The Labour Act, 2017: A Complete Guide for Employers and Employees
A. Background:
Whether you are running a business in Nepal or working for one, the Labour Act, 2017 (“Labour Act”) directly affects your rights and responsibilities. This guide breaks down everything you need to know in plain, simple language.
B. Applicability and Non-applicability of the Labor Act:
The Labour Act is applicable to companies, private firms, partnership firms, cooperatives organizations or associations or other organization in operations, or established, incorporated, registered or formed under prevailing laws to undertake industry or business or provide service with or without profit motive.
However, following entities and authorities are not covered by the Labour Act: They are: Civil Service, Nepal Army, Nepal Police, Armed Police Force, Entities incorporated under other prevailing laws or situated in Special Economic Zones (SEZ) to the extent separate provisions are provided, Working Journalists, unless specifically provided in the contract.
C. Types of employment:
The Labour Act has recognizes following types of employment:
- Regular employment: An employee who works at the Enterprise on a regular basis is regarded as a regular employee.
- Work-based employment: The employee who works at the Enterprise for a specific work is regarded as a task- based employee.
- Time-based employees: The employee who works at the Enterprise for a certain period of time for the completion of the work is regarded as time-based employee.
- Casual workers: The employee who works at the Enterprise for the specified time period of 7 (seven) days or less, within a period of a month regarding the completion of the assigned service or work is regarded as casual employee.
- Part-time workers: The employee who works for 35 (thirty-five) hours or less in a week is regarded as a part-time employee.
D. Probation, Interns, and Trainees:
Probation period | The enterprise may place an employee on a probation period of up to six months and may terminate the employment if the employee’s performance is found to be unsatisfactory during that period. |
Interns | Any person may be allowed to work as an intern pursuant to the approved syllabus of an educational institution, and after concluding an agreement with that educational institution. |
Trainees | A trainee may be appointed for a period of training not exceeding 1 year, unless otherwise prescribed by law. All trainees shall be entitled to social security benefits including provident fund and gratuity. The enterprise is not obliged to appoint the trainee as a regular employee upon the completion of training. However, if such trainee is appointed, he/ she shall not be under probation. |
E. Working Hours and Overtime:
- Working hours: 8 hours per day, 48 hours per week
- Overtime limit: 24 hours per week
- Overtime pay: 1.5 times the regular remuneration
- A 30-minute break is required after every 5 hours of work
- Workers who work on public holidays or weekly days off are entitled to replacement (in-lieu) leave.
F. Remuneration, Increment and Festival Expenses:
- The minimum wage is set by the Government of Nepal
- Remuneration Increment: Any employee who has completed one year of service period shall be entitled to an annual increment in remuneration (grade) each year in an amount equal to at least half a day remuneration based on the monthly basic remuneration to which the labour is entitled.
- Festival Expenses: A festival bonus equal to one month’s salary is paid once a year
G. Payment of Remuneration:
The remuneration shall be paid as follows to the following labour:
Type of Employee | Payment Timeline |
Worked less than a month | Within 3 days of finishing |
Casual worker | Upon completion of work |
Regular employees | Payment periods should not exceed 1 month |
H. Leave and Holidays:
The Labour Act provides employees with weekly holidays, public holidays, annual leave, sick leave, maternity and paternity leave, and mourning leave as follows:
Type of Leave | Entitlement |
Weekly holiday | 1 day per week. |
Public holidays | 13 days (men), 14 days (women). |
Annual leave | 1 day per 20 days worked. |
Sick leave | Fully paid up to 12 days, eligible on a proportional basis for those employees who has not completed1 year of service. |
Maternity leave | Up to 14 weeks; 60 days fully paid. |
Paternity leave | Up to 15 days, fully paid |
Mourning leave | 13 days |
Accumulation | Home leave – 90 days Sick leave – 45 days Excess accumulation – encased every year |
Note: Leave is a privilege, not a right. Employer can approve, deny, or cancel approved leave. Taking leave without approval can be treated as misconduct.
I. Employee Benefits:
1. Provident Fund
The enterprise contributes 10% of basic salary; the employee also contributes 10% deposit the total amount for the purpose of the provident fund. Such provident fund shall be deposited into the Social Security Fund.
2. Gratuity
The enterprise shall deduct an amount equivalent to 8.33% percent of the basic remuneration of each labour each month and deposit it for the purpose of gratuity.
3. Medical insurance
The enterprise shall procure make an annual medical insurance of at least NPR 1,00,000 per year, split 50/50 between enterprise and employee.
4. Accident insurance
The enterprise shall procure accidental insurance of at least NPR 7,00,000, fully paid by the employer.
