Wage and Salary Laws in Nepal: Comprehensive Guide to Minimum Wage, Equal Pay, and Bonus Entitlements

Introduction: Wage Protection and Fair Remuneration in Nepal

Wages represent the fundamental exchange for labor—the economic value provided by workers in exchange for compensation that enables workers to meet basic needs, support families, and participate in society. Ensuring fair wages, preventing exploitative labor practices, and protecting workers from arbitrary wage deductions represents a cornerstone of worker protection and labor justice.

Nepal has established comprehensive legal frameworks protecting workers' right to fair wages through the Labor Act 2074 BS (2017 AD), which establishes minimum wage requirements, equal pay principles, and wage protection mechanisms, and the Bonus Act 2030 BS (1973 AD), which ensures workers receive bonuses based on employer profitability. These statutes address critical wage issues including minimum wage standards, wage payment procedures, permissible and prohibited deductions, overtime compensation, allowances, bonus calculations, and remedies for wage violations.

For labor lawyers, employment consultants, HR professionals, employers, and workers, comprehensive understanding of wage and salary laws is essential. Employers must understand legal wage requirements and avoid discriminatory and arbitrary wage practices. Workers must understand their minimum wage rights, bonus entitlements, permitted deductions, and remedies for wage violations. Legal professionals must understand wage law provisions enabling them to advise clients, resolve wage disputes, and advocate for wage rights.

This comprehensive guide addresses all dimensions of wage and salary laws in Nepal: minimum wage requirements and calculations; basic remuneration and annual increments; statutory allowances including festival allowance; overtime pay principles; equal pay for equal work and wage discrimination prohibition; permissible and prohibited wage deductions; bonus entitlements and calculations under the Bonus Act; provident fund and gratuity calculations; severance compensation; leave encashment; and remedies for wage violations.

Section 1: Statutory Minimum Wage Requirements

1.1 Minimum Wage Definition and Authority

Legal Definition: Minimum remuneration (referred to as minimum wage) is the lowest wage that employers are legally required to pay workers for specified work. The Labor Act 2074 BS mandates that all employers must pay workers at least the government-prescribed minimum wage regardless of employer size, sector, or profitability.

Determining Authority: The Government of Nepal, through the Ministry of Labor, Employment and Social Security, establishes minimum wage rates through the Minimum Remuneration Committee. This government body periodically reviews and adjusts minimum wages to account for inflation, cost of living changes, and labor market conditions.

Current Minimum Wage Rates (as of 2082 BS / 2025 AD):

The government has established differentiated minimum wage rates for various sectors and categories of workers:

• General Minimum Wage: 15,000 NPR per month for workers in most sectors and organizations

• Government Revised Minimum Wage (2025 AD): 17,300 NPR per month (with some sources noting this includes adjustments through Chaitra 2082 BS)

• Domestic Workers: 13,450 NPR per month (lower rate recognizing unique employment conditions)

• Tea Estate Workers: 12,081 NPR per month (sector-specific lower rate reflecting industry economics)

• Agriculture Sector: May have different rates depending on seasonal work and labor arrangements

Wage Components in Minimum Wage: The minimum wage may be comprised of:

• Basic Salary: The core salary amount
• Dearness Allowance: Additional allowance addressing cost of living
• Other Statutory Allowances: As included in government notification

For example, tea estate minimum wage of 12,081 NPR may be broken down as:

• Basic Salary: 10,820 NPR
• Dearness Allowance: 6,480 NPR (though this totals more than 12,081, individual components vary)

1.2 Application and Scope of Minimum Wage

Universal Application: The minimum wage requirement applies to all employers subject to the Labor Act 2074, including:

• Private enterprises of all sizes
• Non-profit organizations
• Cooperative organizations
• Trade unions and worker associations
• Educational institutions
• Healthcare facilities
• Service providers
• Manufacturing enterprises
• Any organization employing workers

Sector Variations: While a general minimum wage applies to most workers, certain sectors receive differentiated rates:

• Tea Estates: Lower minimum wage reflecting labor-intensive agriculture
• Domestic Work: Lower minimum wage recognizing informal sector characteristics
• Government Enterprises: May have different rates determined by government policy
• Hydropower and Energy Sectors: Specific provisions may apply

Worker Categories: The minimum wage applies to all worker categories unless specifically excluded:

• Permanent Employees: Full minimum wage applies
• Temporary and Casual Workers: Same minimum wage applies
• Part-Time Workers: Proportionate minimum wage applies
• Apprentices and Trainees: May have lower rates during training period (with specific limitations)

Geographic Consideration: While the minimum wage is national, some sources suggest that the government may establish regional variations based on cost of living differences, though current national standards appear uniform.

1.3 Violations and Penalties for Below-Minimum Wage Payment

Wage Violation Definition: Paying workers less than the government-prescribed minimum wage constitutes a wage violation and labor law violation.

