Labour Law in Nepal: Overview of the Labour Act, 2017 and Labour Rules, 2018

Labour regulation in Nepal is primarily governed by the Labour Act, 2074 (2017) and the Labour Rules, 2075 (2018). The Labour Act came into force on 19 Bhadra 2074 (4 September 2017), while the Labour Rules became effective on 08 Asar 2075 (22 June 2018). These instruments repealed and replaced the earlier Labour Act, 2048 (1992), significantly modernizing Nepal’s labour regulatory framework.

The engagement of minors aged between 14 and 18 years is separately regulated under the Child Labour (Prohibition and Regulation) Act, 2056 (2000) and its Rules. Importantly, Nepalese labour laws prescribe minimum statutory standards, allowing employers to provide more favourable terms through contracts or collective bargaining agreements.

1. Applicability of Labour Laws in Nepal

   1.1 Entities Covered

The Labour Act applies broadly to all enterprises, irrespective of profit motive, including:

• Companies, private firms, and partnership firms

• Cooperatives and associations

• Non-governmental and international non-governmental organizations

• Any organization established or operating under prevailing Nepali law

The definition of employer is expansive and includes any individual or entity engaging another individual for work. The Act further extends its jurisdiction to employees or representatives of foreign-registered entities operating in Nepal for business promotion, sales, or service activities.

1.2 Threshold-Based Obligations

Unlike previous legislation, the Labour Act, 2017 applies regardless of the number of employees. However, specific obligations are triggered once certain thresholds are met.

Enterprises with 10 or more employees must:

• Form a Collective Bargaining Committee

• Establish a Labour Relations Committee

• Consult trade unions or labour committees before keeping employees in reserve beyond 15 days

• Comply with retrenchment provisions

• Provide a 7-day clarification notice prior to termination based on performance

Enterprises with 20 or more employees must:

• Establish a Safety and Health Committee

2. Non-Applicability of the Labour Act

The Labour Act and Rules do not apply to:

• Civil servants

• Nepal Army, Nepal Police, and Armed Police Force

• Entities governed by special laws or located in Special Economic Zones (to the extent separate provisions apply)

• Working journalists, unless the employment contract expressly incorporates the Labour Act

3. Types of Employment Recognized Under the Act

The Labour Act recognizes the following categories of employment:

• Regular Employment: Continuous employment without a fixed end date

• Work-Based Employment: Employment tied to completion of specific work or service

• Fixed-Term Employment: Employment for a defined period, extendable if the underlying project continues

• Casual Employment: Employment for seven days or less in a month

• Part-Time Employment: Engagement for 35 hours or less per week

In cases of dispute regarding the nature of employment, the Labour Office determines whether the engagement legally constitutes regular employment. Misclassification disputes are adjudicated by the Labour Office, which may order regularization where contractual labels are inconsistent with actual working arrangements. Employers face heightened risk where fixed-term or work-based arrangements are repeatedly renewed.

4. Probation Period

The Labour Act permits a maximum probation period of six (6) months to assess employee performance. If performance is found unsatisfactory, employment may be terminated during probation. If not terminated, the employment contract is deemed automatically confirmed upon completion of the probation period.

5. Employment Agreement Requirements

Except for casual employment, written employment agreements are mandatory. An employment agreement must clearly specify:

• Type and nature of employment

• Position and key responsibilities

• Salary, benefits, and allowances

• Terms and conditions of service

• Date, place, and commencement of employment

• Incorporation of organizational bylaws

Foreign employees must receive agreements in English or a language they understand. Failure to issue an appointment letter or employment agreement may result in fines up to NPR 500,000, along with mandatory corrective orders.

6. Interns and Trainees

   6.1 Interns

Interns may be engaged only under an approved academic curriculum and pursuant to a formal agreement with the concerned educational institution.

6.2 Trainees

Trainees may be appointed for up to one year for skill development and are entitled to:

• Minimum remuneration

• Social security benefits

• Sick leave and statutory protections

Employers are not required to absorb trainees permanently; however, if later appointed, probation does not apply. Violations may result in penalties and mandatory regularization.

7. Employment of Foreign Nationals

   7.1 Work Permit Requirement

Foreign nationals must obtain a valid work permit unless exempted by diplomatic status or treaty obligations.

