Change in Labor Law
On May 27, 2018, the Government of Nepal enacted the new Labor Rules 2075 (2018) ("Labor Rules"), which are formulated under the new Labor Act 2074 (2017)("Labor Act"). The Labor Rules came into effect immediately..The Labor Rules repealed the previous Labor Rules 2050 (1993), which were in force for over two decades. The Labor Rules provide additional guidance on various provisions in the Labor Act.
Summary of Major Provisions
Please refer below for a summary of the Labor Rules' major provisions:
- Labor Permit and Work Permit for Foreign Nationals: The Labor Rules prescribe procedures to obtain Labor Permit and Work Permit from the Department of Labor to hire foreign national and to be engaged in work by foreign national. Depending on the foreign national’s skills, the Labor Permit or Work Permit may be valid for a maximum period of 3 to 5 years and may be renewed for up to two years in special cases after obtaining approval from the Ministry of Labor, Employment and Social Security ("Ministry"). Generally, foreign nationals may consist of up to only five percent of the total number of employees in an enterprise. This provision may likely to be seen as a barrier for technology companies, infrastructure development companies, specialized manufacturing companies, etc. Senior-level employees of an enterprise established under foreign investment laws and technical manpower who is in Nepal for three months or less may obtain a Labor Permit from the Department of Labor without a formal application.
- Payment through Banking Channel: The Ministry may require certain employers to pay employees only through banks or financial institutions.
- Provident Fund and Gratuity: The Labor Rules prescribes procedures regarding depositing provident fund and gratuity and also gives more flexibility to employers on depositing provident fund and gratuity until a fund is established under the Contribution-Based Social Security Act 2074 (2017).
- Housing Fund Expenses: An enterprise no longer needs to allocate amount for employee housing. Any unused amount in a housing fund established under the previous Labor Act 2048 (1992) may be used to arrange housing or spend it to the benefit of employees as per the decision of the Labor Relations Committee.
- Distribution of Service Fee: The Labor Rules prescribes a fair distribution of the service fees collected from consumers by establishments such as hotels, restaurants, etc. among workers, management, and employers' and workers' unions.
- Workplace Safety: An employer must prepare and implement a Health and Safety Policy addressing, among other issues, precautionary measures that must be taken when operating machinery, equipment and chemical substances. An enterprise with 20 or more employees must also establish a Health and Safety Committee, which includes employees' representatives, to provide advice on workplace safety issues.
- Workers' Compensation: An employee who is disabled due to a workplace accident is entitled to compensation based on his/her percentage of disability. The procedures for assessment of disability are prescribed.
- Special Requirements for Large Employers: Employers with 50 or more employees must arrange for break room and canteen for employees. Employers with 50 or more female employees must also arrange for a child care center either by itself or jointly with another employer.
- Labor Suppliers: The Labor Rules impose several obligations on third-party labor suppliers. For example, labor suppliers must obtain a license from the Ministry. They must also renew their license annually and submit yearly filings at the Ministry.