Nova Law

The Labour Act, 2017- A Complete Guide

1. Who Does the Labour Act Apply To?

The Labour Act, 2017 governs the relationship between employers and employees across most businesses operating in Nepal- whether for profit or not.

Applicable for the following entities

  • Companies & Private Firms
  • Partnership Firms
  • Cooperatives & Associations
  • Any industry, business, or service provider (profit or non-profit)

Non-applicable for the following entities

  • Civil Service employees
  • Nepal Army, Nepal Police & Armed Police Force
  • Entities in Special Economic Zones (SEZ) -where separate laws apply
  • Working Journalists (unless their contract specifically provides otherwise)

2. Types of Employment

The Labour Act recognises five distinct categories of employment. Knowing which category you fall under determines your rights and obligations.

Type

Definition

Regular

Works on an ongoing, permanent basis at the enterprise.

Work-Based

Hired for a specific, defined piece of work until it is completed.

Time-Based

Hired for a fixed period of time to complete a particular task.

Casual

Works 7 days or fewer within any given month.

Part-Time

Works 35 hours or fewer per week.

3. Probation, Interns and Trainees

Category

Key Rules

Probation

Up to 6 months. Employer may terminate for unsatisfactory performance during this period.

Interns

Must work under an approved educational syllabus and a formal agreement with the institution. No standard pay requirement under the Act.

Trainees

Maximum 1-year training period. Entitled to social security (provident fund & gratuity). Employer is not obliged to convert to regular staff — but if they do, no further probation applies.

4. Working Hours and Overtime:

8 hrs

Maximum per day

48 hrs

Maximum per week

24 hrs

Max overtime/week

1.5×

Times the regular remuneration

A 30-minute break is mandatory after every 5 continuous hours of work. Employees who work on public holidays or their weekly day off are entitled to replacement (in-lieu) leave.

5. Remuneration, Increments & Festival Bonus

The Government of Nepal sets the minimum wage. All employers must comply with the current notified rates.

Topic

 

Annual Increment

Employees who complete one year of service get an annual grade increment of at least half a day’s remuneration, based on monthly basic salary.

Festival Bonus

One month’s salary paid once per year as a festival expense.

Remuneration Payment Timelines

Type of Employee

When Must They Be Paid?

Worked less than a full month

Within 3 days of finishing

Casual worker

Upon completion of work

Regular employees

Payment periods must not exceed 1 month

6. Leave and Holidays

Type of Leave

Entitlement

Weekly Holiday

1 day per week

Public Holidays

13 days (men)   |   14 days (women)

Annual Leave

1 day for every 20 days worked

Sick Leave

Fully paid up to 12 days/year (prorated for under 1 year of service)

Maternity Leave

Up to 14 weeks total; 60 days fully paid. Compulsory: 2 weeks before delivery, minimum 6 weeks after.

Paternity Leave

Up to 15 days, fully paid

Mourning Leave

13 days

Accumulation Limits

Home leave: max 90 days   |   Sick leave: max 45 days   |   Excess is encashed annually

⚠  Important: Leave is a privilege, not an unconditional right. An employer may approve, deny, or cancel previously approved leave. Taking leave without approval can be treated as misconduct.

7. Employee Benefits

Benefit

Details

Provident Fund

10% employer contribution + 10% employee contribution of basic salary. Deposited to the Social Security Fund.

Gratuity

8.33% of basic remuneration deducted and deposited monthly by employer.

Medical Insurance

Minimum NPR 1,00,000 per year — split 50/50 between employer and employee.

Accident Insurance

Minimum NPR 7,00,000 — fully paid by the employer.

8. Disciplinary Action for Misconduct:

An employee can be suspended (a) for investigation of misconduct or (b) if taken in judicial custody for any office by lawful authority.

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

9. Procedure for Disciplinary Action:

Procedure of disciplinary action shall be taken as follows:

  1. The employer must provide the employee with a written notice of the alleged misconduct and proposed punishment, allowing 7 days to submit a clarification.
  2. Disciplinary action must be initiated within 2 months from the date the misconduct becomes known.
  3. A decision must be made within 3 months from the commencement of the disciplinary proceedings.
  4. Punishment may be imposed by the Chief Executive Officer or an authorized managerial-level employee as prescribed in the Employee Bylaws.

10. Termination of Service:

Ground

Details

Retirement

Voluntary retirement upon reaching age 58.

Voluntary Resignation

Employee submits a written letter of resignation.

Time-Bound Contract

Employment ends automatically upon contract expiry.

Work-Based Contract

Employment ends upon completion of the specified work.

Poor Performance

After 3 consecutive unsatisfactory performance evaluations.

Health / Disability

On a medical practitioner’s recommendation if the employee cannot perform duties or requires extended treatment.

Sexual Harassment

If the employee is found guilty of sexually abusive conduct at the workplace.

Misconduct

As per the disciplinary process outlined in Section 8.

11.Notice Periods Required:

Either party (employer or employee) must give advance notice or pay salary in lieu, except when the enterprise is terminating for misconduct.

Length of Employment

Notice Required

Up to 4 weeks

1 day

4 weeks to 1 year

7 days

More than 1 year

30 days

12. Retrenchment:

Retrenchment is the employer-initiated termination of multiple employees due to organisational reasons, not individual performance or misconduct.

Valid Grounds for Retrenchment

  • Poor economic conditions of the enterprise
  • Redundancy following a merger (surplus employees)
  • Partial or complete closure of the enterprise

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13. Procedure for Retrenchment:

  • 30-day prior notice must be given to the authorised Trade Union or Labour Relation Committee, specifying reasons, likely date, and number of employees to be retrenched.
  • Retrenchment may proceed only after reaching a consensus with the Trade Union or Labour Relations Committee.
  • Where no Trade Union or Committee exists, or where consensus cannot be reached, the employer may retrench after informing the Labour Office.