Employer Liability: Employers who pay below minimum wage face:

• Double Compensation Requirement: The employer must pay the worker the full minimum wage amount PLUS double the underpaid amount as compensation

• Example Calculation: If minimum wage is 15,000 NPR and employer paid 12,000 NPR:

  • Underpaid amount: 3,000 NPR
  • Compensation owed: 3,000 NPR × 2 = 6,000 NPR
  • Total owed: Original 12,000 + Unpaid 3,000 + Compensation 6,000 = 21,000 NPR

Labor Office Enforcement: The Labor Office may:

• Investigate complaints about below-minimum wage payment
• Order employers to pay back wages plus compensation
• Impose fines on employers
• Issue warnings and compliance orders

Criminal Penalties: Serious or repeat wage violations may result in:

• Criminal prosecution
• Fines up to 100,000 NPR or more
• Imprisonment up to 1 year
• Business license revocation in serious cases

Worker Remedies: Workers receiving below-minimum wage may seek:

• Labor Court proceedings for recovery
• Labor Office administrative remedies
• Damages and penalties beyond back wages

Section 2: Basic Remuneration and Annual Increments

2.1 Basic Remuneration Definition

Legal Definition: Basic remuneration means the basic wages earned by workers for employment, exclusive of allowances, bonuses, overtime, and benefits. The basic salary is the foundation upon which many other statutory provisions are calculated, including overtime, allowances, contributions, and severance compensation.

Purpose of Basic Salary: The basic salary serves as the reference point for:

• Calculating allowances (which are typically percentages of basic salary)
• Determining overtime compensation (typically 1.5 times hourly basic wage)
• Calculating provident fund and gratuity contributions
• Determining bonus calculations
• Computing severance compensation and gratuity

Composition: Basic remuneration may include:

• The core monthly salary amount
• Components explicitly designated as "basic" in contracts or organizational practice
• Should NOT include allowances, bonuses, or overtime

Distinction from Total Salary: The total salary (gross salary) includes basic remuneration plus all allowances and benefits. Employers sometimes attempt to designate a low "basic" salary with numerous allowances to minimize obligations. The Labor Act requires that the full salary, including allowances, must meet minimum wage requirements.

2.2 Mandatory Annual Increment

Increment Requirement: Section 36 of the Labor Act 2074 mandates that employers must provide annual increments to all workers, regardless of performance or profitability.

Increment Amount: The annual increment is calculated as half of one day's basic salary, which translates to:

• Formula: Annual Increment = (Basic Monthly Salary ÷ 30 days) × 0.5
• Simplified: Approximately 1.67% of basic salary annually
• Monthly Calculation: This translates to approximately 1/600th of annual basic salary added each year

Calculation Example:

If a worker earns basic salary of 15,000 NPR per month:

• Daily salary: 15,000 ÷ 30 = 500 NPR
• Half day salary: 500 × 0.5 = 250 NPR
• Annual increment: 250 NPR per year

In Year 1, the worker earns 15,000 NPR. In Year 2, the worker earns 15,250 NPR. In Year 3, the worker earns 15,500 NPR, and so forth.

Timing of Increment: Increments are provided annually on the anniversary of employment or at specified intervals (often determined by organizational policy, typically annually on certain date or on employment anniversary).

Application to All Workers: The increment applies to:

• All permanent employees
• All temporary employees (calculated on their tenure)
• All casual workers (calculated on tenure)
• All worker categories

No Exceptions: The increment is mandatory and cannot be waived or made conditional on:

• Employee performance
• Organizational profitability
• Employee conduct (except for serious disciplinary action)
• Employee voluntary agreement

Violation Consequences: Failure to provide the annual increment results in wage violation penalties (double compensation).

2.3 Impact on Long-Term Remuneration

Compound Growth Effect: Over extended employment periods, annual increments significantly increase total remuneration:

• Year 1: 15,000 NPR/month
• Year 5: 16,000 NPR/month (accumulated 5 × 250 = 1,250 NPR)
• Year 10: 17,250 NPR/month (accumulated 10 × 250 = 2,500 NPR)
• Year 20: 20,000 NPR/month (accumulated 20 × 250 = 5,000 NPR)

This demonstrates the significant cumulative impact of increments over career duration.

Impact on Bonus and Severance: Since bonuses and severance are calculated based on salary (particularly basic salary in later years), increments indirectly increase these benefits as well.

Section 3: Festival Allowance and Statutory Allowances

3.1 Festival Allowance (Festival Expense)

Legal Requirement: Section 46 of the Labor Act 2074 requires that employers provide a festival allowance to all workers annually.

Amount: The festival allowance is equivalent to one month's basic salary provided once per year.

Timing: The allowance is typically provided in the month before major festivals, traditionally:

• Dashain Festival (September-October): One month's basic salary
• Tihar Festival (October-November): Some employers provide additional amounts (though not legally required)

Calculation Example:

A worker with basic salary of 15,000 NPR receives festival allowance of:

• Festival Allowance = 15,000 NPR (one month's basic salary)

This is provided once per year before the main festival season.

