How to Use An Employer of Record in
Nepal

Hiring in Nepal requires navigating the Labour Act 2074 (2017), which mandates strict contract requirements, social security contributions to the Social Security Fund at 31% of basic salary (20% employer, 11% employee), and compliance with collective agreements that vary significantly across sectors. An Employer of Record in Nepal becomes your legal employer on record, handling all statutory filings, payroll tax withholding, and employment contracts so you can hire compliantly in as little as 10 business days without registering a local entity. The Employer of Record removes the burden of registering with the Inland Revenue Department for income tax, the Social Security Fund for mandatory contributions, and the Department of Labour for employment notifications, any of which can trigger penalties or work permit complications if handled incorrectly.

What Is an Employer of Record in Nepal?

An Employer of Record in Nepal is a third-party organisation that becomes the legal employer of your staff under Nepal law, handling all statutory obligations, payroll processing, and regulatory compliance while you retain full operational control over day-to-day work, performance management, and role responsibilities. The EOR issues the employment contract, processes monthly payroll in Nepali rupees, withholds and remits income tax to the Inland Revenue Department, and makes employer social security contributions to the Social Security Fund on your behalf.

Under the Labour Act 2074, every employment relationship in Nepal must be formalised through a written contract in Nepali language that specifies job duties, salary breakdown, working hours, leave entitlements, and termination procedures. The EOR ensures your contracts include all mandatory clauses, comply with any applicable collective agreements or sector-specific regulations, and reflect the statutory minimum wage set by the Minimum Wage Fixation Committee, which varies by skill category and industrial sector. Social Security Act 2074 contributions, Contributory Pension Scheme enrolment, and annual leave accrual under the Labour Act are all managed by the EOR according to current statutory rates.

You retain complete control over hiring decisions, daily task assignments, performance reviews, and work priorities. The EOR owns the legal employment relationship, issues payslips, processes termination procedures including notice periods and severance calculations under the Labour Act, and ensures all filings with the Department of Labour, Inland Revenue Department, and Social Security Fund are submitted on time and accurately.

How Does an Employer of Record Work in Nepal?

When you hire through an Employer of Record in Nepal, the EOR partners with you to onboard and employ your team member under full Nepal legal compliance, from contract drafting through to payroll, tax withholding, and statutory reporting. You define the role and manage the employee's work, while the EOR handles every legal and administrative requirement under the Labour Act 2074 and related regulations. Here is how the process works step by step.

Step 1: Define Role and Terms

You provide the EOR with the job description, salary offer, start date, and any benefits you want to include beyond statutory minimums. The EOR reviews your offer against the applicable minimum wage for the skill category and sector under the Minimum Wage Fixation Committee determinations, which range from NPR 17,300 to NPR 21,000 per month as of 2026 depending on classification. If your role falls under a registered collective agreement in sectors such as banking, manufacturing, or hospitality, the EOR ensures compensation and conditions meet or exceed those negotiated terms.

Step 2: EOR Compliance Check

The EOR verifies that your proposed employment terms comply with the Labour Act 2074, including the standard 48-hour working week and 8-hour daily maximum, overtime pay at 150% of regular hourly rate for hours beyond the standard week, and correct classification of the role as permanent, fixed-term, or contract-based. The Minimum Wage Fixation Committee sets separate rates for skilled, semi-skilled, and unskilled workers, and the EOR confirms your offer meets the correct threshold for the role. Misclassification or underpayment can trigger penalties from the Department of Labour and invalidate work permit applications for foreign employees.

Step 3: Employment Contract Issued

The EOR prepares a written employment contract in Nepali language as required by Section 11 of the Labour Act 2074, which must be signed before the employee begins work. Mandatory clauses include job title and duties, salary breakdown showing basic pay and allowances separately, working hours and rest days, probation period (maximum 3 months for most roles, 6 months for technical or managerial positions), leave entitlements including 13 days of annual leave after one year of service, notice period for termination (minimum one month or as agreed), and dispute resolution procedures. For fixed-term contracts, the EOR specifies the contract duration and renewal conditions, as fixed-term contracts exceeding one year or renewed more than twice automatically convert to permanent employment under the Labour Act. The employee signs the contract, and the EOR retains copies for both parties and for submission to the Department of Labour upon request.