J. Disciplinary Action for Misconduct:
Based on the nature of misconduct done by the employee, the following disciplinary action can be taken:
Type of Punishment | Misconduct under the Labour Act |
Reprimand/Warning | The Enterprise shall warn the employee if s/he commits the following misconduct: a) remain absent from the work without having a leave sanctioned; b) leave the workplace without obtaining permission of the management; c) appear late in work frequently without obtaining permission; d) disobey any order given in relation to the work by the employer or any employee superior in level to him or her; and e) commit any other misconduct under the prevailing law. |
Deduction of 1 day’s remuneration | The Enterprise shall deduct remuneration of one day of the employee if s/he commits the following misconduct: a) refuse to receive any letter or notice given by the employer or sentencing authority; b) take part in an illegal strike or force others to do so or make delay or slow in work collectively; c) cause loss or damage to the Enterprise by decreasing the production or service recklessly or negligently; d) make attempt to take benefits by submitting false documents; e) not use the equipment provided by the employer if s/he is a employee responsible for using such equipment; and f) commit any other misconduct of similar nature under the prevailing law. |
Withholding of annual grade or promotion for a year | The Enterprise shall withhold annual grade or promotion for a year, if s/he commits the following misconduct: a) take any property outside the Enterprise without the permission of the competent person and used it or allow it to be used by any unauthorized person; b) make attempt to make embezzlement in the Enterprise’s transaction; c) damage the employer’s property recklessly or negligently; d) stop the supply of food, water, telephone, electricity service or prevent movement within the workplace; e) intentionally misuse, or cause loss or damage to any goods kept or provisions made for the benefit, safety or health of the labours; and f) commit any other misconduct of similar nature under the prevailing law. |
Termination upon misconduct | The Enterprise shall be entitled to dismiss the employee from their employment if the clarification submitted by the employee during the investigation of the following misconduct is found to be unsatisfactory and based on the evidence of the misconduct: a) engage in physical assault or causing physical harm to any person related to the Enterprise; b) engage in use of any form of weapon or causing vandalism in the Enterprise’s office premises; c) engage in receiving or granting bribery; d) commit theft against any person in the Enterprise; e) remain absent in the work for the continuous period of 30 (thirty) days or more without notice or Enterprise’s approval; f) been guilty of conduct tending to bring yourself or the Enterprise into disrepute; g) damage Enterprise’s property maliciously; h) embezzle the Enterprise’s finances; i) act in collaboration with a competitive employer in the similar nature of business of the Enterprise or carry on any competitive business on his or her own or provide any secret information of the Enterprise where s/he is employed to any competitive employer; j) engage in any activity with an intention to breach the Enterprise’s confidentiality regarding its data, information including but not limited to the information about the Ambassador and employees of the Enterprise or any other information which shall be known to be confidential pursuant to the employment agreement or any other agreement that restricts disclosure of such confidentiality; k) falsify documents for the appointment; l) consume or distribute narcotics on the Enterprise’s premises; m) consume alcoholic beverages on the Enterprise’s premises without permission; n) been declared guilty of criminal offences indicating moral turpitude by the competent courts of Nepal; o) make any public disparaging or misleading comment regarding the Enterprise, including online (for example on social networking sites); p) commit any act which the Enterprise considers to be gross misconduct under the prevailing laws; q) receive the written warning for more than 2 (two) times for any misconduct or breach of the employment agreement or the Enterprise’s policies; and r) commit any other offence under the prevailing laws. s) Sexual Harassment at Workplace |
K. Procedure for Disciplinary Action:
Procedure of disciplinary action shall be taken as follows:
- The employer must provide the employee with a written notice of the alleged misconduct and proposed punishment, allowing 7 days to submit a clarification.
- Disciplinary action must be initiated within 2 months from the date the misconduct becomes known.
- A decision must be made within 3 months from the commencement of the disciplinary proceedings.
- Punishment may be imposed by the Chief Executive Officer or an authorized managerial-level employee as prescribed in the Employee Bylaws.
L. Termination of the Service
Generally, the service of the employee can be terminated on the following circumstances:
Termination | Grounds of Termination |
| An employee may voluntarily retire on attaining the age of 58 (fifty eight) years. |
Voluntary resignation | The employee may voluntarily resign from services by submitting a letter of resignation to the Enterprise. |
Time bound employee | The employment is terminated upon expiry of the time period prescribed in the employment agreement. |
Work based employee
| The employment terminates upon completion of the work specified in the employment agreement. |
Termination due to poor performance
| Enterprise may terminate the employment of an employee if s/he is found underperforming in three consecutive performance evaluations. |
Termination due to bad health | The Enterprise may terminate the employment of an employee upon the recommendation of a medical practitioner if any employee is physically or mentally disabled or injured and rendering him/her unable to work or requiring a long period for medical treatment effecting in the work of the Enterprise. |
Sexual Harassment at workplace | The Enterprise may terminate the employment of an employee if the activity of the employee is found sexually abusive in accordance with law, which is inappropriate in the workplace or on work related to work. |
Misconduct | The employment shall be terminated on the ground of misconduct as provided in above. |
M. Notification requirements for the Termination:
The employer or the employee shall give notice in advance as follows or salary in lieu of notice prior to the termination of service except termination of service of an employee by Enterprise on the ground of misconducts.
Period of Employment | Notice Period |
For up to 4 weeks | 1 day |
4 weeks to one year | 7 days |
Exceeding 1 year | 30 days |
N. Retrenchment:
As per the Labour Act, the employees can be retrenched by providing information to the Labour Office on the following ground:
- Poor economic conditions of en Employers;
- Increase in number of employees as a result of merger, causing some employees to be redundant;
- Employers needs to be closed down partially or completely because of any other reason.
O. Procedure for retrenchment:
The procedure for retrenchment are as follows:
- The employer must provide a 30 days’ prior notice specifying the reasons for retrenchment, possible date of retrenchment and the number of employees to be retrenched, to the authorized trade Union or Labour Relation Committee.
- Employees can be retrenched after reaching a consensus with the Trade Union or Labour Relation Committee.
- Where such trade union or Labour Relation Committee does not exist or where the consensus cannot be reached, the employees can be retrenched by providing information to the Labour Office.
Note: The provisions of the Act on retrenchment are not applicable to entities in SEZs or to entities partially or fully closed by the order of the Labour Court or the Government of Nepal. Also, the provisions on retrenchment are not applicable to entities with less than ten employees.