Payment Methods: The festival allowance may be paid:

• As a lump sum before the festival
• Through regular payroll
• By check or bank transfer
• In other agreed payment methods

Special Circumstances: For workers who haven't completed a full year:

• Festival allowance is provided on proportionate basis
• Calculation: (Days worked ÷ 365) × 15,000 NPR

Proration for Mid-Year Joining: If a worker joins on July 1, by the time of Dashain (October), they have worked approximately 3.25 months. The festival allowance would be:

• (100 days ÷ 365) × 15,000 = approximately 4,110 NPR

3.2 Other Statutory Allowances

Dearness Allowance (DA): Designed to address cost of living increases:

• Percentage of basic salary (often 20-50% depending on sector and government notification)
• Provided to address inflation and purchasing power maintenance
• May be incorporated into basic salary or provided separately

Food Allowance: For certain sectors (particularly organizations providing meals or where meals are standard expense):

• Fixed amount per day
• May be 50-100 NPR per day or percentage of salary
• Intended to cover meal expenses

Transport Allowance: For certain job categories:

• Fixed monthly amount (often 500-2,000 NPR depending on organization)
• Intended to reimburse transportation costs
• May be provided only if employer doesn't provide transport

Housing Allowance: For certain employment categories:

• Percentage of basic salary (often 10-20%)
• Provided when employer doesn't provide housing
• Common in government and certain private sectors

Communication Allowance: For positions requiring communication tools:

• Fixed monthly amount or reimbursement of actual expenses
• Covers phone and communication costs
• Common for field workers and management positions

Other Allowances: Depending on sector and organizational practice:

• Shift allowance (for night shift or hazardous work)
• Hazard allowance (for dangerous work)
• Remote location allowance (for difficult posting areas)
• Professional allowance (for specialized skills)

3.3 Determination of Allowances

Statutory vs. Contractual: Some allowances are statutory (required by law), while others are contractual (agreed between employer and employee):

• Statutory: Festival allowance, overtime, annual increment
• Contractual: Many other allowances depend on agreement

Allowance Documentation: All allowances should be:

• Documented in employment contracts
• Clearly listed in payslips
• Calculated consistently
• Provided regularly on schedule

Allowance as Part of Minimum Wage: Important principle—if minimum wage is partially comprised of allowances, the allowance must be provided consistently; it cannot be withheld to reduce total wage below minimum wage.

Section 4: Overtime Compensation

4.1 Overtime Definition and Legal Requirements

Overtime Definition: Overtime means work performed beyond the standard working hours (typically 8 hours per day or 48 hours per week under the Labor Act).

Mandatory Compensation: Section 42 of the Labor Act 2074 requires that employers provide overtime compensation (additional pay) for all work performed beyond standard hours.

Overtime Rate: The overtime rate is 1.5 times the regular hourly wage rate. This is calculated as:

• Regular Hourly Rate: Basic Monthly Salary ÷ 30 days ÷ 8 hours per day
• Overtime Rate: Regular Hourly Rate × 1.5

Calculation Example:

Worker with basic salary of 15,000 NPR:

• Daily salary: 15,000 ÷ 30 = 500 NPR
• Hourly rate: 500 ÷ 8 = 62.50 NPR per hour
• Overtime rate: 62.50 × 1.5 = 93.75 NPR per hour

If the worker works 2 hours of overtime:

• Overtime compensation: 2 hours × 93.75 = 187.50 NPR

4.2 Overtime Limitations and Prohibitions

Maximum Overtime: While the Labor Act requires overtime compensation, it also limits how much overtime can be required:

• Daily Limit: No worker may be required to work more than 8 hours per day (except in emergency situations)

• Weekly Limit: No worker may be required to work more than 48 hours per week

• Emergency Exceptions: In genuine emergencies (disasters, urgent production needs), workers may work additional hours beyond limits, but must receive overtime compensation

Voluntary Nature: Overtime is generally voluntary (workers cannot be compelled to work overtime), though in certain circumstances employers may require reasonable overtime.

Rest Periods: Workers must be provided adequate rest periods:

• Daily Rest: At least one 8-hour rest period in 24 hours
• Weekly Rest: At least one full day off per week (typically Sunday)
• Between Shifts: Adequate gap between work shifts to allow rest

4.3 Overtime Payment Methods and Records

Payment Timing: Overtime compensation must be paid:

• Regularly (typically with regular payroll)
• Completely and in full
• Not withheld or deferred

Documentation Requirements: Employers must maintain:

• Overtime work records (date, time, hours)
• Overtime payment records
• Evidence of overtime payment
• Accessible records for worker inspection

Compensation vs. Time Off: Employers cannot substitute:

• Compensatory time off (instead of overtime pay)
• "Comp time" or future time off

Workers must receive overtime PAY, not equivalent time off (unless specifically agreed, and even then the payment must be provided).

Disputes: Overtime disputes are common and subject to:

• Labor Court proceedings
• Labor Office investigation
• Wage violation penalties

Section 5: Equal Pay for Equal Work Principle

5.1 Statutory Equal Pay Requirement

Legal Principle: Section 35 of the Labor Act 2074 establishes the fundamental principle that workers performing substantially the same work must receive equal remuneration, regardless of their personal characteristics.

