Table of Contents
Nepal's Labour Act 2074 (2017) and the Labour Rules 2075 (2018) govern every employment relationship in the country — from a tea shop in Bhaktapur to a multinational office in Kathmandu. Whether you are an employer drafting contracts or an employee questioning your overtime pay, this single law sets the rules. Yet most workers in Nepal have never read a word of it, and many employers routinely violate provisions they do not even know exist.
As of April 2026, the minimum wage stands at NPR 19,550 per month, employees are entitled to 18 days of annual leave, and overtime must be paid at 1.5 times the regular rate. This guide breaks down every major provision of Nepal's labour law — working hours, leave, wages, termination, severance, social security, and trade union rights — so you know exactly where you stand.
Labour law in Nepal is governed by the Labour Act 2074 (2017). Employees work a maximum of 8 hours per day and 48 hours per week, earn overtime at 1.5x pay, and are entitled to 18 days annual leave, 12 days sick leave, and 98 days maternity leave. The minimum wage effective July 2025 is NPR 19,550 per month.
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The Labour Act 2074: Nepal's Core Employment Law
The Labour Act 2074 (2017) replaced the older Labour Act 2048 (1992) and fundamentally reshaped employment law in Nepal. Enacted by the Parliament and supplemented by the Labour Rules 2075 (2018), it applies to all employers and employees across the private sector. The Department of Labour and Occupational Safety under the Ministry of Labour, Employment and Social Security (MoLESS) oversees enforcement.
The Act covers employment contracts, working hours, leave, wages, termination, social security, occupational safety, trade unions, and dispute resolution. Every employer — regardless of size — must comply. There is no exemption for small businesses.
| Detail | Information |
|---|---|
| Governing Law | Labour Act 2074 (2017) |
| Supplementary Rules | Labour Rules 2075 (2018) |
| Enforcement Body | Department of Labour and Occupational Safety |
| Parent Ministry | Ministry of Labour, Employment and Social Security |
| Applies To | All private sector employers and employees |
| Replaced | Labour Act 2048 (1992) |
Types of Employment Under Nepal Labour Law
The Labour Act 2074 recognises five categories of employment. The type of contract determines the employee's rights regarding leave, termination notice, and severance.
| Employment Type | Definition | Key Condition |
|---|---|---|
| Regular | Permanent position for work of a permanent nature | Full benefits after probation |
| Work-based | Hired for a specific task or project | Ends when the work is completed |
| Time-bound | Fixed-term contract for a set duration | Ends on the agreed date |
| Casual | Short-term work, not continuous | Maximum 7 days per month |
| Part-time | Works fewer hours than a regular employee | Maximum 35 hours per week |
Probation period: For regular employment, the maximum probation period is 6 months. If the employer does not terminate the contract or extend probation in writing before it expires, the employee automatically becomes a permanent regular employee.
Common mistake: Many employers in Nepal use repeated "time-bound" contracts for positions that are clearly permanent in nature. Under Section 12 of the Labour Act 2074, if the work is of a permanent nature, the employment must be classified as regular — regardless of what the contract says.
Working Hours, Overtime, and Rest Periods
Nepal's working hour limits are strict. Employers who demand longer hours without proper overtime compensation face penalties under the Labour Act.
Standard Working Hours
- Daily maximum: 8 hours
- Weekly maximum: 48 hours
- Mandatory break: 30 minutes for every 5 consecutive hours of work
- Weekly rest: 1 day off per week (typically Saturday)
Overtime Rules
Any work beyond 8 hours per day qualifies as overtime. The Act caps overtime and mandates premium pay:
- Maximum overtime: 4 hours per day, 24 hours per week
- Overtime pay rate: 1.5 times the regular hourly wage
- Consent required: Overtime cannot be forced without the employee's agreement
- Record keeping: Employers must maintain written records of all overtime worked
In practice, many employers in Nepal — particularly in the hospitality and manufacturing sectors — violate overtime limits regularly. If your employer refuses overtime pay, you can file a complaint at the nearest Labour Office.
Leave Entitlements in Nepal
The Labour Act 2074 provides a comprehensive leave framework. Every regular employee is entitled to the following types of leave, and employers cannot reduce these below the statutory minimum even through contract terms.
| Leave Type | Days Per Year | Accumulation Limit | Notes |
|---|---|---|---|
| Annual (Home) Leave | 18 working days | Up to 90 days | Earned after 1 year of service |
| Sick Leave | 12 working days | Up to 45 days | Medical certificate needed for 3+ days |
| Maternity Leave | 98 days | — | 60 days fully paid, remaining at 60% via SSF |
| Paternity Leave | 15 days | — | Fully paid |
| Mourning Leave | 13 days | — | Death of close family member |
| Festival Leave | 3 days | — | Dashain or other festivals (employee's choice) |
| Public Holidays | 13 days (14 for female) | — | As declared by the government each year |
Maternity and paternity leave are automatic rights under the law — no employer can deny these after a court marriage in Nepal or any other legally registered marriage. Maternity leave begins up to 2 weeks before the expected delivery date, and the employer must hold the position open for the employee's return.
