Employees – Labour laws you should be aware of


No organization can function without its employees. Although the employees may be under various forms of contractual relationships, the labour laws still play a major role in guiding the relationship between the organization and employees. The Labour Act in any nation incorporates laws that promote the rights and benefits of labours, build better labour relations, and aim to end any form of labour exploitation.

Replacing the Labour Act 1992, the new Labour Act 2017 brings numerous changes based on the modern demand of the market. Even though the full version of the Labor Act 2017 can be found online, some major legislation under the Act is explained here.


  • Applicability of the Law:

One major change from the previous Labour Act that needs to be considered going forward is the application of these laws. The new Act overthrows the minimum threshold of 10 employees in an organization for the laws to be applicable. The Labour Act 2017 states that the laws apply to all forms of organizations registered for both profit or not for profit motives except civil services, Nepal Army, Armed Police Force, Nepal Police, entities in Special Economic Zones which are guided by other provisions, and journalists unless mentioned in their contracts. 


  • Type of employment:

The new Labor Act clearly defines different types of employment along with the specific terms and conditions. The major classifications are regular, work-based, time-bound, casual, and part-time. The law also recognizes interns and trainees. It provides flexibility in hiring based on different periods for each of these types along with clarifying the role and nature of trainees and interns. Learn in detail under Section 10, and Section 16 to 21. 


  • Probation Period:

Every organization has a trial period when hiring a new employee. The new laws have reduced the probation period to 6 months from the previous 240 days. The probation periods are crucial for any new hire as some contractual items may not be enforced unless the employees cross this mark. 


  • Working Hours and Overtime:

Similar to before, the regular working hours under the Section 28 of Labour Act 2017 are 48 hours per week and 8 hours a day. However, the maximum overtime hours have been increased to 24 hours per week from 20 hours previously, while the pay must be 1.5 times the basic compensation. 


  • Leave and Holidays:

Holidays and paid leaves are crucial to any employee which allows them to reenergize and be more focused. The Labor Act emphasizes the one-day every week holiday policy for all workers. For the nation’s public holidays, the law states 13 holidays including one additional holiday for women staff on International Women’s Day. The mourning leave is 13 days, while the maternity full paid leave is for 60 days. A new change is in terms of paternity leave which is fully paid for 15 days. The annual leave allowed for employees is calculated based on one day for every 20 days worked in an organization.


  • Benefits:

Entrepreneurs must now realize that several benefits are enacted from the first day of employment, which was not done under the Labor Act 1992. The contribution of 10% of basic salary from both employee and employer will now go to Social Security Fund (SSF). There is an additional gratuity of 8.33% of basic salary that will be deposited to SSF every month. Additionally, the festival expense will be equivalent to a month of salary, which the employees can receive once a year. However, even the employees who have not crossed a year mark will receive this benefit on a proportional basis calculated from the date of their employment. The law for bonuses remains the same as 10% of the net profit.


  • Retirement 

The compulsory retirement age in Nepal has been increased to 58 years. Under time-bound and work-based contracts, the employees can be terminated after the expiry of the time mentioned in the contract and completion of work specified in the employment respectively. Other reasons for retirement can be voluntary, performance-based, and bad health conditions.


  • Termination Notice

In terms of termination, employees and employers need to provide specific days of notice based on their period of employment. For employees who worked under 4 weeks, the notice period is one day. For employees who worked under a year, the notice period is seven days. For others exceeding a year, the notice period of 30 days.


  • Disciplinary Actions on Misconduct

The new Act has shifted the focus towards deducting salary as well as withholding of promotion as a disciplinary action. The organization can provide a warning in case of unapproved absence, frequent delays in coming to work, not adhering to work orders, and any other misconduct stated in bylaws. The company can resort to deducting one-day compensation if participating in an illegal strike, collective delays, inappropriate use of facilities, unwilling to accept letter or notice of punishment, and other similar misconduct stated in bylaws.


Furthermore, an organization can also withhold promotions when employees engage in unauthorized use of property, embezzlement of transactions, destruction of property, and obstruction of movements in the entity. Lastly, the organization can directly terminate employees if they physically harm other employees, involved in sexual harassment, accept a bribe, steal the property of the entity, go on unapproved absence for more than 30 days, present false documents, involve in a criminal offense, and have received punishment twice within three years. 


  • Hiring Laws for Foreign Nationals

The most crucial condition for hiring foreign nationals is an attempt to source the skills locally before looking for other nationalities. It is mandatory to publish the vacancy in the national daily newspaper. Only when the local skills do not match the requirement, a foreign national can be hired under the authorization of the Department of Labour. Additionally, all foreign nationals need a work permit to work in Nepal unless granted diplomatic immunity or exemption of permit under treaty entered into with the Government of Nepal. However, for companies with foreign investment and aid, the work permit can be simply provided by recording them in the Labor Department.

For additional information, please read the Labor Act 2017 in detail here.

Researched and article by Shreeya Bhattarai