Statutory Language: The Act explicitly prohibits wage discrimination based on:

• Gender: Male and female workers must receive equal pay for equal work
• Caste: Workers from different castes must receive equal pay
• Religion: Workers of different religions must receive equal pay
• Ethnicity: Workers from different ethnic groups must receive equal pay
• Marital Status: Married and unmarried workers must receive equal pay
• Other Protected Characteristics: Any other discriminatory basis

Burden of Proof: In equal pay claims, the burden typically shifts once a worker establishes that:

1. They perform substantially the same work as a comparator
2. They receive different (lower) pay
3. The difference cannot be justified

Then the employer must prove the difference is due to a legitimate factor (seniority, performance, merit system, etc.), not discrimination.

5.2 Definition of "Equal Work"

Substantial Equality: Equal work does not require identical tasks. Rather, the test is whether the work is substantially similar in:

• Skill Requirements: Workers must require substantially similar knowledge, skills, and abilities

• Effort Expended: Workers must perform work requiring substantially similar physical or mental effort

• Responsibility: Workers must hold substantially similar responsibility for outcomes

• Working Conditions: Workers must work in substantially similar conditions (safety, environment, etc.)

Example Cases:

• Male and female factory workers performing the same assembly line tasks must receive equal pay, even if some secondary tasks differ slightly

• Male and female nurses performing patient care in similar hospital units must receive equal pay

• Male and female teachers teaching subjects at similar levels must receive equal pay

• Male and female drivers operating similar vehicles on similar routes must receive equal pay

Legitimate Differentials: Employers may pay differently based on:

• Seniority: Workers with more tenure may earn more (if applied consistently)
• Performance: Workers with documented superior performance may earn more (if based on objective criteria)
• Merit Systems: Transparent, job-related performance evaluation systems
• Production-Based Pay: Workers producing more output may earn more (if consistently measured)
• Education/Qualifications: Workers with higher education directly relevant to position

5.3 Enforcement and Remedies

Complaint Procedures: Workers facing wage discrimination may:

• Labor Office Complaint: File complaint with Labor Office for investigation
• Labor Court Proceedings: File case in Labor Court for adjudication
• Damages: Recover back wages plus compensation

Employer Defenses: Employers may defend equal pay claims by proving:

• Work is not substantially equal
• Pay difference is based on legitimate factor (seniority, performance, etc.)
• Different positions with different responsibility levels

Remedies for Discrimination:

• Back Pay: Full wage adjustment retroactive to when discrimination occurred
• Prospective Pay Equity: Immediate adjustment to equal pay going forward
• Compensation: Additional damages for discriminatory conduct
• Attorney Fees: In cases of clear discrimination

5.4 Types of Wage Discrimination

Direct Discrimination: Explicitly paying workers differently based on protected characteristics:

• "Male workers receive 500 NPR more per month than female workers"
• "Workers from certain castes receive lower wages"

Indirect Discrimination: Facially neutral policies that have discriminatory impact:

• Position classifications that correlate with protected characteristics
• Subjective evaluation systems disproportionately affecting certain groups
• Shift assignments resulting in lower pay for certain groups

Intersection Discrimination: Discrimination based on combination of characteristics:

• Women from certain castes may face compounded discrimination
• Foreign workers may face discrimination based on multiple factors

Pay Secrecy: Wage discrimination is often hidden through pay secrecy. The Labor Act supports worker access to wage information to enable equal pay claims.

Section 6: Wage Deductions and Prohibited Practices

6.1 Permitted Wage Deductions

Limited Deduction Authority: While employers may not arbitrarily withhold wages, certain deductions are legally permissible:

Mandatory Government Deductions:

• Income Tax: Deduction of applicable income tax as per prevailing tax law and income tax slabs

• Social Security Contributions: Employees' contribution to the Social Security Fund (typically calculated as percentage of basic salary)

• Provident Fund: Employees' contribution to the Provident Fund (typically 10% of basic salary for eligible employees)

Agreed Deductions:

• Loan Repayment: Deduction of employer-provided loans (if worker consented to loan and repayment terms)

• Utility Charges: Deduction for utilities if employer provides housing and utilities and worker agreed

• Advance Adjustment: Adjustment for advances previously received by worker

• Union Dues: Deduction of union membership dues (if worker consented and amount is reasonable)

Penalty Deductions (Limited):

• Disciplinary Penalties: One day's salary may be deducted for specific misconducts (if clearly documented and proportionate)

Examples of Permitted Misconducts Subject to One-Day Salary Deduction:

• Denying, refusing, or neglecting to accept notice of punishment
• Participating or compelling others to participate in illegal strikes
• Causing collective delay in work or production
• Causing loss to the enterprise through negligence or recklessness
• Attempting to obtain benefits through submitting false details
• Not using required safety equipment despite availability
• Other similar misconducts as defined in bylaws

6.2 Prohibited Wage Deductions

Wage Deductions Absolutely Prohibited: Certain deductions are strictly prohibited and constitute wage violations:

Arbitrary or Punitive Deductions:

• Deduction as discipline beyond the one-day salary for specified misconducts
• Deduction for alleged work errors or defects
• Deduction because worker is absent (instead, only non-payment of wages for absence days is permitted)
• Deduction for lateness or early departure
• Arbitrary wage reduction without cause

Deductions Without Legal or Contractual Basis:

• Deduction for "organizational expenses"
• Deduction for tools or equipment not worker's responsibility
• Deduction for office supplies or consumables
• Deduction for premises, utilities, or other organizational costs
• Deduction for alleged damage unless worker was clearly negligent

