Complete Guide to Employee Benefits and Compensation in Nepal

What are Employee Benefits?

Employee benefits refer to the incentives and the additional perks offered to the employees to keep them motivated throughout their professional journey. While Nepal offers several employment benefits to employees, some of these statutory benefits include sick leaves, maternity leaves, paternity leaves, and annual bonuses. The compensation and benefits policy in Nepal defines the scope of these benefits.  

The primary objective of employee benefits in Nepal is to keep employees happy and motivated while employed by an organization. A company that offers excellent employee benefits experiences a low turnover ratio. These benefits also help the company in attracting new talent. 

While drafting the compensation structure in Nepal, it is important to consider the labor laws and the collective bargaining elements applicable in the country. These laws act as a checkpoint while you draft your employee benefits in Nepal. 

Apart from the mandatory benefits, several companies in Nepal offer supplementary benefits to their employees too. Some of these benefits include dental benefits in Nepal, allowances, etc. 

Compensation Laws in Nepal

The labor law governs the benefits and compensation policy in Nepal. However, labor unions are also of great importance in Nepal, and they, too, regulate a few benefits. Let’s look at some of the laws governing employee benefits in Nepal. 

• As per Section 3 of the Labor Act of 1992, it is the responsibility of the general manager to classify the roles of the employees and submit the classification to the Labor Office. 
• According to Section 4 of the Labor Act, all companies must issue a letter of employment to the employees they choose to work with the company. 
• In Nepal, it is illegal to employ children in any establishment except for some special circumstances defined by the government. 
• Section 9 of the Labor Act says that companies should maintain separate registers for employees and workers employed with the organization. 
• As per Section 16 of the Labor Act, employees can only work up to 8 hours a day or 48 hours a week. Employees receive at least one rest day in the week. 
• Section 21 says that the companies must pay a minimum remuneration to their employees based on the recommendation of the Minimum Remuneration Committee and the Government of Nepal. 

How to Develop an Employee Benefits Program for Employees in Nepal?

Before developing a compensation and benefits policy in Nepal, it is crucial to understand the steps to develop an employee benefits plan. Let’s have a look at the steps in detail. 

Step 1: Decide on a budget and frame the objectives

• It is easy to draft a compensation package in Nepal when you have a predefined budget in place. Contact the senior management to freeze the budget for the activity. 
• Once you have an allotted budget, deciding on the objectives you want to meet with the benefits plan becomes easier. The objectives will depend on several factors like the number of employees, the company’s industry, etc. 
• While finalizing the activity’s objectives, you should stay within the purview of Nepal’s labor laws and collective bargaining agreements. 
• Some common objectives of drafting a benefits program are keeping existing employees happy and attracting new talent. 

Step 2: Map the industry standards and understand the expectations of the employees

• Before you decide on employee benefits in Nepal, try to get an idea of the benefits the other companies in the industry offer. 
• The benefits other companies offer will help you benchmark your company’s benefits. 
• As soon as you have a fair idea of the benefits that other companies offer, you should gauge the expectations of the employees working in your company. 
• You can conduct an internal survey by floating an online form to capture these expectations. 
• Once you get all the responses, you can use them to draft the benefits plan. Based on the responses, you can also eliminate the benefits that might go unused. 

Step 3: Make the plan flexible

• Making worker’s compensation in Nepal flexible is another prerequisite for companies. 
• To cater to the different needs of the employees, you can group them based on their age, level, or any other criteria as deemed fit. 
• You must chalk out how the employees can avail of the benefits that are a part of the benefits and compensation policy in Nepal. 

Step 4: Get in touch with the stakeholders

• Once you have the first draft of the benefits plan ready, you must get feedback from all the stakeholders involved. 
• It is also important for you to get the approval of the senior management on the benefits that are a part of your compensation and benefits policy in Nepal. 
• You must make necessary additions and deletions to the employee compensation structure in Nepal based on the feedback of these stakeholders. 

Step 5: Analyze the benefits plan

• You must read the plan multiple times when you make the necessary revisions. While drafting the benefits plan, you must also factor in the dynamic business environment. 
• You must spot all possible errors and make corrections before you launch the benefits plan. 
• Once you make the plan available to all the employees, you must devise a few metrics to analyze if the plan is being implemented as desired. 

Types of Guaranteed Benefits in Nepal

Several guaranteed employee benefits in Nepal are offered to all the employees who take up different roles in the organization. Let’s have a look at these guaranteed employee benefits in Nepal. 

Minimum wage

• The Minimum Remuneration Committee, along with the Government of Nepal, decides on the minimum wage for all the employees in the country. 
• The minimum wage for all employees in Nepal stands at NPR 15,000 per month. It is a mandatory inclusion in every employee’s compensation package in Nepal.
• However, the minimum wage for domestic workers is NPR 13,450 per month. Employees working in a tea estate are entitled to a minimum wage of NPR 12,081. 

Working hours and overtime

• The employees in Nepal are allowed to work a maximum of 48 hours a week, 8 hours a day. 
• All companies must give a break of at least a day a week to all of their employees. 
• Employees who work more than 8 hours a day or 48 hours a week are entitled to overtime pay. Employers must pay overtime at 150% of the regular salary. 
• The overtime hours should be at most 20 hours a week and 4 hours a day.
• All companies must maintain a register to record the daily working hours of the employees. 

Paid leaves

• All employees can avail of leave benefits in Nepal. However, these leaves are available to employees who have completed at least a year. 
• Employees are entitled to one annual leave benefit in Nepal, for every 20 days of work. They can accumulate these leaves for 90 days once the year ends.  

