Labour Act, 2074 : A Practical Guide to Employment Law in Nepal

Legal Note: This article is an educational summary of the Labour Act, 2074 and Labour Rules, 2075, based on materials reviewed up to 1 September 2026. It is not legal advice or a certified legal translation.

The official Nepali legislation, Gazette, government notices and subsequent amendments prevail where differences arise. Requirements should be verified against the current applicable law before taking specific employment-related decisions.

Overview

The Labour Act, 2074 and Labour Rules, 2075 form the core framework governing employment in Nepal. Together, they cover key aspects of the employment relationship, from hiring and contracts to working conditions, remuneration, leave, workplace conduct, discipline, termination and labour relations.

This guide highlights the key provisions and their practical implications for employers, HR professionals, employees and business leaders.

Key Employment Requirements 

1. Statutory minimum standards and applicability

Section 3 establishes a statutory minimum standard: any provision in an individual employment contract, collective agreement or by-law that is less favourable to a worker than the requirements of the Act or Rules is void to that extent, even where it has been agreed to by both parties.

The Labour Act generally establishes minimum employment standards for enterprises within its scope. However, Section 180 provides exclusions and special treatment for certain services and enterprises. In addition, some obligations apply only when specified employee thresholds are met, such as requirements relating to safety and health committees, labour relations committees and collective bargaining committees. 

HR focus: Check applicability requirement-by-requirement based on your organisation's size, structure and circumstances.

2. Fundamental Employment Rights

The Labour Act establishes fundamental protections for workers, including protection from forced labour, unlawful child labour and discrimination in employment, equal remuneration for work of equal value without gender-based discrimination, the right to participate in trade unions, and the right to seek remedies where employment rights are violated. These provisions establish basic standards that employers must consider across recruitment, remuneration, workplace practices and employee relations.

HR focus: Embed these principles into employment policies and day-to-day HR practices, and ensure that employment decisions respect statutory worker rights and applicable employment laws.

3. Employment Category

The Labour Act, 2074- Section 10 recognises five types of employment:

• Regular employment — employment that does not fall under work-based, time-based or casual employment.

• Work-based employment — employment for a specified work or service

• Time-based employment — employment for a specified period

• Casual employment — employment for work or service for seven days or less within a one-month period

• Part-time employment — employment involving 35 hours or less per week

The Act further provides that where there is a question about whether an employment relationship is regular, the nature of the work is considered, regardless of how the employment is described in the contract.

HR focus: Identify the appropriate employment category based on the actual nature, duration and working arrangement, and ensure the employment agreement accurately reflects it.

4. Written Employment Agreement and Probation

Section 11 requires an employer to enter into an employment agreement with a worker before engaging them. Except for casual employment, the employment agreement must be in writing and include the applicable terms and conditions of employment. Section 13 allows a probationary period of up to six months. If the employment is not terminated during the probationary period in accordance with the Act, the worker is treated as having completed probation. 

HR focus: Prepare and maintain the employment agreement before employment begins, clearly record the probation period and its expected completion date, and ensure that probation reviews, confirmation or any applicable employment decision are properly documented. 

5. Working Hours and Statutory Rest

Section 28 limits normal working hours to 8 hours per day and 48 hours per week and requires at least 30 minutes of rest after five continuous hours of work. The rest period is counted as working time under the Act. Section 29 generally prohibits employers from compelling workers to work beyond the working hours prescribed under Section 28, except in the circumstances permitted by the Act.

HR focus: Maintain work schedules and attendance records that comply with statutory daily and weekly working-hour limits and provide the required rest periods.

6. Overtime and Additional Remuneration 

Section 30 allows additional working time of up to 4 hours per day and 24 hours per week. Section 31 requires overtime to be paid at 1.5 times the basic remuneration normally received for regular work, subject to the exceptions provided by the Act.

HR focus: Monitor overtime within statutory limits, maintain accurate working-time records, and ensure applicable overtime remuneration or permitted alternative arrangements are properly documented.

7. Leave, holidays and family-related leave

Chapter 9 establishes the statutory framework for weekly leave (Section 40), public/festival holidays (Section 41), substitute leave (Section 42), home/annual leave (Section 43), sick leave (Section 44), maternity leave (Section 45, with the birth-registration requirement at Section 46) and mourning leave (Section 48). Each type of leave has its own entitlement, conditions and applicable requirements. For example, maternity leave is subject to specific provisions under the Act, including related documentation requirements. 

HR focus: Administer each type of leave according to its applicable statutory entitlement and conditions, while maintaining accurate leave records and supporting documentation. 

8. Remuneration, Benefits and Payroll Compliance 

Chapter 8 establishes the framework for remuneration, payment, annual salary increment, festival expense and deductions. Section 34 provides for remuneration and facilities, Section 35 covers payment of remuneration, Section 36 provides for annual salary increment, Section 37 provides for festival expenses, and Section 38 regulates deductions from remuneration. These provisions form the core of an employer’s payroll obligations under the Labour Act.

Social-security-related contributions and benefits operate alongside these requirements under the Contribution-Based Social Security Act, 2074, and should be incorporated into the employer’s payroll and compliance processes.

HR focus: Ensure remuneration, statutory benefits and permitted deductions are correctly calculated, paid and documented, with applicable social-security obligations properly reflected in payroll records.

9. Occupational Safety, Health, Discipline and Workplace Conduct

Chapters 12 and 20 establish the framework for occupational safety and health, workplace conduct and disciplinary action. Sections 68–83 set out employer responsibilities and workplace safety and health requirements, while Sections 130–138 address misconduct, disciplinary measures, sexual harassment and the process for taking disciplinary action. Together, these provisions require employers to maintain a safe workplace and follow a fair and documented process when addressing workplace misconduct. 

