Employee Benefits in Nepal

Who Is Entitled to Employee Benefits In Nepal

In Nepal, most statutory employee benefits apply to workers who qualify as “employees” under the Labour Act 2017, meaning people who work under an employment agreement with your company in return for wages or a salary. Full‑time employees are generally entitled to the full package of legal benefits, including paid leave, provident fund, and gratuity accrual, once they start employment, although some benefits vest based on length of service.

Part‑time or wage-based employees are also entitled to core protections such as weekly rest, public holidays, and certain leave benefits, usually on a pro‑rata or days‑worked basis. Independent contractors and freelancers, who work under service contracts rather than employment contracts, are not covered by most employment benefits legislation and do not receive statutory benefits like provident fund or paid leave, unless your company chooses to grant similar protections contractually. Eligibility can be further shaped by hours worked, confirmed employment status after any probation period, and consistent service with the same employer.

Overview of Employee Benefits In Nepal

Nepal’s employee benefits framework combines strong statutory protections with relatively modest but growing expectations for supplemental perks. Compared with many global markets, legal benefits like provident fund savings, gratuity, and generous leave entitlements form a larger share of total rewards, while employer‑funded health and wellness benefits are still developing. Benefits are closely tied to social security and long‑term security, reflecting a workplace culture that values stability, respect for family responsibilities, and loyalty.

Mandatory Employee Benefits In Nepal

Mandatory benefits are legally required and form the core of any employee benefits package in Nepal. Here's a comprehensive list of mandatory benefits in Nepal:

Provident Fund Contributions

The provident fund is a compulsory retirement savings benefit for employees under the Labour Act and related regulations. Typically, employers contribute 10% of the employee’s basic salary and employees contribute an additional 10%, which is deducted from their wages and remitted either to the Employees Provident Fund (EPF) or to the Social Security Fund (SSF) in schemes where participation is mandatory. The fund accumulates over time, with interest, and is paid out when the employee retires or under certain qualifying circumstances.

Your company must register with the relevant fund, maintain accurate payroll records showing contributions each pay period, and submit monthly or periodic reports and payments. Employees may need to complete registration forms and provide identity documentation so funds can be credited to their individual accounts. This benefit significantly enhances long‑term financial security and is a cornerstone of the social protection system in Nepal.

Gratuity and Accrued Severance Benefits

Nepalese law requires employers to provide gratuity-type benefits based on an employee’s length of service. Historically, this has been structured as a percentage of basic salary for each year worked, and in practice employers either accumulate this obligation internally or meet it through contributions as part of the broader social security framework, especially where the SSF is used for retirement and long‑term benefits. Eligibility generally starts after a minimum period of continuous service, with higher entitlements for longer tenure.

Your company must track each employee’s start date, salary changes, and service record to calculate the accurate accrued amount when employment ends. Contracts and internal policies should clearly describe how gratuity is calculated and paid, including whether your organisation uses the SSF retirement scheme or maintains a separate internal accrual. For employees, this benefit acts as a significant financial cushion at the end of employment, encouraging loyalty and long service.

Paid Annual Leave

Employees in Nepal are entitled to paid annual leave once they complete a minimum period of continuous service, with entitlements accumulating based on days or months worked. The Labour Act provides that employees accrue paid home leave and sick leave annually, with many employers treating a portion of this as general annual leave that can be taken with employer approval. After a qualifying period, unused leave may be carried forward within legal limits or compensated in cash when employment ends.

Your company must maintain a leave register showing leave earned, taken, and remaining for each employee, and should set a clear policy on how leave is requested and approved. The daily pay rate for annual leave is usually based on the employee’s average daily wage. Providing and encouraging annual leave supports employee well‑being, work–life balance, and productivity.

Paid Public Holidays

Nepal recognises a number of public holidays each year, including national days and religious or cultural festivals. Employees are generally entitled to fully paid leave on official public holidays designated for their workplace or sector. If employees must work on a public holiday due to business necessity, they are usually entitled to compensatory leave or overtime-style enhanced pay as stipulated by the Labour Act or collective agreements.

You should publish a yearly holiday calendar, reflect public holidays in work schedules, and record any holiday work and compensatory time off. Payroll teams must ensure that employees receive full pay for holidays and that any additional payments for work on such days are properly accounted for and taxed. Paid public holidays acknowledge cultural and religious diversity and contribute to employee satisfaction.