Need help with employment rights after marriage? Talk to our lawyers →
Minimum Wage in Nepal (2025/26)
The Government of Nepal revises minimum wages periodically through the Minimum Remuneration Fixation Committee. As of July 2025 (Shrawan 2082 BS), the current minimum wage is:
| Component | Monthly (NPR) | Daily (NPR) | Hourly (NPR) |
|---|---|---|---|
| Basic Salary | 12,170 | — | — |
| Dearness Allowance (DA) | 7,380 | — | — |
| Total Minimum Wage | 19,550 | 754 | 101 |
This minimum applies to all sectors unless a sector-specific rate has been set higher. Employers must pay at least this amount — any contract stipulating less is void under the Labour Act 2074.
Festival Allowance (Dashain Bonus)
Every employee is entitled to a festival allowance equal to 1 month's basic salary per year. This is commonly called the "Dashain bonus" and must be paid before the Dashain festival. Part-year employees receive a proportional amount. This is a statutory right, not a discretionary bonus.
Termination of Employment
Terminating an employee in Nepal requires strict compliance with the Labour Act 2074. Employers cannot dismiss employees at will — there are mandatory notice periods, valid grounds requirements, and severance obligations.
Notice Periods for Termination
| Length of Service | Minimum Notice Period |
|---|---|
| Up to 4 weeks | 1 day |
| 4 weeks to 1 year | 7 days |
| Over 1 year | 30 days |
Valid Grounds for Termination
An employer may terminate employment for reasons including:
- Failure to meet performance standards after written warnings
- Misconduct or violation of workplace rules
- Redundancy due to business closure or restructuring
- Expiry of a time-bound or work-based contract
- Failure to pass the probation period (with written notice)
Wrongful Termination Protection
If an employee believes they were terminated without valid grounds or proper procedure, they can file a complaint at the Labour Office within 30 days. The Labour Office investigates and can order reinstatement with full back pay. If the relationship has broken down completely, the office may order compensation instead. From the Labour Office, appeals go to the Labour Court.
Lawyer insight: In our experience, the most common wrongful termination cases in Nepal involve employers who skip the written warning process or fail to provide the required notice period. Keep written records of every performance issue. Verbal warnings mean nothing in front of the Labour Office.
Severance Pay and Gratuity
Employees who are terminated (other than for misconduct) or who resign after continuous service are entitled to severance and gratuity.
Severance Pay
1 month's basic salary for each completed year of service. This applies to regular employees terminated by the employer due to redundancy or restructuring. Severance is separate from any outstanding salary, leave encashment, or festival allowance.
Gratuity
Under the Social Security Fund (SSF) system, gratuity is calculated at 8.33% of basic salary, deposited monthly into the employee's SSF account by the employer. This replaced the old lump-sum gratuity system. Employees enrolled in SSF receive gratuity through their fund balance upon retirement or separation.
Calculation Example
| Component | Calculation | Amount (NPR) |
|---|---|---|
| Monthly basic salary | — | 25,000 |
| Years of service | — | 5 years |
| Severance pay | 25,000 x 5 | 1,25,000 |
| Gratuity (via SSF) | 25,000 x 8.33% x 60 months | 1,24,950 |
Social Security Contributions
The Contribution Based Social Security Act 2074 mandates that both employers and employees contribute to the Social Security Fund (SSF). As of 2026, the contribution rates are:
- Employer contribution: 20% of basic salary
- Employee contribution: 11% of basic salary
- Total: 31% of basic salary
SSF covers medical treatment, maternity, accident, disability, dependent family protection, and old-age pension. Every employer must register with SSF and deposit contributions within 25 days after each month ends. Non-compliance attracts fines up to NRS 1,00,000 and interest penalties.
SSF contributions are tax-deductible when filing your income tax in Nepal, making compliance beneficial for both parties.
Trade Unions and Collective Bargaining
The Labour Act 2074 guarantees the right to form and join trade unions. This is also a fundamental right under Article 34 of the Constitution of Nepal 2072.