Uniform and Equipment Deductions (Complex):

• Deductions for work uniforms or safety equipment are generally prohibited
• Such items are typically employer's responsibility

Fine or Penalty Without Process:

• Deductions without proper notice or opportunity to be heard
• Deductions exceeding authorized amounts
• Multiple deductions for single misconduct

6.3 Procedural Requirements for Valid Deductions

Written Notice: Any deduction (even if legally permissible) requires:

• Prior Notice: Worker must be informed in advance of authorized deductions
• Clear Documentation: The reason, amount, and authorization for deduction
• Worker Consent: Worker must consent to deduction (except mandatory tax/social security)

Calculation Transparency: Deductions must be:

• Clearly itemized on payslip
• Calculated accurately
• Applied consistently to all workers similarly situated

Appeal Opportunity: Workers must have opportunity to:

• Challenge deduction in writing
• Request review by management
• Access grievance procedures

Documentation: Employers must maintain:

• Records of authorized deductions
• Worker consent documentation
• Calculations and justifications

6.4 Minimum Wage Floor

Critical Principle: Even with permitted deductions, the remaining net wage must not fall below minimum wage:

• If minimum wage is 15,000 NPR and deductions are 2,000 NPR, the remaining wage must be at least 15,000 NPR

• Therefore, gross salary must be sufficient (15,000 + 2,000 = 17,000 NPR minimum)

• This ensures minimum wage protection is not eliminated through deductions

Illustration:

Worker with:

• Gross Salary: 18,000 NPR
• Income Tax Deduction: 2,000 NPR
• Provident Fund Deduction: 1,000 NPR
• Total Deductions: 3,000 NPR
• Net Pay: 15,000 NPR

In this case, deductions are permissible because net pay equals minimum wage. However, if deductions reduced pay below 15,000 NPR, the deductions would be prohibited (or the salary would be inadequate).

Section 7: Bonus Entitlements and Calculations

7.1 Bonus as Statutory Right

Bonus Definition: Under the Bonus Act 2030 BS (1973 AD), a bonus is a share of enterprise profits distributed to employees. Unlike discretionary bonuses some employers provide, the Bonus Act establishes bonus as a statutory RIGHT—not a discretionary benefit dependent on employer goodwill.

Legal Basis: Section 5 of the Bonus Act 2030 requires that every profitable enterprise allocate bonuses to employees. This is not optional; it is legally mandatory.

Allocation Requirement: Each enterprise that generates net profit during a fiscal year must allocate a minimum percentage of net profit as bonus:

• Standard Rate: 10% of net profit is the general requirement
• Lower Rate Sectors: Certain sectors (particularly hydropower) may allocate only 2% of net profit
• Government Enterprises: Percentages are determined by government notification

Net Profit Definition: Net profit is calculated as:

• Total Revenue (Sales)
• MINUS: Cost of Goods Sold
• MINUS: Operating Expenses
• MINUS: Administrative Expenses
• MINUS: Depreciation
• MINUS: Interest Expenses
• EQUALS: Net Profit

Important: Bonuses are allocated from net profit BEFORE calculating taxes and statutory bonus deductions.

Calculation Formula:

Bonus Allocation = Net Profit × 10% (or applicable percentage)

Example:

Enterprise with annual net profit of 1,000,000 NPR:

• Bonus Allocation = 1,000,000 × 10% = 100,000 NPR

This 100,000 NPR must be distributed to eligible employees.

7.2 Eligibility Criteria for Bonus

Employment Duration: Not all employees receive full bonus. Eligibility depends on tenure:

Minimum Service Requirement: Employees must have worked at least 6 months (half of the fiscal year) to receive bonus.

Calculation for Partial Year Service: Employees who haven't completed 6 months receive bonus proportionate to days worked:

• Formula: (Days Worked ÷ 365) × Full Bonus Amount

Example: Employee working 4 months (120 days):

• Days worked: 120
• Full fiscal year bonus: 50,000 NPR (calculated per section 7.3 below)
• Actual bonus: (120 ÷ 365) × 50,000 = 16,438 NPR

Worker Status Requirements: Additional requirements for bonus eligibility:

• Full-Time Employees: Generally eligible for full bonus
• Part-Time Employees: Eligible (calculated on days worked)
• Temporary and Casual Workers: Eligible based on tenure and days worked
• Apprentices: Generally not eligible during apprenticeship period

Disqualifying Circumstances: Employees in certain situations may not receive bonus or receive reduced bonus:

• Unpaid Leave: Employees on unpaid leave are not entitled to bonus for those days
• Suspension: Suspended employees may not be entitled to bonus for suspension period
• Disciplinary Action: Employees subject to disciplinary action may lose bonus eligibility
• Illegal Strike Participation: Employees participating in illegal strikes may lose bonus

7.3 Bonus Calculation Process

Step 1: Determine Total Distributable Bonus

As discussed, this is typically 10% of net profit:

Total Bonus Pool = Net Profit × 10%

Step 2: Identify Eligible Employees

List all employees meeting eligibility criteria (6+ months service, not in disqualifying situations).