Step 4: Government Registrations Completed

The EOR registers the new employee with the Inland Revenue Department for income tax withholding purposes and with the Social Security Fund within 30 days of the start date, as required by the Social Security Act 2074. Late registration with the Social Security Fund incurs penalties of NPR 5,000 to NPR 50,000 and can result in the employer being barred from accessing social security services until compliance is restored. If the employee is a foreign national, the EOR coordinates with your immigration advisor to ensure the work permit application includes accurate employment contract details and proof of social security enrolment, as both are mandatory supporting documents reviewed by the Department of Immigration.

Step 5: Payroll Processed Monthly

The EOR processes payroll in Nepali rupees on a monthly cycle, which is standard practice under Nepal employment law. The EOR calculates and withholds income tax at progressive rates from 1% to 39% based on the annual tax brackets set by the Inland Revenue Department for the 2026 fiscal year, and remits the withheld tax by the 25th of the following month using the TDS (Tax Deducted at Source) system. The EOR also deducts the employee's 11% social security contribution from gross basic salary and combines it with the employer's 20% contribution for a total of 31%, which is remitted to the Social Security Fund by the 15th of the following month. The employee receives a detailed payslip showing gross salary, all deductions, net pay, and year-to-date totals.

Step 6: Ongoing Compliance Managed

The EOR monitors and implements all changes to Nepal employment law, ensuring your employment practices remain compliant without requiring you to track regulatory updates. This includes submitting quarterly TDS returns to the Inland Revenue Department, filing annual income reconciliation statements, maintaining accurate leave records and ensuring annual leave is granted in accordance with Section 57 of the Labour Act, processing public holiday pay for Nepal's 14 gazetted public holidays, and ensuring compliance with health and safety requirements under the Labour Act if your employee works in a regulated sector. The EOR also ensures that any amendments to minimum wage rates, social security contribution ceilings, or tax brackets are applied to payroll immediately upon gazettal by the relevant authority.

Step 7: Termination Handled Compliantly

When you need to terminate an employee, the EOR manages the full process in accordance with Chapter 9 of the Labour Act 2074, which distinguishes between termination with cause and without cause. Termination without cause requires written notice of at least one month, or payment in lieu of notice, while termination with cause (such as gross misconduct, repeated absence, or breach of contract) can be immediate but must follow a documented disciplinary process. If the employee has completed at least one year of continuous service, the EOR calculates and pays severance at the rate of one month's salary for each completed year of service, based on the last drawn basic salary plus dearness allowance. The EOR issues a final settlement statement, processes final social security and tax filings, provides the employee with a service certificate as required by Section 48 of the Labour Act, and ensures all statutory deadlines are met to avoid penalties.

Employment Laws and Compliance an Employer of Record Handles in Nepal

When you hire through an Employer of Record in Nepal, the EOR takes on full responsibility for compliance with the Labour Act 2074, Social Security Act 2074, Income Tax Act 2058, and all related regulations, so you do not need to build an in-country HR function or legal team to manage statutory obligations.