HR focus: Maintain appropriate safety and health measures, communicate workplace standards, document incidents and disciplinary actions, and follow the required process before taking disciplinary action. 

Practical principle: Do not treat disciplinary action as an immediate punishment. Treat it as a structured HR process requiring facts, documentation and due process. 

10. Resignation, termination and retrenchment 

Chapter 21 sets out the circumstances and procedures for ending employment. It covers voluntary resignation, termination on specified grounds, notice requirements and retrenchment. Sections 141–144 deal with resignation, termination on specified grounds and notice, while Section 145 sets out a separate process for retrenchment when an enterprise needs to reduce its workforce under the circumstances recognised by the Act. 

Retrenchment is therefore a workforce-reduction process and should not be treated as an ordinary individual termination. Where Section 145 applies, the employer must follow the prescribed notice, selection, compensation and other procedural requirements. 

HR focus: Identify the applicable legal basis for each separation, follow the prescribed procedure and notice requirements, and maintain the supporting records, final settlement and other documentation required by law.

11. Labour Supply, Foreign Workers and Labour Audit 

The Labour Act regulates foreign workers, labour supplied through licensed suppliers and labour-law compliance through specific provisions. Sections 22–27 establish requirements for employing foreign workers, including labour permits and employment terms. Sections 58–67 regulate labour supplied through licensed suppliers and place compliance responsibilities on both the supplier and the main employer. Where labour is supplied contrary to the Act, including through an unlicensed supplier in circumstances covered by Section 66, the worker may be treated as a worker of the main employer as provided by the Act. 

Section 90 provides a mechanism for a representative or worker of a foreign enterprise operating in Nepal to raise a complaint regarding a violation of the employment agreement with the Office or Labour Court. Section 100 requires every enterprise to conduct a labour audit and prepare the prescribed report. 

The Labour Rules, 2075 also prescribe requirements relating to the labour audit. Rule 56 requires an enterprise to conduct a labour audit every year by the end of the Nepali month of Poush, in accordance with the prescribed standard and format. 

HR focus: Verify foreign-worker approvals and labour-supplier licences, monitor the rights and payments of supplied workers, and maintain labour-audit records continuously rather than preparing them only when an inspection is expected.

What Employers Should Know

The Labour Act should be reflected in day-to-day HR practice, not treated only as a legal reference. HR should translate the legal requirements into clear, documented and repeatable HR processes. This includes maintaining compliant employment contracts and records, applying statutory working hours, leave, remuneration and separation requirements, tracking required approvals and renewals, and keeping payroll, attendance, leave, social-security and labour-audit records accurate and current.

The key is not only having a compliant policy or process, but being able to demonstrate how it is applied and supported by evidence.

What Employees Should Know 

Employees should understand the key provisions that affect their employment, remuneration, benefits, working conditions, leave, records and statutory rights. They should also be aware of the applicable procedures for raising workplace concerns or seeking remedies where their employment rights may have been violated.

Employees should retain important employment records, including employment agreements, payslips, leave and attendance records, tax and social-security records, approvals and relevant employment-related communications.

Cross-Border Employment Considerations 

For multinational, FDI, project, branch, liaison, permanent establishment, secondment or expatriate arrangements, do not assume that one approval or registration addresses every legal requirement. Labour, immigration, tax, foreign-exchange, corporate and sector-specific requirements may apply separately.

Cross-border employment arrangements should therefore be reviewed across the relevant legal and regulatory requirements before implementation.

HR Compliance Check — Evidence to Maintain

☐ Legal applicability and requirements mapped
☐ Employment contracts, policies and procedures
☐ Employee, attendance, leave and payroll records
☐ Required approvals, filings and licences
☐ Compliance and expiry calendar
☐ Review and reconciliation evidence
☐ Corrective-action records

Common Mistakes

Using outdated requirements; relying on a contract that falls below a statutory minimum; overlooking sector-specific requirements; assuming one approval covers other legal obligations; or having a compliant practice without adequate evidence. 

Myth vs Law

MYTH: “If our current practice has never been challenged, it must be compliant.”

HR CHECK: Compliance should be assessed against the current law, applicable requirements and supporting evidence—not another simply past practice. 

HR in Practice

An HR team is reviewing whether its employment practices comply with the Labour Act and Labour Rules. It checks more than whether policies exist—it looks at how those policies are actually applied.

For example, HR reviews employment contracts, attendance and overtime, leave, payroll, workplace safety and separation records and asks:

Are we following the requirements? Who is responsible? Is it being applied consistently? Can we show the evidence?

Where gaps are found, HR records the issue, identifies the responsible person or process, and takes corrective action. 

Good compliance means knowing the requirement, applying it correctly and keeping evidence of what was done. 

FAQs

What is the Labour Act, 2074 in Nepal?
The Labour Act, 2074 is Nepal’s primary employment law covering worker rights, employment conditions, remuneration, leave, workplace safety, discipline, termination and labour relations.

What are the Labour Rules, 2075?
The Labour Rules, 2075 provide procedures and administrative requirements that support the implementation of the Labour Act, 2074.

What should HR maintain for labour-law compliance?
HR should maintain relevant employment, attendance, overtime, leave, payroll, social-security, safety, disciplinary and labour-audit records.

Is a written employment agreement mandatory in Nepal?

Yes. The Labour Act generally requires a written employment agreement before engaging a worker, subject to the statutory exception for casual employment. 

What is the difference between the Labour Act and Labour Rules?
The Labour Act establishes the main employment rights and obligations, while the Labour Rules provide supporting procedures and administrative requirements.

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