Public holidays

• Nepal follows a standard list of statutory public holidays decided by the Government of Nepal. 
• Employees who work on a public holiday must receive alternate holiday as an employee benefit in Nepal. 
• The list of public holidays followed in Nepal is listed below:

Sick leaves

• Employees who work in Nepal can avail of 12 sick leaves in a year. The company pays for all of these sick leaves. 

• However, employees who have spent less than a year in the organization can avail of these employee benefits in Nepal in a specified proportion. 
• All employees must furnish a medical certificate to take sick leave over three days. 

Maternity leaves

• All employees have access to maternity benefits in Nepal. Pregnant employees can take maternity leave up to 14 weeks before or after childbirth. 

• A pregnant employee must take at least a 2-week leave before the expected delivery date. They must also take a 6-week break post the date of delivery. 

• The employer pays the initial 60 days of the maternity benefits in Nepal.
• The employees have an option of extending their maternity leave by a month. However, the additional month is unpaid. 

Paternity leaves

• In Nepal, expectant fathers can avail of paternity leave benefits during the delivery of the child, as an employee benefit in Nepal. 
• While there is no fixed number of days an employee can take as paternity leaves, the employer pays for the first 15 days. 

Parental leaves

• There are no legal regulations for parental leaves in Nepal. However, a few companies offer these benefits on a case-to-case basis. 

Bonus

• As per the Bonus Act of Nepal, all employees who work in Nepal must receive a bonus. However, the employee needs to have completed at least six months in the company. 
• For employees earning at least double the minimum wage in a month, the bonus amount is equivalent to 8 months of salary. 
• However, the bonus equals six months’ salary for employees earning less than double the minimum wage. 

Health Insurance

• The National Health Insurance Program of Nepal covers all employees in Nepal. 
• The compensation package in Nepal also includes integrated health and accident insurance.
• The minimum coverage required for health insurance is NPR 100,000, and the company and the employee pay 50% of the payment. 
• Accident insurance must be at least NPR 700,000, and the employer covers it.

Severance Pay

• If the employee is not protected under the unemployment insurance of social security, they are entitled to a severance payment of 30 days. 
• During dismissal from the organization, employees get a severance pay equivalent to a month’s salary for every year of employment. 

Employee Benefits for Expatriates

The compensation and benefits policy in Nepal covers all the ex-pats working there. The expats working in companies incorporated in Nepal have access to all the mandatory and supplementary benefits offered by the companies. They can avail of medical benefits for employees in Nepal along with all the other allowances. Some of the standard employee benefits in Nepal are:

• Food allowance
• House allowance
• Fuel allowance

The social security system covers all the ex-pats working in Nepal. They enjoy all the leave benefits in Nepal along with other benefits. Ex-pats are also entitled to the benefits agreed upon during the framing of the employment contract. The employment contract states the clauses of all these employee benefits. The employer and the employee duly sign it. 

How are Employee Benefits Taxed in Nepal?

Most of the provided employee benefits in Nepal are taxable. It is so because these are fringe benefits. The monetary worth of these benefits is calculated based on the market value of these benefits. Nepali employers frequently consider the monetary worth of these benefits when determining an employee’s tax obligations. 

Nepal has a progressive taxation system, with tax rates ranging from 1% to 36%. The payment for leaves is also taxed based on the income slabs of the employees. 

Restrictions for Nepal Benefits and Compensation

Most employee compensation in Nepal is taxable. You must know the monetary value of these employee benefits in Nepal to calculate the employee’s tax due. The employer is responsible for timely tax payments to all applicable tax authorities and federal agencies.

Be sure your company has legal authorization to do business in Nepal before establishing a salary and benefits plan for employees there. Companies must pay their employees the minimum wage set by the government for each industry. While putting together a compensation package in Nepal, you must carefully consider all the labor rules the government enacts.

Additionally, you must chalk out the compensation structure in Nepal for all the employees on their employment letters. 

Supplemental Benefits for Employees in Nepal

All employers in Nepal offer several supplemental benefits to their employees to ensure they are highly motivated while delivering their responsibilities. 

Private health insurance

While companies offer mandatory medical benefits for employees in Nepal, some companies go beyond by providing private health insurance coverage to the employees. These policies include dental benefits in Nepal along with eye-care coverage. 

Bereavement leaves

Employees are entitled to bereavement leaves of 13 days if anyone in their family dies. The employer pays for these leaves. The leave can go beyond 13 days, but it will be unpaid. 

Special leaves

In Nepal, employees can take a leave of 2-3 hours during the day if they have personal commitments. 

Marriage leave

Employees in Nepal can take a marriage leave of 1 to 15 days, depending on the requirement. Employees must submit documentary proof supporting their marriage to extend these mentioned employee benefits in Nepal. 

Quarantine leaves

If the employees are suffering from any infectious and contagious diseases, they can take a quarantine leave. 

Leaves without pay

Employees in Nepal can avail of several leaves without pay. However, getting approval from the managers before the employees take these leaves is mandatory. 

How Multiplier Can Help with Benefits Management in Nepal

When opening a business abroad, it may be challenging to find skilled employees who can fully contribute to the activities of the business. Employers must follow regional laws and ordinances while creating employment contracts and offering benefits to workers. With a global PEO platform like Multiplier, you can efficiently complete all the tasks in Nepal.

By helping you follow Nepal’s labor laws, Multiplier gives you access to qualified and professional personnel knowledgeable about numerous aspects of the business. You won’t need to establish a subsidiary in the country to manage the workforce effectively with the help of our qualified professionals. By doing this, you may reach a broader market while spending less on labor.