Employer of Record in Nepal

Expanding your business into Nepal offers access to a vibrant and skilled talent pool, but navigating the country's specific employment regulations requires a thorough understanding of local labor laws, tax obligations, and compliance standards. Establishing a compliant employment framework from the outset is essential for any company looking to hire in the Nepali market.

Companies have several pathways for engaging employees in Nepal:

• Establishing a local legal entity: This involves setting up a subsidiary or branch office, a process that can be time-consuming and costly, requiring registration with various government bodies and adherence to local corporate governance.
• Utilizing an Employer of Record (EOR) service: An EOR, like Rivermate, handles all legal, HR, tax, and payroll responsibilities for your employees in Nepal, allowing you to hire without establishing your own entity.
• Hiring independent contractors: This option offers flexibility but requires careful classification to avoid misclassification risks, which can lead to significant penalties under Nepali labor laws.

How an EOR Works in Nepal

An Employer of Record simplifies the process of hiring in Nepal by acting as the legal employer, while you retain full control over day-to-day management and assignments. This comprehensive service typically involves the EOR taking care of:

• Ensuring full compliance with Nepal's Labor Act and other employment-related regulations.
• Managing local payroll processing, including accurate calculation and timely disbursement of salaries.
• Handling all tax withholdings and submissions to the Nepali government, such as income tax.
• Administering mandatory employee benefits, including contributions to the Social Security Fund (SSF) and provident fund.
• Drafting and managing legally compliant employment contracts tailored to Nepali law.
• Facilitating employee onboarding and offboarding processes in accordance with local requirements.

Benefits of Using an EOR in Nepal

For companies aiming to hire talent in Nepal without the commitment and complexity of establishing a local entity, an EOR provides significant advantages:

• Accelerated market entry: Hire employees in Nepal quickly, bypassing the lengthy process of company registration.
• Reduced costs and administrative burden: Eliminate the need for local legal, HR, and payroll departments, saving significant operational expenses.
• Guaranteed legal compliance: Mitigate risks associated with navigating unfamiliar Nepali labor laws, tax regulations, and social security requirements.
• Access to a wider talent pool: Recruit top professionals across Nepal without geographical or legal limitations.
• Enhanced focus on core business: Free up internal resources to concentrate on strategic growth initiatives, leaving employment complexities to experts.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Nepal includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Nepal.

Employers in Nepal must contribute to the Social Security Fund (SSF) at a combined rate of 31% of employee wages, with the employer paying 20% and employees 11%. These contributions fund benefits such as accident, dependent, disablement, old age, medical, and maternity schemes. Employers are responsible for deducting employee contributions from salaries and depositing the total (31%) to the SSF by the 15th of the following month.

For income tax, employers must withhold progressive PAYE taxes from employees' salaries monthly, depositing the amounts with the IRD by the 25th. Tax rates vary by income level and marital status, with brackets up to 36% for high earners. Employees can claim deductions like SSF contributions, insurance premiums, medical expenses, and allowances for remote work, reducing taxable income.

Foreign entities and workers face additional rules, including residency criteria, DTAA benefits, and withholding taxes on cross-border payments. Foreign companies with a PE in Nepal are taxed accordingly, and non-residents are taxed only on Nepal-sourced income. Compliance with work permits and visa regulations is mandatory for foreign workers.

Nepal's salary landscape varies by industry, role, and experience, with notable ranges such as NPR 60,000–150,000 for IT Software Engineers and NPR 70,000–200,000+ for Doctors. Minimum wage as of 2025 is NPR 15,000 per month, comprising a basic salary of NPR 9,385 and a dearness allowance of NPR 5,615. Employers must also contribute to social security funds, including provident and gratuity schemes.

Compensation packages often include bonuses like the Dashain bonus (equivalent to one month's salary), festival allowances, and allowances for housing, transportation, medical, and communication. Salaries are typically paid monthly via bank transfers, with deductions for income tax and social security contributions. Salary trends are expected to rise moderately, driven by economic growth, inflation, industry demand, and skill shortages.

Nepalese labor law mandates various leave types to promote employee well-being, including annual, sick, public holidays, and parental leave. Employees are generally entitled to a minimum of 12 days of paid annual leave after one year of service, with leave accrued pro-rata and potential for encashment depending on company policy. Public holidays, such as New Year's Day, Labour Day, Buddha Jayanti, and festivals like Dashain and Tihar, are observed nationwide, with employees typically receiving regular wages; work on these days usually warrants overtime pay or leave compensation.

