Labour Law in Nepal: Highlights of the Labour Act, 2017

1. Introduction to Labour Law in Nepal

The Labour Act, 2017 (2074) is the primary legislation governing employment and labor relations in Nepal. It came into force on 4 September 2017 (2074-05-19), replacing the Labour Act, 1992, the Industrial Trainee Training Act, 2039, and the Retirement Fund Act, 2049.

Applicability of the Labour Act

Where Applicable:

• Companies, private firms, partnerships, cooperatives, associations (including NGOs and INGOs) established under Nepali law.

• Foreign-registered entities operating or promoting business or services in Nepal.

Where Not Applicable:

• Civil service

• Nepal Army, Nepal Police, and Armed Police Force

• Entities governed by other special laws or operating in Special Economic Zones with separate provisions

• Enterprises under the Working Journalists Act, 1995 (to the extent of an existing employment agreement)

Note: Unlike the previous law, the current Act applies regardless of the number of employees.

2. Types of Employment

The Act classifies employment into different categories such as:

• Regular Employment

• Work-based/Project-based Employment

• Time-bound Employment

• Casual Employment

• Part-time Employment

3. Probation Period

Employees may be placed on probation for up to 6 months. If not terminated within this period, the employment is automatically confirmed.

4. Provisions for Interns and Trainees

4.1 Interns

• Must be engaged per an approved syllabus in coordination with an educational institution.

• Work hours: Max 8 hours/day, 48 hours/week

• Entitled to health and safety protection and compensation in case of workplace injury.

• Considered regular employees if engaged beyond agreed internship terms.

4.2 Trainees

• Trainee programs can last up to 1 year (unless otherwise provided by law).

• Entitled to social security benefits, minimum remuneration, and gratuity.

• No obligation to hire, but if employed, no probation applies.

5. Working Hours

• Maximum: 8 hours/day, 48 hours/week

• 30-minute break after 5 hours of work, counted as work time

6. Remuneration

6.1 Minimum Wage

As revised on 17 August 2023:

• General Workers: NPR 17,300/month

• Tea Estate Workers: NPR 13,893/month

• Overtime pay: 1.5 times regular wage

6.2 Annual Increment

• Employees working for at least 1 year are entitled to an increment equal to half a day’s basic salary.

6.3 Mode of Payment

• Payments must be made as per the law and employment contract—either in cash or via bank transfer.

7. Holidays and Leave

The Labour Act provides for:

• Weekly and public holidays

• Sick leave

• Casual and maternity leave

• Home leave

• Substitute leave

8. Social Security Fund

The Labour Act introduced the foundation for the Social Security Fund (SSF), further structured by:

• Social Security Act, 2017

• Social Security Regulations, 2018

• Social Security Scheme Operational Directives, 2018

Key Features:

• Mandatory participation for all employers and employees

• Total contribution: 31% of basic salary

  • 11% from employee

  • 20% from employer

• Covers:

  • Medical, health, and maternity

  • Accident and disability

  • Dependent family benefits

  • Old-age protection

9. Disciplinary Action

Possible actions based on misconduct:

• Warning

• One-day pay deduction

• Withholding of salary increment or promotion for 1 year

• Termination (in severe cases)

10. Termination of Employment

10.1 Grounds:

• Resignation

• Retirement

• Poor performance or misconduct

• Physical/mental unfitness

• Expiry of contract term

10.2 Notice Requirement:

• Employers must issue prior notice based on employment terms or provide payment in lieu.

11. Retrenchment

Not applicable to entities with fewer than 10 employees.

11.1 Valid Conditions:

• Financial difficulty

• Redundancy due to merger

• Operational shutdown

11.2 Process:

• Provide 30 days’ prior notice to Labour Office and trade union (if any)

11.3 Compensation:

• One month’s salary per year of service (proportional for partial years)

12. Collective Bargaining

12.1 Committee Formation:

Required if 10 or more employees. Formed by:

• Authorized trade union, or

• All trade unions collectively, or

• 60% of employees (in absence of a union)

12.2 Dispute Resolution Process:

1. Submit claim to employer

2. Employer must respond within 7 days

3. If unresolved in 21 days, escalate to Labour Office

4. If mediation fails, escalate to arbitration

12.3 Collective Bargaining Agreement May Cover:

• Wage adjustments

• Interim arrangements during ownership transfer

• Alternative retrenchment options

• Conditions for strikes or lockouts

13. Labour Court

13.1 Establishment:

Comprises one Chairperson and two members. Established via notification in the Nepal Gazette.

13.2 Jurisdiction and Powers:

• Examine witnesses and respondents

• Inspect worksites

• Issue interlocutory orders

• Modify or nullify decisions of employers or Labour Offices

• Has equivalent authority to District Courts

13.3 Case Resolution Timeline:

• Must decide within 90 days of case registration

13.4 Appeals:

• Appeals can be made to the Supreme Court within 35 days of the Labour Court’s decision.

14. Sanctions for Non-Compliance

14.1 Labour Department:

Can penalize employers for structural and procedural non-compliance.

14.2 Labour Office:

May impose fines for failure to maintain records, deny employee rights, or ignore statutory requirements.

14.3 Labour Court:

Can issue stronger sanctions, including:

• Reinstatement orders

• Compensation awards

• Injunctions or legal remedies

Disclaimer:

This article is for informational purposes only and does not constitute legal advice or solicitation. Neither the author nor affiliated parties shall be held responsible for actions taken based on this material.