Employing People in Nepal: Contracts, Payroll Tax, Social Security and Work Permits

The gap between a Nepali salary offer and the employer’s real cost is wider than most incoming investors budget for, and almost none of it is discretionary. Above the cash wage sit a provident fund with a full employer match, a monthly gratuity accrual, two compulsory insurances and, for enrolled employers, a Social Security Fund contribution assessed on basic remuneration rather than on total pay. One design decision drives the whole number: how an employer splits pay between basic remuneration and allowances. Almost every statutory percentage runs on basic.

Employment categories and hours

Section 10 of the Labour Act 2074 (2017) recognises regular, work-based, time-based, casual and part-time employment. Casual work means seven days or fewer in a month, part-time work under 35 hours a week. An employer does not pick the label. The categories follow the substance of the engagement, and misclassification is the usual route by which a company that thought it had contractors finds it has employees.

Section 13 allows a probation period of six months, during which employment may be ended for unsatisfactory performance. Beyond probation, a regular employee has termination protections that make the Nepali employment relationship materially harder to exit than the offer letter usually implies.

Working time is capped at eight hours a day and 48 a week, with a half-hour break after five continuous hours. Overtime may run to four hours a day and 24 hours a week, paid at 1.5 times the basic remuneration for normal hours. Because overtime is priced off basic rather than total pay, an allowance-heavy pay structure lowers overtime cost as well as fund contributions. That is why the practice is common, and why the Department scrutinises it.

The minimum wage

Section 106 requires the Ministry to fix minimum remuneration on the recommendation of a committee at least every two years, publish it in the Nepal Gazette, and bring it into effect on the first day of a fiscal year.

The figure in force took effect on 1 Shrawan 2082 (17 July 2025):

Basis	Amount
Monthly	NPR 19,550
Of which basic remuneration	NPR 12,170
Of which dearness allowance	NPR 7,380
Daily	NPR 754
Hourly	NPR 101
Part-time, hourly	NPR 107

It replaced NPR 17,300 (NPR 10,820 basic and NPR 6,480 dearness allowance), which had run from 1 Shrawan 2080. Tea plantation workers were left out of the 2082 revision pending a separate review. We found no notice revising the figure for FY 2083/84 (2026/27), and on the two-year cycle none was due. The next revision falls at the start of FY 2084/85.

The split between basic and dearness allowance in the Gazette figure is not decorative. At the statutory minimum, basic remuneration is roughly 62 percent of total pay, and every percentage-based statutory contribution is computed on that portion.

What sits on top of pay

Obligation	Basis	Statutory minimum
Provident fund (section 52)	Basic remuneration	10% deducted from the worker, plus an equal amount added by the employer
Gratuity (section 53)	Basic remuneration	8.33% a month, borne by the employer
Medical insurance (section 54)	Per worker per year	Sum insured of at least NPR 100,000; premium shared
Accident insurance (section 55)	Per worker	Sum insured of at least NPR 700,000 covering all accidents; premium borne by the employer

The Social Security Fund runs alongside this under the Contribution Based Social Security Act 2074, which sets out seven scheme categories covering medical treatment and health, maternity, accident, disability, old age, dependent family and unemployment assistance. The total contribution is widely reported at 31 percent of basic remuneration. We do not state the employer and employee split as settled, because the sources disagree. A professional alert of 18 July 2025 puts it at 20 percent employer and 10 percent employee; most secondary material gives 20 and 11.

The bigger open question is whether contributing to the Fund replaces the section 52 and section 53 obligations or sits on top of them. On the first reading, an enrolled employer’s statutory on-cost is roughly 20 percent of basic. On the second it approaches 30 percent. That difference is large enough to change a hiring plan, and we could not resolve it from the Act text we obtained. Any employer budgeting a Nepali headcount should settle it with the Fund in writing before modelling anything.

Payroll tax

Employment income is withheld at source by the employer under section 87 of the Income Tax Act 2058 (2002), applying the natural-person schedule for the year. For FY 2083/84 that schedule charges 1 percent on the first band, then 10, 20 and 27 percent, with an additional 2 percentage points on income above NPR 4 million.

The 1 percent first-band charge is a social security tax rather than income tax proper, and three groups are outside it: contributors to the contribution-based social security scheme, recipients of pension income, and private firms. An employer that has enrolled its workforce in the Fund therefore drops the 1 percent from its payroll withholding — a small offset against a large contribution.

Hiring a foreign national

Chapter 6 of the Labour Act, read with Chapter 3 of the Labour Rules 2075, governs this. The Department of Labour and Occupational Safety issues the permit.