7.2 Key Restrictions and Conditions

• Foreign employees may not exceed 5% of the total workforce

• Vacancies must be advertised locally before hiring foreigners

• Work permits are valid up to 5 years for technical experts and 3 years for others

• Renewal applications must be submitted 30 days prior to expiry

Non-compliance may attract fines up to NPR 200,000, with continuing penalties for ongoing violations.

8. Working Hours and Leave Entitlements

Working Hours

• Maximum: 8 hours per day, 48 hours per week

• Overtime: Up to 4 hours per day, 24 hours per week

• Overtime remuneration: 1.5 times basic salary

• Mandatory break: 30 minutes after 5 hours (counted as working time)

Leave Entitlements

• Weekly off: 1 day

• Public holidays: 13 days (14 for female employees)

• Annual leave: 18 days

• Sick leave: 12 days

• Bereavement leave: 13 days

• Maternity leave: 14 weeks (60 days paid)

• Paternity leave: 15 days paid

9. Occupational Safety and Health (OSH)

Employers are under a non-delegable duty to provide a safe and healthy workplace, including:

• Risk assessment and preventive measures

• Provision of safety equipment and training

• Accident and occupational disease reporting

• Compensation for employment-related injury or illness

Serious safety violations may attract criminal liability, including imprisonment.

10. Wages, Social Security, and Benefits

• Minimum wage: NPR 17,300 (excluding tea estate workers)

• Provident Fund: 10% employee + 10% employer

• Gratuity: 8.33% employer contribution

• Medical insurance: NPR 100,000 coverage

• Accidental insurance: NPR 700,000 coverage

All contributions are administered through the Social Security Fund.

11. Misconduct and Disciplinary Action

Misconduct is classified into varying degrees, with disciplinary actions including:

• Warning

• Deduction of one day’s remuneration

• Withholding of annual increment or promotion for one year

• Termination, depending on severity

Disciplinary proceedings must follow due process, including notice, opportunity for explanation, and timely decisions. Sexual harassment may justify immediate termination depending on seriousness.

12. Termination, Retrenchment, and Transfer

12.1 Grounds for Termination

Employment may be terminated on lawful grounds including:

• Expiry of fixed term

• Completion of work

• Casual employment termination

• Voluntary resignation

• Unsatisfactory performance

• Bad health (subject to statutory protections)

• Compulsory retirement at 58 years

12.2 Notice Periods

13. Retrenchment

Retrenchment may occur due to financial difficulty, restructuring, or closure. Employers must provide 30 days’ prior notice to the Labour Office and relevant unions. Retrenched employees are entitled to one month’s basic salary for each completed year of service.

14. Collective Bargaining

14.1 Collective Bargaining Committee

Enterprises with 10 or more employees must form a committee through:

• An authorized trade union, or

• Joint trade unions, or

• Signatures of 60% of workers in absence of unions

14.2 Scope of Collective Bargaining

Collective bargaining agreements (CBAs) may regulate:

• Wages, allowances, and benefits

• Alternatives to overtime payment

• Grounds and procedures for transfer

• Interim management during ownership change

• Disciplinary grounds beyond statutory minimums

• Retrenchment alternatives and criteria

• Remuneration during lawful strikes or lockouts

CBAs are binding on employers and employees.

14.3 Collective Dispute Resolution

1. Submission of claim to employer

2. Discussion within 7 days

3. Mediation by Labour Office if unresolved within 21 days

4. Arbitration if mediation fails

5. Labour Court and Dispute Resolution

Labour Courts adjudicate disputes and possess powers equivalent to District Courts. Decisions must be delivered within 90 days, with appeals permissible before the Supreme Court within 35 days.

16. Sanctions for Non-Compliance

The Labour Department, Labour Office, and Labour Court may impose fines, compensation orders, and imprisonment depending on the nature and severity of violations, including illegal foreign employment, discrimination, bonded labour, and safety failures.

Disclaimer:
This article provides a practical overview of key provisions of the Labour Act, 2074 (2017) and Labour Rules, 2075 (2018) of Nepal. It is for general informational purposes only and does not constitute legal advice. For Professional legal consultation contact Sherpa Law Associates.