Step 3: Calculate Individual Employee Bonus Percentage

For each eligible employee, determine bonus as percentage of their annual remuneration:

Formula:

Bonus Percentage = (Total Bonus Pool ÷ Total Gross Remuneration of All Eligible Employees) × 100

Example:

• Total Bonus Pool: 100,000 NPR
• Total Gross Remuneration of All Eligible Employees: 5,000,000 NPR
• Bonus Percentage: (100,000 ÷ 5,000,000) × 100 = 2%

Each eligible employee receives 2% of their annual gross remuneration as bonus.

Step 4: Calculate Individual Employee Bonus Amount

For each employee:

Individual Bonus Amount = Employee's Annual Gross Remuneration × Bonus Percentage

For an employee earning 20,000 NPR/month:

• Annual remuneration: 20,000 × 12 = 240,000 NPR
• Bonus: 240,000 × 2% = 4,800 NPR

Step 5: Apply Ceiling Limits

This is critical—the calculated bonus amount is subject to maximum limits depending on employee's salary.

7.4 Bonus Ceiling Limits

Ceiling Purpose: The Bonus Act establishes maximum bonus amounts to prevent unlimited bonuses for high-earning employees.

Two-Tier Ceiling System:

Tier 1 - For Employees Earning Up to 2× Minimum Wage:

• Employees earning up to 2 times the government-prescribed minimum wage
• Maximum Bonus Ceiling: 8 months' salary

For example, if minimum wage is 15,000 NPR:

• 2 × 15,000 = 30,000 NPR
• Employees earning up to 30,000 NPR/month
• Maximum bonus: 8 × (their monthly salary)

An employee earning 30,000 NPR/month:

• Maximum bonus: 8 × 30,000 = 240,000 NPR

Tier 2 - For Employees Earning Above 2× Minimum Wage:

• Employees earning more than 2 times the minimum wage
• Maximum Bonus Ceiling: 6 months' salary

An employee earning 50,000 NPR/month:

• Maximum bonus: 6 × 50,000 = 300,000 NPR

Ceiling Application Logic:

The calculated bonus from Step 4 is compared to the ceiling:

Actual Bonus = MINIMUM of:

• Calculated bonus from formula, OR
• Applicable ceiling limit

Example:

Employee earning 20,000 NPR/month (Tier 1, since 20,000 < 30,000):

• Calculated bonus (from formula): 4,800 NPR
• Ceiling limit: 8 × 20,000 = 160,000 NPR
• Actual bonus: 4,800 NPR (calculated is less than ceiling, so use calculated amount)

Different example - highly profitable year:

Employee earning 20,000 NPR/month, highly profitable enterprise:

• Calculated bonus: 150,000 NPR
• Ceiling limit: 8 × 20,000 = 160,000 NPR
• Actual bonus: 150,000 NPR (still within ceiling)

Another employee earning 20,000 NPR/month, even more profitable:

• Calculated bonus: 200,000 NPR
• Ceiling limit: 8 × 20,000 = 160,000 NPR
• Actual bonus: 160,000 NPR (capped at ceiling)

7.5 Bonus Distribution Procedures

Calculation Timeline: Enterprises must:

• Calculate financial results and net profit within reasonable time after fiscal year end (typically 3-4 months)
• Determine bonus allocation and calculations
• Communicate bonus amounts to employees

Distribution Timeline: Bonus must be distributed within 8 months of fiscal year end. This is a mandatory deadline.

Payment Method: Bonus may be paid:

• As lump sum
• Through regular payroll
• By check or bank transfer
• In cash (though bank transfer is preferred)

Non-Payment Consequences: If enterprises fail to allocate or pay bonus as required:

• Workers may file complaints with Labor Office
• Labor Office may order payment of bonus plus penalties
• Workers may pursue Labor Court case
• Penalties for non-payment include compensation and interest

Disputes: Common bonus disputes include:

• Claim that no profit was earned (worker disputes calculations)
• Calculation errors in bonus formula
• Eligibility disputes (whether worker qualifies)
• Ceiling application disputes

Section 8: Provident Fund and Gratuity

8.1 Provident Fund System

Provident Fund Purpose: The Provident Fund is a retirement savings system where both employer and employee contribute, accumulating savings for the employee's retirement or separation.

Contribution Rates:

• Employee Contribution: 10% of basic remuneration
• Employer Contribution: 10% of basic remuneration
• Total: 20% of basic salary accumulated in individual accounts

Calculation Example:

Employee with basic salary 15,000 NPR:

• Monthly employee contribution: 15,000 × 10% = 1,500 NPR
• Monthly employer contribution: 15,000 × 10% = 1,500 NPR
• Total monthly contribution: 3,000 NPR

Over 10 years:

• Total contributions: 3,000 × 12 × 10 = 360,000 NPR (plus investment returns)

Eligibility: Provident fund applies to:

• Permanent employees
• Employees who have worked 1+ year
• Employees in enterprises with 10+ workers (in some cases)

Fund Management: Contributions are deposited to:

• Enterprise-Level Fund: Fund managed by the enterprise itself
• Retirement Fund: National retirement fund managed by government (for enterprises without their own funds)

Fund Access: Employees may access Provident Fund:

• Upon retirement
• Upon permanent separation from employment
• In case of disability
• Upon reaching specified age (if applicable)

Returns: The provident fund typically earns interest/investment returns, increasing the account value beyond contributions alone.