Section 22(1) is absolute: no employer shall employ any foreign citizen as a worker without a work permit from the Department. The employer must first advertise the position in a national newspaper, and may apply only if no qualified Nepali citizen is available. The Department then issues the permit after reasonable inquiry. A lighter route exists for an enterprise’s chief executive and for foreign technicians engaged for three months or less. Where the contract states no period, it is capped at three years.

One claim is repeated often enough to need addressing: that a directive caps foreign nationals at around 5 percent of a firm’s workforce. The Act as translated contains no such percentage, and we could not find the directive said to impose one. Treat the cap as unverified.

The immigration step follows the labour step and cannot come first. The Department of Immigration issues the working visa on production of a recommendation from the relevant ministry, the work permit from the Department of Labour, a work agreement from the Ministry of Home Affairs, the employment contract or appointment letter, the employer’s tax clearance certificate and, for non-governmental organisations, a general agreement with the Social Welfare Council. The visa runs for the period of the work permit. The fee is USD 75 a month, with USD 20 for single re-entry or USD 60 for multiple.

Investor visas

A foreign investor coming to run the business it has invested in applies for something different from an employee. The Department of Immigration issues a business visa to investors on a Department of Industry recommendation, together with the foreign investment approval letter, company registration, PAN or VAT certificate, share certificate and industry registration. The fee scales inversely with investment. Under NPR 10 million costs USD 35 a month, USD 400 a year or USD 1,000 for five years. NPR 10 million to NPR 100 million costs USD 20, USD 200 and USD 500. Above NPR 100 million there is no charge. Multiple re-entry is included at every band.

Sequencing decides whether any of this works. A company that hires a foreign specialist and opens the immigration file first gets sent back to advertise the role in a Nepali newspaper. The advertisement has to come before the permit application, and it cannot be papered over afterwards.

Sources

1. The Labour Act, 2074 (2017), English translation

   Government of Nepal (translation published via the Nepal Law Commission) · 2017; in force · Tier 1 — Primary legal instrument

   Supports: Section 10 employment types; section 13 probation; sections 22 to 27 work permits for foreign citizens; sections 28 to 31 hours and overtime; sections 52 to 55 provident fund, gratuity and insurance; section 106 minimum remuneration.

   Accessed 26 August 2026

2. Department of Labour and Occupational Safety — services

   Department of Labour and Occupational Safety, Ministry of Labour, Employment and Social Security · Accessed 26 August 2026 · Tier 2 — Official publication

   Supports: That the labour permit for foreign nationals is issued by the Department under Chapter 6 of the Labour Act 2074 and Chapter 3 of the Labour Rules 2075.

   Accessed 26 August 2026

3. Working Visa

   Department of Immigration, Ministry of Home Affairs · Accessed 26 August 2026 · Tier 2 — Official publication

   Supports: The documents required for a working visa, that its length follows the work permit period, and the fee of USD 75 a month plus USD 20 single or USD 60 multiple re-entry.

   Accessed 26 August 2026

4. Business Visa

   Department of Immigration, Ministry of Home Affairs · Accessed 26 August 2026 · Tier 2 — Official publication

   Supports: The investment bands and fees for business visas and the documents required, including the Department of Industry recommendation.

   Accessed 26 August 2026

5. Flash Alert — Minimum Wage Raised to NPR 19,550

   T R Upadhya & Co (PKF member firm, Nepal) · 18 July 2025; wage effective 1 Shrawan 2082 (17 July 2025) · Tier 6 — Professional or news source

   Supports: Monthly NPR 19,550 comprising NPR 12,170 basic and NPR 7,380 dearness allowance; daily NPR 754; hourly NPR 101; part-time hourly NPR 107; the previous figure of NPR 17,300 from 1 Shrawan 2080; exclusion of tea plantation workers.

   Accessed 26 August 2026

6. सामाजिक सुरक्षा कोष — परिचय (Social Security Fund, introduction)

   Social Security Fund · Accessed 26 August 2026 · Tier 2 — Official publication

   Supports: That the Fund operates under the Contribution Based Social Security Act 2074, and the seven scheme categories the Act enumerates.

   Accessed 26 August 2026

7. Client Briefing — Income Tax Rates 2083-84 (2026-27 AD)

   Pradhan & Associates · 20 July 2026 · Tier 6 — Professional or news source

   Supports: The FY 2083/84 natural-person tax schedule applied to payroll withholding, and that the 1 percent first-band charge does not apply to contributors to the contribution-based social security scheme, to pension income, or to private firms.

   Accessed 26 August 2026