Paid sick leave is usually 12 days annually, requiring medical certification for extended absences. Maternity leave grants 14 weeks (98 days) of paid leave for women, while paternity leave offers 15 days of paid leave for men. Adoption leave policies are evolving but generally align with parental leave benefits. Additional leave types like bereavement, study, sabbatical, marriage, and festival leave may be provided at employer discretion. Employers should ensure compliance with these regulations to avoid legal issues and foster positive employee relations.

Nepalese employers are legally required to provide several core benefits, including Provident Fund contributions (10% from both employer and employee), gratuity, social security benefits, festival allowances (equivalent to one month's salary), paid leave, and maternity/paternity leave. These statutory benefits ensure basic employee security and compliance with labor laws. Additionally, many companies enhance their packages with optional benefits such as health insurance, life and accidental insurance, performance bonuses, transportation and meal allowances, and training programs to attract and retain talent.

Health insurance is increasingly prioritized, with coverage typically including hospitalization, diagnostics, and medications; employers often subsidize premiums, and comprehensive plans are highly valued by employees. Retirement benefits beyond the mandatory Provident Fund include occupational pension schemes and voluntary contributions, with some employers offering retirement planning education. Benefit packages vary by company size and industry, with larger firms providing more comprehensive offerings, especially in sectors like banking and finance. Employers should balance cost considerations with employee expectations to develop competitive, compliant benefits programs.

Employment agreements in Nepal are vital for defining legal working relationships, ensuring compliance with labor laws, and preventing disputes. They specify terms such as contract types, essential clauses, probation periods, confidentiality, non-compete clauses, and termination procedures.

Nepal recognizes various contract types, primarily including:

Employers should ensure agreements include key clauses like probation periods, confidentiality, non-compete provisions, and clear termination procedures to foster a harmonious workplace and legal compliance.

Nepal is increasingly adopting remote work, driven by technological progress and a focus on work-life balance. While current labor laws do not explicitly regulate remote work, existing regulations on employment contracts, working hours, health and safety, social security, and taxation apply equally to remote employees. Employers should ensure compliance through clear policies and contractual agreements.

Flexible work arrangements such as full-time remote work, hybrid models, flextime, compressed workweeks, and job sharing are common. Employers must consider job nature and operational needs when choosing suitable options. Data security, privacy, and equipment policies are critical, requiring measures like encryption, access controls, and reimbursement policies for equipment and expenses. Reliable technology infrastructure—including high-speed internet, communication, and collaboration tools—is essential for productivity and engagement.

Employment termination in Nepal is regulated by the Nepal Labour Act, 2017, requiring employers to follow specific procedures to ensure legality and avoid disputes. Key steps include providing proper notice, conducting fair inquiries if necessary, documenting reasons, and paying severance entitlements. Non-compliance can lead to legal challenges, penalties, and potential reinstatement or compensation orders.

Notice periods vary by employee category and tenure, typically 30 days for permanent employees regardless of years served, with contractual notice for fixed-term and probationary staff. Severance pay is due to employees with over one year of service, calculated as:

Employees terminated for gross misconduct are generally ineligible for severance, while those dismissed without cause are entitled to it. Employers must adhere to procedural requirements, including issuing written notices, conducting inquiries, and providing clearance letters. Employees are protected against wrongful dismissal, with legal recourse for reinstatement or compensation if unfairly terminated.

Nepal's economy is increasingly adopting flexible work arrangements, with a rise in independent contracting and freelancing across various sectors. This trend provides businesses with agility and access to specialized skills while offering individuals autonomy and diverse work opportunities. Employers must understand the legal distinctions between employees and contractors to ensure compliance with labor laws, social security, and taxation. Key factors for classification include control, integration, financial dependence, tools and equipment, relationship duration, and the right to substitute. A clear, written contract is essential to define the scope of work, payment terms, confidentiality, intellectual property rights, and the relationship nature.

Intellectual property (IP) rights are crucial in contractor agreements, with standard practice involving clauses that assign IP ownership to the client. Contractors in Nepal are responsible for their tax obligations, including income tax, advance tax, VAT registration, and withholding tax, depending on their earnings and registration status. Insurance responsibilities typically fall on the contractor, covering professional indemnity or public liability as needed.

Independent contracting is prevalent in sectors like IT, creative and design, consulting, media, education, and construction. The rise of remote work has expanded opportunities for Nepalese freelancers to work with both domestic and international clients.

Nepal requires foreign workers to obtain a valid visa and work permit before employment, managed by the Department of Immigration and the Department of Labor. Employers must meet specific criteria and fulfill obligations, while employees must comply with visa terms to ensure legal employment. The main visa types include Work Visa (long-term employment), Business Visa (trade and investment activities), and Non-Tourist Visa (for NGOs and specialized roles).

Key data points for employers:

Understanding and adhering to these regulations is essential for legal compliance and smooth foreign employment processes in Nepal.