8.2 Gratuity Entitlement and Calculation

Gratuity Purpose: Gratuity is a lump-sum payment provided to employees upon completion of service, recognizing their contribution and providing separation benefit.

Eligibility: Gratuity is available to:

• Employees completing 3+ years of service (for initial eligibility)
• Permanent employees (primarily)
• Certain temporary employees (depending on tenure)

Gratuity Calculation: The gratuity amount depends on years of service:

For First 7 Years of Service:

• Rate: 0.5 months' salary per year of service
• Formula: Years of Service × 0.5 × Monthly Salary

For Service Beyond 7 Years:

• Rate: 2/3 months' salary per year of service
• Formula: (7 × 0.5 + (Years - 7) × 2/3) × Monthly Salary

Calculation Example 1 - 5 Years Service:

Employee with 5 years of service, monthly salary 20,000 NPR:

• Gratuity = 5 × 0.5 × 20,000 = 50,000 NPR

Calculation Example 2 - 12 Years Service:

Employee with 12 years of service, monthly salary 20,000 NPR:

• First 7 years: 7 × 0.5 × 20,000 = 70,000 NPR
• Remaining 5 years: 5 × (2/3) × 20,000 = 66,667 NPR
• Total Gratuity: 70,000 + 66,667 = 136,667 NPR

Gratuity Payment Timing: Gratuity must be paid:

• Upon retirement
• Upon completion of service/termination
• At separation from employment
• Typically within specified period (often 45 days) of separation

Gratuity and Severance Distinction: Some employees are entitled to both provident fund withdrawal AND gratuity, while others may receive severance compensation (discussed below) instead of gratuity depending on circumstances.

Section 9: Severance Compensation and Leave Encashment

9.1 Severance Compensation

Severance Definition: Severance compensation is additional payment provided to permanent employees upon termination of employment (beyond gratuity), recognizing their service and providing separation support.

Eligibility: Severance compensation applies to:

• Permanent employees
• Upon termination of employment
• Not applicable if employee is entitled to unemployment allowance under Social Security Act
• May not apply in case of termination for serious misconduct

Severance Rate: 30 days' salary for each year of service.

Formula: Years of Service × 30 Days' Salary

Calculation Example:

Permanent employee with 8 years of service, monthly salary 20,000 NPR:

• Daily salary: 20,000 ÷ 30 = 666.67 NPR
• Severance: 8 × (30 × 666.67) = 8 × 20,000 = 160,000 NPR

This represents exactly 8 months' salary as severance.

Severance Conditions: Severance may be reduced or forfeited if:

• Employee is terminated for serious misconduct
• Employee voluntarily resigns (in some cases)
• Employee is entitled to unemployment benefits

9.2 Leave Encashment

Leave Definition: The Labor Act provides for multiple types of paid leave:

• Annual Leave: 1 day for every 20 days worked
• Sick Leave: 12 days per year (fully paid) + additional 15 days (half paid after 1 year service)
• Maternity Leave: 14 weeks (with first 60 days fully paid)
• Paternity Leave: 15 days (fully paid)
• Other Leaves: As specified

Leave Encashment: Upon separation, employees are entitled to encash (receive payment for) unused leave:

Annual Leave: Fully encashable upon separation

• Payment at regular rate for each day of unused leave

Sick Leave: Partially encashable:

• Up to 45 days of sick leave can be encashed
• Sick leave beyond 45 days is forfeited upon separation

Maternity Leave: Generally not encashable (used during leave or lost)

Calculation Example:

Employee earning 20,000 NPR/month with unused:

• 10 days annual leave
• 20 days sick leave

Leave encashment due:

• Annual leave: 10 × (20,000 ÷ 30) = 6,667 NPR
• Sick leave: 20 × (20,000 ÷ 30) = 13,333 NPR
• Total encashment: 20,000 NPR

Encashment During Service: Some employers allow leave encashment during active employment (at employee request or as part of settlement), though this is sometimes restricted to prevent complete leave loss.

Section 10: Remedies for Wage Violations

10.1 Labor Office Complaint Procedure

Filing Complaint: Workers facing wage violations may file complaints with the Labor Office:

• Who Can File: The affected worker, worker representative, family member (for deceased worker's wages)
• What to Include: Description of wage violation, amounts owed, relevant documentation
• Processing: Labor Office investigates and attempts resolution

Investigation Process: The Labor Office:

• Interviews employer and worker
• Reviews wage records and payment documentation
• Determines whether violation occurred
• Calculates amounts owed

Labor Office Orders: Upon finding violation, the Labor Office may order:

• Back Wage Payment: Payment of unpaid wages with interest
• Double Compensation: Double the violated amount (for minimum wage violations)
• Penalties: Fines on the employer
• Corrective Measures: Employer must implement policies to prevent recurrence

Appeal: Parties may appeal Labor Office decisions to Labor Court.