Paid Sick Leave

Employees in Nepal are entitled to a minimum number of days of paid sick leave each year after they commence employment, with entitlements typically linked to the completion of a year’s continuous service. Sick leave is intended for short‑term illness or injury that temporarily prevents the employee from working. Employers may require medical certificates for absences beyond a specified duration, particularly for repeated or longer absences.

Your company should keep a sick leave register and define in policy when a health certificate from a registered medical practitioner is required. Sick leave is usually paid at the employee’s normal wage rate, up to the statutory limit. Properly managed sick leave prevents presenteeism, protects workplace health, and supports employees in recovering without undue financial stress.

Maternity Leave

The Labour Act grants pregnant employees paid maternity leave, structured to cover time before and after childbirth. While details can change with reforms, Nepalese law generally provides at least 14 weeks of maternity leave, with a defined portion required to be taken after delivery, and a portion of that leave fully paid by the employer up to statutory limits. Eligibility typically depends on a minimum period of continuous service and proper notification to the employer, along with medical confirmation of pregnancy and expected due date.

Your company must request and file medical certificates, record maternity leave dates, and ensure that salary payments comply with the statutory pay rate and duration. Employers are also prohibited from dismissing an employee due to pregnancy or maternity leave. This benefit is essential for protecting maternal health and supporting early childcare, and it is closely scrutinised during labour inspections.

Paternity and Other Family Leave

Fathers in Nepal are entitled to a short period of paid paternity leave at the time of the birth of a child, usually a few days of fully paid leave as specified in the Labour Act. This benefit is designed to support the employee and family during childbirth and is typically contingent on submission of proof of birth and a request for leave in advance where possible.

In addition, the law provides for other short‑term family-related leave such as mourning (bereavement) leave when an immediate family member dies. Your company should include these entitlements in internal policies, specify documentation requirements, and make sure payroll recognises these days as paid leave, not as unpaid absences. These benefits reflect cultural expectations around family responsibilities and demonstrate employer empathy.

Weekly Rest Days and Working Time Limits

Nepalese labour law sets maximum daily and weekly working hours and guarantees at least one paid weekly rest day, usually one day off after six days of work. Work in excess of the standard hours qualifies as overtime and must be compensated at a premium rate within statutory limits. Some sectors also have specific provisions for shift work and night work.

Your company must design rosters that respect daily and weekly hour limits, track working time accurately, and pay overtime according to legal requirements. Records of hours worked, overtime, and weekly rest should be retained in case of inspection. Respecting rest and hour limits reduces fatigue, accidents, and burnout, and is a visible sign of compliance to both employees and regulators.

Occupational Health, Safety, and Accident Compensation

Employers in Nepal are legally responsible for providing a safe and healthy work environment, including appropriate safety equipment, training, and procedures tailored to the risks of the workplace. Where employees suffer work‑related injury, illness, disability, or death, the employer may be required to provide medical treatment, wage replacement, and compensation as prescribed by the Labour Act and related regulations.

Your company should implement a documented health and safety management system, carry out risk assessments, and keep logs of accidents and near‑misses. For any serious incident, you may need to notify authorities and cooperate with investigations. Having adequate internal policies and, where appropriate, insurance arrangements in place protects employees and mitigates the financial impact on your organisation.

Social Security Fund (SSF) Contributions Where Applicable

Nepal has introduced a contributory Social Security Fund that, where implemented for an employer, requires contributions from both employer and employee to cover packages such as medical treatment, maternity protection, accident and disability, and old‑age protection. For employers registered with the SSF, standard contribution rates allocate a portion of wages for long‑term and short‑term benefits under defined schemes.

Your company must register eligible employees with the SSF, deduct employee contributions, add the employer share, and remit the total contribution within statutory deadlines using the SSF’s online or prescribed reporting systems. Employees may need to complete enrolment forms and receive SSF identity numbers. Participation in the SSF can streamline compliance with multiple benefit obligations and provide employees with more structured social protection.

Supplemental Employee Benefits In Nepal

Supplemental benefits are not required by law, but can help you stand out as an employer and attract top talent. They include:

Private Health and Medical Insurance

Private health insurance offers employees and often their dependants access to a wider network of hospitals and clinics, faster treatment, and coverage for services that may not be fully supported by public schemes or the SSF. Employers in Nepal increasingly provide group health policies that include inpatient and, in some cases, outpatient coverage, maternity benefits, and emergency care.

