What Severance Pay Rules Must Employers Follow in Nepal?

Which Employees Qualify for Severance Pay?

• Employees with at least one year of continuous service whose roles are made redundant due to restructuring, downsizing, or technological change.
• Employees terminated for reasons not related to misconduct, performance, or other employee fault, where the company initiates the separation.
• Employees affected by closure of the business, a specific unit, or a long-term suspension of operations as defined under the Labour Act 2017.
• Employees who reach retirement age or are retired under company policy where the law or contract provides for a retirement gratuity or severance-type benefit.
• Employees whose contracts or collective bargaining agreements promise severance or gratuity that is more generous than the statutory minimums.
• Fixed-term employees whose contracts are ended early by the employer without a valid cause permitted under Nepali law.

What Are the Legal Timelines for Paying Severance?

In Nepal, you should aim to pay all severance, unpaid wages, and accrued benefits at the time of termination or within a very short, reasonable period afterward. In practice, employers commonly settle dues on the employee’s last working day or within a few days, especially where approvals or calculations are needed. The Labour Act 2017 expects prompt settlement of all amounts owed when service ends, and delays can trigger disputes or claims. To stay safe, build internal rules that require final calculations to be completed before the exit date and payment processed no later than the next regular payroll run. Always document the payment date and obtain written acknowledgment from the employee.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Nepal, you risk financial penalties, legal disputes, and potential orders to reinstate or compensate the employee. Labour authorities and courts can review your termination decisions, check your calculations, and impose sanctions where they find non-compliance or bad faith.

• You may be ordered to pay the unpaid severance plus interest or additional compensation.
• Labour inspectors can recommend administrative fines and corrective measures against your company.
• Courts may invalidate the termination and order reinstatement with back pay in serious cases.
• Non-compliance can damage your company’s reputation with regulators, unions, and future hires.
• Repeated violations increase the likelihood of stricter oversight and higher settlement demands.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as the service described at https://www.playroll.com/employer-of-record can shift day-to-day employment administration, but it does not remove the underlying severance obligations created by Nepali law. Legally, the EOR is typically the formal employer on paper and is responsible for calculating and paying severance in line with the Labour Act 2017. However, your company, as the client, usually bears the commercial and contractual cost of any severance and may be held responsible if it instructs an unlawful termination. You should ensure your EOR contract clearly allocates liability, defines who approves terminations, and sets procedures for compliance with local notice and severance rules. Regular audits and clear documentation help prove that both you and the EOR are following Nepali requirements.

Be 100 Percent Compliant in Offering Severance with Playroll

Working with severance in Nepal means translating the Labour Act 2017 into clear internal processes: tracking continuous service, identifying valid grounds for termination, and applying the right formula for each exit scenario. Your company should maintain accurate employment records, including start dates, salary history, and any changes in role or working hours, so severance calculations are defensible. When planning restructures or closures, involve HR and legal early to map which employees qualify for severance and to budget for the total cost.

Playroll helps your team operationalize these rules by embedding local Nepali requirements into your hiring and offboarding workflows. With centralized records, standardized checklists, and expert review of each termination, you reduce the risk of underpaying or missing severance. Whether you employ directly or through an Employer of Record, Playroll can coordinate timelines, documentation, and payments so you stay compliant while treating departing employees fairly.