Salary and Benefits Rules in Nepal

What every worker and employer should know

Chapter-8 of the Labour Act, 2074 lays out clear and important rules for payment of salary, benefits, and related provisions in Nepal. These laws will help protect workers’ rights and guide employers in maintaining fair labor practices.

1. Salary Begins from Day One

 According to labour act 2074, section 34, every worker is entitled to receive their salary and benefits starting from their very first day on the job. The amount paid should follow the terms mentioned in the employment contract and must not be lower than the minimum standards set by the Labour Act and its rules. Furthermore, the employer cannot reduce the salary or benefits unless there is a mutual agreement between the employer and the worker, such as through a collective agreement. This provision ensures job security and consistency in earnings.

2. Timely Payment of Salary

 As per the section 35 of the Act, sets clear expectations for when salaries should be paid. If the employment agreement states the payment date, that schedule must be followed. If it doesn’t, then the employer must set a regular payment time. However, some categories of workers must be paid sooner:

• Workers hired for less than a month should be paid within 3 days after their job ends.
• Casual or one-time workers must be paid immediately after completing their work.

For regular employees, salaries must be paid at least once every month. This rule ensures that workers receive timely compensation for their labor and can manage their daily lives without uncertainty.

3. Annual Salary Increment (Grade)

 As per the section 36 of labour act 2074, a worker who has completed one year of continuous service is entitled to a salary raise every year. This raise, also called a “grade”, must be at least half a day’s basic monthly salary. This automatic increment encourages loyalty and rewards long-term employment, creating motivation and career growth for workers.

4. Festival Allowance

According to section 37 of the labour act 2074, Each year, every worker is eligible to receive a festival allowance equal to one month’s basic salary. This amount is meant to support the worker in celebrating major festivals according to their own religion, tradition, or culture. A worker can request this payment in writing during their main festival. If they do not make a request, the employer must provide the allowance during Bada Dashain, which is widely celebrated across Nepal.

Workers who have not completed one full year of service will still receive a proportional amount based on their time worked. This benefit reflects the cultural diversity of Nepal and ensures that every worker can celebrate important festivals with dignity.

5. Deductions from Salary

AS per the section38 of the act, employers are not allowed to make unauthorized deductions from a worker’s salary. However, deductions are allowed in certain legal situations, including:

• Government taxes or legal fees,
• Contributions to provident funds or insurance,
• Court or arbitration orders,
• Absence from work without permission,
• Compensation for intentional or negligent damage to company property,
• Membership fees for registered trade unions,
• Loan or advance repayments provided by the employer.

The Act also states that certain deductions must be prioritized, such as taxes and social security contributions, before making other deductions. If a worker dies or leaves the company before repaying a loan or dues, the amount can be recovered from their final payments. If it’s still not enough, the employer may notify the legal heir and even file a court case if needed. This section aims to balance fairness between employer rights and worker protections.

6. Payment During Layoff Period

As per the section 39 of the labour act 2074, If a business faces problems and has to temporarily lay off workers, such workers must receive half of their regular salary until operations resume. The only exception is if the layoff notice specifically requires the worker to be present at the workplace. Otherwise, workers are not obligated to report during the layoff. This rule protects the workers’ income even when unforeseen disruptions impact the company’s ability to operate.