Your company might cover the entire premium or share it with employees, and you can tailor coverage limits, co‑payments, and included services based on budget and workforce needs. Offering private health insurance is especially valued by professionals and can significantly enhance your attractiveness as an employer in Nepal’s competitive sectors.

Life and Accidental Death Insurance

Group life insurance and accidental death and dismemberment coverage are common supplemental benefits for mid‑sized and larger employers. These policies provide a lump‑sum payout to an employee’s beneficiaries in the event of death or severe disability, above and beyond any statutory accident compensation.

Employers typically purchase a group policy with coverage tied to a multiple of salary or a fixed amount. Providing life and accident insurance offers peace of mind to employees and their families and can complement your occupational safety program by signalling that your company is committed to long‑term security.

Enhanced Retirement and Savings Plans

Some employers go beyond the mandatory provident fund or SSF contributions and offer additional retirement savings plans or higher employer-matched contributions. These can take the form of voluntary top‑ups to the provident fund, company savings schemes, or long‑term incentive plans that vest over several years.

Structuring enhanced retirement benefits allows you to reward long‑tenured employees and key talent, and can be a powerful retention lever. Your company should clearly document vesting rules, employer and employee contribution rates, and any conditions for early withdrawal or forfeiture.

Performance Bonuses and Incentive Schemes

Cash bonuses tied to individual, team, or company performance are a common way to supplement base pay in Nepal. These bonuses can be annual, quarterly, or project‑based, and may include sales commissions, profit‑sharing, or discretionary recognition awards.

Your company should design clear, transparent criteria for earning bonuses, communicate them in employment contracts or policies, and ensure they are processed through payroll with proper tax withholding. Well‑designed incentive schemes can align employees with business objectives and improve motivation and productivity.

Allowances for Meals, Transport, or Housing

Many employers in Nepal offer fixed or variable allowances to help employees manage living costs, particularly in urban centres like Kathmandu. Common examples include lunch or meal allowances, transport stipends, and, less frequently, housing allowances or company‑provided accommodation for key staff or remote assignments.

These allowances can be paid in cash through payroll or provided in kind, for example via staff canteens or shuttle services. When designing allowances, your company should consider both market expectations and tax treatment, since some allowances may be taxable as part of salary. Thoughtful allowance design can increase net take‑home value for employees with relatively modest cost to the employer.

Wellness, Mental Health, and Employee Assistance Programs

Wellness benefits are emerging in Nepal’s larger and internationally connected organisations. These can include health check‑ups, fitness reimbursements, on‑site or virtual wellness sessions, and employee assistance programs with confidential counselling for stress, financial issues, or family problems.

Although not yet standard, such programs can reduce absenteeism, support mental health, and enhance your employer brand, especially for younger professionals who value holistic well‑being. Your company can start small with periodic health camps or awareness sessions and scale up as you gauge employee needs and budget.

Training, Education, and Professional Development Support

Support for further education and skills development is highly valued in Nepal, where employees often seek opportunities to advance domestically or abroad. Employers may cover course fees, provide paid time off for study, sponsor certifications, or run internal training academies.

Clearly written learning and development policies should explain eligibility, reimbursement limits, and any service commitments required after funded training. Investing in professional development not only enhances employees’ careers but also raises your company’s capability and innovation potential.

Flexible Work Arrangements and Remote‑Work Support

While Nepal’s labour laws still assume a traditional workplace, flexible arrangements such as remote work, flexible hours, or hybrid schedules are becoming more common in technology and service sectors. Supplemental benefits in this area can include home‑office stipends, internet reimbursements, and flexible scheduling policies.

Implementing flexible work options requires clear guidelines on availability, performance measurement, and data security. For many employees, especially in congested cities or with family commitments, flexibility is a meaningful benefit that improves work–life balance without increasing direct payroll costs.

Tax Implications of Employee Benefits in Nepal

How Employee Benefits Are Taxed for Employees

In Nepal, most cash benefits paid to employees, such as bonuses, cash allowances, and gratuity paid out during employment, are treated as taxable income subject to personal income tax and withholding at source. The value of certain in‑kind benefits, such as housing or transport provided by the employer, may also be taxable depending on how they are structured and valued under prevailing tax rules.

Some retirement benefits, such as provident fund contributions within specified limits and certain SSF-related benefits, may receive preferential tax treatment or tax deferral until withdrawal. Your company must stay aligned with Inland Revenue Department (IRD) guidance on what counts as taxable income, any applicable exemptions or thresholds, and how benefits should be reported on employees’ annual tax statements.

