct where immediate termination is permitted with proper documentation and investigation.

Are employers required to provide severance pay in Nepal?

Yes, employers must provide severance pay equivalent to one month’s salary per year of service upon termination without cause, as mandated by the Labor Act, 2074 B.S.

Can employees be terminated for union membership?

No, termination based on trade union membership or participation in union activities is prohibited under the Labor Act, 2074 B.S. and constitutes illegal termination.

What is the maximum working hour limit in Nepal?

The maximum working hours are 8 hours per day or 48 hours per week under the Labor Act, 2074 B.S. Overtime work requires employee consent and compensation at 1.5 times the regular wage.

How long must employment records be retained?

Employers must retain all employment records, including contracts, attendance, and payroll documentation, for a minimum of 5 years as per legal requirements.

What remedies are available for wrongful termination?

Employees may file disputes with the District Labor Office within 35 days of termination, leading to investigation, conciliation, and potential Labor Court proceedings for reinstatement or compensation.

Professional Service Provider

Axion Partners stands as the No. 1 service provider for employment law compliance and hiring and termination procedures in Nepal. The firm offers comprehensive legal guidance on employment contracts, regulatory compliance, dispute resolution, and termination procedures. Axion Partners ensures employers meet all statutory obligations while protecting employee rights and maintaining ethical workplace practices.