10.2 Labor Court Proceedings

Filing Case: Workers may file directly in Labor Court or appeal adverse Labor Office decisions.

Litigation Process:

• Complaint Filing: Worker files complaint describing violation and relief sought
• Investigation: Court may direct further investigation if needed
• Trial: Evidence is presented by both parties
• Judgment: Court orders remedy

Potential Remedies:

• Back Wages: Full payment of all unpaid wages
• Interest: Interest on delayed wages
• Double Compensation: For minimum wage violations (double the violated amount)
• Damages: Compensation for losses caused by wage violation
• Corrective Orders: Court order to stop wage violation practice

10.3 Administrative Penalties and Criminal Liability

Employer Penalties for Wage Violations:

• Fine: Up to 100,000 NPR or more depending on violation severity
• Compensation Payment: Order to pay double the violated amount
• License Suspension: Business license may be suspended
• Imprisonment: In serious cases, employer representatives may face up to 1 year imprisonment

Aggravating Factors (leading to higher penalties):

• Multiple workers affected by same violation
• Repeated violations despite previous warnings
• Deliberate concealment of wage information
• Retaliation against workers reporting violations

10.4 Collective Remedies and Union Action

Union Involvement: Worker unions may:

• File complaints on behalf of members
• Initiate collective labor disputes
• Seek injunctions preventing wage violations
• Represent workers in Labor Court proceedings

Collective Strike Rights: In severe wage violation situations, unions may authorize collective strike action as pressure for resolution.

Section 11: Wage Payment Procedures and Timing

11.1 Wage Payment Deadline

Payment Timing Requirement: Section 42 of the Labor Act establishes that wages must be paid within 7 days of the end of the wage period.

Wage Period: Typically defined as:

• Monthly (for salaried workers)
• Weekly (for some daily workers)
• Fortnightly (some employers)

Payment Schedule Example:

For monthly wage period ending on the 25th of each month:

• Wages must be paid by the following month's 1st (within 7 days)

Delayed Payment Consequences:

• Constitutes wage violation
• Workers entitled to interest on delayed wages
• Workers may file complaints with Labor Office
• Labor Court may order penalty payment

11.2 Payment Methods

Acceptable Payment Methods:

• Bank Transfer: Direct deposit to worker's bank account (preferred and encouraged)
• Check: Signed check from employer (increasingly less common)
• Cash: Direct cash payment (though creates documentation challenges)
• Mobile Money: Increasingly accepted for wage payment

Employer Record Keeping: Regardless of payment method, employer must:

• Maintain records proving payment
• Provide workers with payslips
• Document payment dates and amounts
• Retain records for audit purposes

Worker Receipt: Workers should maintain:

• Bank statements confirming deposit
• Check receipts if paid by check
• Payslips for documentation
• Record of wage discrepancies

11.3 Wage Slips and Documentation

Mandatory Payslip Content: Each payslip must include:

• Employee name, identification
• Wage period covered
• Basic salary
• All allowances
• All deductions (itemized)
• Net wage due
• Cumulative information (YTD if applicable)
• Payment method and date

Payslip Transparency: Payslips serve critical function of:

• Documenting wage components
• Allowing workers to verify calculations
• Providing proof of wage payment
• Enabling identification of wage violations
• Supporting equal pay verification

Access to Records: Workers have right to:

• Receive payslips for every wage period
• Access wage records
• Request clarification of wage components
• Keep copies of payslips

Section 12: Special Provisions and Practical Considerations

12.1 Wage Discrimination in Practice

Common Forms of Wage Discrimination:

• Gender-Based: Women receiving lower wages than men for same work (illegal)
• Caste-Based: Workers from lower castes receiving lower wages (illegal)
• Ethnic-Based: Workers from certain ethnic groups receiving lower wages (illegal)
• Disability-Based: Workers with disabilities receiving lower wages (illegal)

Proving Discrimination: Workers must typically show:

• They perform substantially same work as comparator
• They receive lower pay
• Employer cannot prove legitimate reason for difference

Defenses Available to Employers:

• Work is not substantially equal
• Pay difference based on seniority, performance, or other legitimate factor
• Different job classifications with different pay

12.2 Wage Protection for Vulnerable Workers

Domestic Workers: Special protections for domestic workers including:

• Lower minimum wage (13,450 NPR) reflecting unique circumstances
• Additional protections against wage abuse
• Annual leave and other benefits

Migrant Workers: Protections for workers from other countries including:

• Same minimum wage as domestic workers
• Protection from exploitation by employers
• Remedy procedures for wage violations

Child Workers: Where child labor is permitted (above school leaving age), minimum wage and other protections apply.

12.3 Sector-Specific Wage Considerations

Tea Estate Workers: Special provisions including:

• Lower minimum wage (12,081 NPR) reflecting industry economics
• Considerations for seasonal nature of work
• Similar statutory benefits and protections

Agricultural Workers: Sector-specific considerations including:

• Seasonal employment patterns
• Different calculation methods for piece-rate or harvest-based work
• Overtime and benefit calculations adapted to agricultural calendar

Government Workers: Subject to different provisions:

• Governed by civil service and government employment rules
• Separate pay commissions and scales
• Different allowance systems