How Employee Benefits Are Treated for Employers

For employers, many benefit-related expenses such as salaries, bonuses, employer contributions to recognised retirement schemes, and insurance premiums for employee coverage are generally deductible business expenses when calculating corporate income tax, provided they are wholly and exclusively incurred for business purposes and properly documented. However, non‑business or excessive perks may face deductibility limits or closer scrutiny.

Your company should ensure that benefit payments pass through payroll or finance systems with correct coding, that any employer contributions to provident funds or SSF are supported by statutory records, and that group insurance policies name the company as policyholder and employees as beneficiaries. Proper classification of benefit expenses helps optimise your tax position while staying compliant with Nepal’s tax laws.

Tax‑Advantaged Benefits and Planning

Some benefits in Nepal can be structured in a relatively tax‑efficient way for both employer and employee. Examples include employer contributions to mandated retirement schemes, certain health or life insurance premiums paid on behalf of employees, and training and education costs linked to the employee’s role. Where these benefits are treated more favourably than cash salary, they can increase perceived value without proportionately increasing tax liabilities.

Your company should work with local tax advisers or payroll providers to identify which benefits currently enjoy favourable treatment, how contribution caps and conditions apply, and how to document and report them. Because tax rules and their interpretation can evolve, it is important to review benefit structures periodically.

Required Documentation and Reporting for Tax Compliance

Nepal’s tax authorities expect employers to maintain comprehensive records of all compensation and benefits, including employment contracts, payroll registers, contribution statements to provident fund and SSF, insurance policy schedules, and invoices or receipts for reimbursed expenses. Withholding tax on salaries and taxable benefits must be calculated and remitted on the prescribed schedule, together with periodic returns that reconcile gross pay, deductions, and net pay.

Your company should ensure that employees receive annual income statements reflecting taxable salary and benefits, along with tax withheld, in the format required by the IRD. Robust documentation, supported by reliable payroll software or local partners, reduces the risk of penalties, interest, or disputes over the treatment of benefits in Nepal.

Legal Considerations for Employee Benefits in Nepal

Employee benefits in Nepal are primarily governed by the Labour Act 2017 and its regulations, along with the Social Security Act, Social Security Fund regulations, and relevant tax and social insurance laws. These laws set minimum standards for working conditions, leave, retirement savings, and social protection, while also giving employers some discretion to offer benefits beyond the statutory floor. Your employment contracts, internal policies, and HR practices must be aligned with these legal frameworks to avoid inadvertent non‑compliance.

Penalties for failing to provide mandatory benefits or for breaching labour standards can include orders to compensate affected employees, fines, and in serious or repeated cases, additional administrative sanctions. Authorities can investigate complaints from employees or trade unions and may conduct workplace inspections, focusing on areas such as underpayment, failure to make provident fund or SSF contributions, and non‑provision of statutory leave. Non‑compliance can also carry reputational risks and impact your ability to operate or participate in government or donor‑funded projects.

Your company should regularly review employment contracts, employee handbooks, and payroll practices with local legal or HR experts to ensure that statutory entitlements are met or exceeded. An annual or semi‑annual internal audit of benefits, leave records, working hours, and social security contributions is a practical way to catch and correct issues early. Taking a proactive, documented approach to compliance demonstrates good faith to regulators and builds trust with your workforce in Nepal.

How Benefits Impact Employee Cost

In Nepal, mandatory benefits such as provident fund contributions, gratuity accrual, paid leave, and social security contributions can add a meaningful margin on top of base salaries. As a rough planning benchmark, employers often find that statutory benefits and legally required contributions increase total employment costs by approximately 15–25% above gross salary, depending on the mix of benefits, the use of SSF schemes, and sector‑specific practices. Supplemental benefits like private insurance, allowances, and bonuses can lift this figure further but also make your offer significantly more competitive.

To manage costs, your company can carefully structure compensation between base pay, statutory benefits, and targeted supplemental perks that deliver high perceived value per currency spent. Using group insurance policies, setting clear performance criteria for bonuses, and aligning benefit levels across job grades can help keep spending predictable and sustainable. When benefits are well‑designed, the return on investment tends to show up in better retention, reduced turnover and hiring costs, higher engagement, and stronger employer branding in Nepal’s labour market.