Labour Act 2017 (2074) Nepal: Rights, Leave, Hours & Termination

The Labour Act, 2017 (Shram Ain 2074 in Bikram Sambat) is Nepal's principal statute governing the relationship between employers and workers in the formal sector. It was enacted in 2074 BS (2017 AD), replacing the older Labour Act, 1992 (2048 BS), and is read together with the Labour Rules, 2018 (Shram Niyamawali 2075 BS). Together they set the floor for wages, working hours, leave, social security and job security across enterprises.

The Act applies broadly to enterprises and establishments that employ labour, covering regular, work-based, time-based, casual, part-time and contract workers, as well as those supplied through labour-supply companies. Certain sectors of a special nature (such as tea estates, construction, transport and tourism) are governed by additional provisions in Chapter 13, but the core rights below apply generally.

A defining principle of the Act is that its terms are minimum standards (Sec. 3): an employment contract, collective agreement or company by-law may offer more favourable terms than the Act, but never less. This is why understanding the statutory baseline matters even where a workplace has its own HR policy.

Under Section 28 of the Labour Act, no employer may require a worker to work more than eight hours a day and forty-eight hours a week. This standard 8/48 framework is the reference point for calculating overtime and rest, and it applies whether wages are paid daily, weekly or monthly.

The same section guarantees rest during the working day: workers must be given at least half an hour's break after five hours of continuous work. Where the nature of the work means it cannot be stopped and must run continuously, breaks are given to workers by rotation. Importantly, the rest period is counted within the working hours, not added on top of them.

Section 40 provides that workers are entitled to one paid weekly holiday (weekly leave) for each week worked. Employers who need a worker on that weekly day off must either grant a substitute day (Sec. 42) or treat the work as overtime.

Work beyond the ordinary 8-hour day or 48-hour week is overtime. Section 29 protects workers from being forced into it: an employer cannot compel a worker to do overtime against their will, and consent is generally required.

Section 30 sets a hard ceiling on overtime: it may not exceed four hours in a day and twenty-four hours in a week. Work done on a weekly holiday without a substitute day off (Sec. 42) is also deemed overtime for this purpose.

The overtime rate in Nepal is set by Section 31: overtime must be paid at one and a half times (1.5x) the worker's ordinary rate of remuneration for the extra hours worked. This premium is one of the most frequently searched points of Nepali labour law and is a non-waivable minimum.

Chapter 9 of the Act (Sections 40-51) sets out the leave regime. Home leave (Sec. 43), the equivalent of annual/earned leave, accrues at the rate of one day of paid leave for every twenty days worked, which works out to roughly eighteen days over a full working year. Sick leave (Sec. 44) is twelve days a year on full pay; for absences of more than three consecutive days, a medical certificate from a recognised doctor is required.

Section 49 governs how leave accumulates. Unused home leave can be carried forward and accumulated up to a maximum of ninety days, and unused sick leave up to a maximum of forty-five days. Where a worker's accrued leave exceeds these caps, the excess is encashed at the end of each year at the worker's basic remuneration rate. On leaving service or death, the worker or their family is paid a lump sum for accumulated home and sick leave, calculated on the last basic remuneration drawn.

The Act also provides public leave (Sec. 41) on days notified by the Government of Nepal and mourning/obsequies leave (Sec. 48) of up to thirteen days for a worker who must observe funeral rites. Section 51 clarifies that leave is a facility rather than an absolute right that can be demanded at any moment, so employers may regulate its timing subject to the statutory entitlements.

Maternity leave under Section 45 is a total of fourteen weeks (98 days) around childbirth. Of this, sixty days are paid on full remuneration, while the remaining period is unpaid unless a more generous contract or company policy applies. The section is the definitive answer to the common search for how maternity leave works under Nepali law.

The leave has a mandatory protected core: a pregnant worker must take leave from at least two weeks before the expected date of delivery to at least six weeks after delivery. This protects the health of both mother and child and cannot be waived away by the employer.

Section 45 also provides paternity leave, framed as maternity-care leave: when a male worker's wife is going to give birth, he is entitled to fifteen days of paid leave. To claim benefits, the worker must submit the child's birth registration certificate as required under Section 46.

Chapter 10 replaced the old lump-sum gratuity formula with a monthly contribution model tied to the Social Security Fund (SSF). Under Section 53, the employer must set aside 8.33 percent of each worker's basic remuneration every month as gratuity, deposited in the worker's name from the first day of work. Over a year this equals roughly one month's basic pay, matching the traditional gratuity principle but funded as it accrues.

Alongside gratuity, Section 52 requires a provident fund contribution: the employer deducts ten percent of the worker's basic remuneration and adds an equal (hundred percent matching) ten percent from its own funds, depositing the combined amount in the Social Security Fund in the worker's name. The Act also mandates medical insurance (Sec. 54) and accidental insurance (Sec. 55) for workers.

Section 57 brings workers within the national Social Security Scheme operated through the SSF, into which these contributions flow. Employers who fail to deposit these contributions on time are liable under the Act's penalty provisions, and the contributions follow the worker across jobs.

The Act ties pay to work performed. Section 34 establishes a worker's entitlement to remuneration for work done, which is the basis of the widely cited 'no work, no pay' principle: outside of paid leave, weekly holidays and other statutory entitlements, a worker who does not attend work is generally not entitled to wages for that period. Section 35 governs how and when remuneration is paid, and Section 38 prohibits unlawful deductions from wages.

Leave encashment is a distinct and separate right. As noted above, accrued home and sick leave beyond the statutory caps is converted to cash each year at the basic remuneration rate (Sec. 49), and any balance within the caps is paid out on separation from service. Workers are also entitled to an annual grade/increment (Sec. 36) and a festival expense allowance (Sec. 37) equal to one month's basic remuneration once a year.

Minimum remuneration is fixed periodically by the Government of Nepal on the recommendation of the Minimum Remuneration Fixation Committee; the rate is revised from time to time, so employers must apply the minimum wage current for the relevant period rather than any single fixed figure. Because these amounts change, always check the latest official notification before relying on a specific number.

Chapter 21 (Sections 139-150) protects security of employment and limits how workers can be dismissed. Employment may be ended on defined grounds only: expiry of a time- or work-based contract (Sec. 140), voluntary resignation (Sec. 141), proven incompetence after warnings and appraisal (Sec. 142), or ill-health that prevents work (Sec. 143). Dismissal for misconduct follows the separate disciplinary process in Chapter 20.

Section 144 sets graduated notice periods before ordinary termination: at least one day for a worker of up to four weeks' service, at least seven days for four weeks to one year of service, and at least thirty days for more than one year of service. An employer who terminates without the required notice must pay wages in lieu of that notice, and a worker who quits without notice can have the equivalent deducted from final dues.

Retrenchment (Sec. 145) is permitted only where an enterprise faces genuine financial difficulty, merger or closure, and requires at least thirty days' advance notice to the Labour Office and the trade union, with compensation of one month's basic salary for each year of service. Retrenched workers get first priority for re-hiring within a set period (Sec. 149), and on any lawful separation the employer must pay accrued benefits (Sec. 148) and issue an experience certificate (Sec. 150).