Key Union Rights
- Workers can form a union at any enterprise with 10 or more employees
- No employer approval is required — only registration with the Labour Office
- Unions can engage in collective bargaining with the employer
- Workers have the right to strike after following the dispute resolution process
- Managers and those in decision-making positions are prohibited from participating in strikes
- Employers cannot terminate or penalise an employee for union membership
Disputes that cannot be resolved through negotiation go to the Labour Office for mediation, then to the Labour Court if mediation fails.
Workplace Safety and Occupational Health
Employers must maintain a safe working environment. The Labour Act 2074 requires:
- Adequate ventilation, lighting, and sanitation in the workplace
- Protective equipment for hazardous work at the employer's cost
- First-aid facilities on-site
- Safety training for employees in high-risk industries
- Accident reporting to the Labour Office within 48 hours
- Compensation for workplace injuries (covered through SSF)
Enterprises with 20 or more employees must form an occupational safety and health committee with equal representation from management and workers.
Labour Dispute Resolution Process
When employment disputes arise, the Labour Act establishes a clear resolution pathway:
- Internal negotiation: Employee raises the issue with the employer directly
- Labour Office mediation: File a complaint at the District Labour Office within 30 days
- Labour Court: If mediation fails, appeal to the Labour Court within 35 days
- Supreme Court: Final appeal on questions of law
The Labour Office handles most disputes — wrongful termination, unpaid wages, overtime violations, and discrimination. Proceedings are relatively fast compared to civil courts, typically resolving within 60 to 90 days.
Facing a workplace dispute? Our lawyers can represent you at the Labour Office →
Conclusion
Nepal's Labour Act 2074 provides robust protections for employees — from strict working hour limits and mandatory overtime premiums to comprehensive leave entitlements and wrongful termination remedies. For employers, understanding and complying with these provisions is not optional. The Labour Office actively investigates complaints, and penalties for violations include fines, reinstatement orders, and criminal prosecution in serious cases.
Whether you need advice on employment contracts, termination procedures, SSF registration, or workplace disputes, our legal team has handled hundreds of employment matters across Nepal. If you are also navigating marriage-related legal documentation alongside employment issues, we handle court marriage in Nepal and all related paperwork.
Contact our lawyers for confidential legal advice on any labour law matter →
Last reviewed: April 2026
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Frequently Asked Questions
The Labour Act 2074 (2017) is Nepal's primary employment law governing working hours, wages, leave, termination, social security, and trade unions for all private sector employers and employees.
Maximum 8 hours per day and 48 hours per week. Employees get a 30-minute break for every 5 hours worked and 1 weekly day off.
NPR 19,550 per month (basic NPR 12,170 + dearness allowance NPR 7,380), NPR 754 per day, or NPR 101 per hour, effective July 2025.
Overtime is paid at 1.5 times the regular hourly wage. Maximum overtime is 4 hours per day and 24 hours per week. Overtime requires employee consent and the employer must maintain written records of all overtime hours worked.
Employees are entitled to 18 working days of annual (home) leave per year after completing 1 year of service. Unused leave accumulates up to a maximum of 90 days, after which it must be encashed or used.
Female employees get 98 days of maternity leave:
- 60 days: Fully paid by the employer
- 38 days: Paid at 60% of basic salary through SSF
Leave can begin up to 2 weeks before expected delivery.
Male employees get 15 days of fully paid paternity leave.
Maximum 6 months for regular employment. If the employer does not terminate or extend probation in writing before it expires, the employee automatically becomes permanent.
Notice periods depend on length of service:
- Up to 4 weeks: 1 day notice
- 4 weeks to 1 year: 7 days notice
- Over 1 year: 30 days notice
Payment in lieu of notice is allowed.
Employees terminated due to redundancy or restructuring receive 1 month's basic salary for each completed year of service. This is separate from gratuity, outstanding salary, and leave encashment. Severance does not apply to misconduct terminations.
Employers contribute 20% and employees contribute 11% of basic salary — totalling 31%. This covers medical, maternity, accident, disability, dependent family protection, and old-age pension through the Social Security Fund.
No. The Labour Act 2074 requires valid grounds for termination such as misconduct, poor performance (after written warnings), or redundancy. Wrongful termination can be challenged at the Labour Office, which can order reinstatement with full back pay.
Every employee is entitled to a festival allowance equal to 1 month's basic salary per year, typically paid before Dashain. Part-year employees receive a proportional amount. This is a statutory right, not a discretionary bonus.
File a written complaint at the nearest District Labour Office within 30 days of the incident. The Labour Office mediates first. If mediation fails, you can appeal to the Labour Court within 35 days. Proceedings typically resolve in 60 to 90 days.
Yes. Workers at any enterprise with 10 or more employees can form a trade union without employer approval. Unions register with the Labour Office and can engage in collective bargaining and strikes. Employers cannot penalise employees for union membership.
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