• Employment Contracts: The EOR drafts and issues written contracts in Nepali language that comply with Section 11 of the Labour Act 2074, including mandatory clauses on duties, salary, working hours, probation (maximum 3 or 6 months depending on role), leave, and notice periods. Failure to issue a compliant contract can result in the contract being deemed indefinite-term by the Labour Court, exposing you to increased severance liability.
• Income Tax Withholding: The EOR withholds income tax at progressive rates from 1% to 39% under the Income Tax Act 2058 as amended for fiscal year 2026, remits TDS to the Inland Revenue Department by the 25th of each month, and files quarterly and annual reconciliation returns. Late remittance incurs interest at 15% per annum plus penalties up to 100% of the tax due.
• Social Security Contributions: The EOR deducts 11% of basic salary from the employee and contributes 20% as employer share, remitting the combined 31% to the Social Security Fund by the 15th of the following month as required by the Social Security Act 2074. Late payment triggers penalties starting at NPR 5,000 and increasing to NPR 50,000, plus interest charges.
• Statutory Leave Entitlements: The EOR ensures employees receive 13 days of paid annual leave after completing one year of service under Section 57 of the Labour Act, 14 gazetted public holidays with full pay, sick leave of up to 12 days per year at full pay, and maternity leave of 98 days (14 weeks) at full pay under the Maternity Protection Directive 2072. Failure to grant these entitlements is a prosecutable offence under the Labour Act.
• Termination and Severance: The EOR manages termination in accordance with Chapter 9 of the Labour Act 2074, providing minimum one month notice or payment in lieu, calculating severance at one month's salary per completed year of service for employees with at least one year of tenure, and following procedural fairness requirements for termination with cause. Unfair dismissal claims can result in reinstatement orders or compensation awards of up to 3 years' salary.
• Working Time Limits: The EOR ensures working hours do not exceed 48 hours per week or 8 hours per day under Section 47 of the Labour Act, provides at least one rest day per week, and pays overtime at 150% of the regular hourly rate for hours worked beyond standard limits. Non-compliance can result in penalties from the Department of Labour and claims for unpaid wages.
• Health and Safety Obligations: The EOR ensures compliance with health and safety provisions in Sections 62 to 71 of the Labour Act 2074, including maintaining safe working conditions, providing necessary safety equipment, and reporting workplace accidents to the Department of Labour within 24 hours. Violations can result in fines, closure orders, and criminal liability for serious breaches.
• Data Protection and Privacy: The EOR handles employee personal data in accordance with the Electronic Transactions Act 2063 and the Right to Information Act 2064, ensuring secure storage, limited disclosure, and employee consent for data processing. Nepal does not yet have a comprehensive data protection law equivalent to GDPR, but the EOR applies best-practice standards to protect employee information.
• Collective Agreement Compliance: In sectors where collective agreements are registered with the Department of Labour, such as banking, garment manufacturing, and hospitality, the EOR ensures your employment terms meet or exceed the wages, benefits, and working conditions negotiated in those agreements. Non-compliance can trigger disputes with trade unions and penalties from the Labour Court.
• Annual Bonus (Festival Allowance): The EOR ensures employees receive an annual festival allowance (Dashain bonus) equivalent to at least one month's basic salary, as customary practice in Nepal and increasingly codified in collective agreements and sector-specific regulations. Failure to pay this allowance damages employee relations and can trigger wage claims under the Labour Act.

How Much Does It Cost to Use an Employer of Record in Nepal?

The total cost of hiring through an Employer of Record in Nepal has two components: the EOR's service fee and the statutory employer costs mandated by Nepal law. Statutory costs, including social security contributions and any applicable payroll levies, are fixed by law and must be paid regardless of whether you hire through an EOR or your own entity. Playroll's Employer of Record service fee starts from $399 per employee per month and is billed separately from payroll, giving you a clear, predictable cost structure with no hidden charges or setup fees.

Let's look at an example that includes a base salary and the EOR service fee.

The EOR service fee covers employment contract preparation in Nepali language, all government registrations with the Inland Revenue Department and Social Security Fund, monthly payroll processing and tax withholding, ongoing compliance monitoring and regulatory updates, termination management including severance calculations, and dedicated support from a team that understands Nepal employment law. You avoid the cost of setting up a local entity, hiring in-country HR and accounting staff, and engaging local legal counsel to interpret the Labour Act 2074 and related regulations.

Employer of Record vs Setting Up an Entity in Nepal

The choice between using an Employer of Record and setting up your own legal entity in Nepal depends on your hiring timeline, budget, and long-term commitment to the market. Most foreign companies entering Nepal register a Private Limited Company, which requires a minimum of NPR 100,000 in paid-up capital, approval from the Department of Industry and Office of the Company Registrar, and typically 8 to 12 weeks to complete registration, obtain a PAN (Permanent Account Number) from the Inland Revenue Department, and open a corporate bank account.

For companies hiring fewer than 8 employees in Nepal, an Employer of Record is almost always the faster and more cost-effective route.

Playroll also supports your long-term growth through its Global Entity Setup product, which handles entity incorporation and local payroll in 120+ countries, so you can transition from EOR to your own compliant entity in Nepal when the time is right, without switching providers or rebuilding your HR processes.

How Long Does It Take to Hire Someone in Nepal Through an Employer of Record?

You can typically hire an employee in Nepal through an Employer of Record in 10 to 15 business days from the date you finalise the offer and provide the EOR with the required employee details and documentation.

• Stage 1: Contract preparation and signing (2 to 3 business days): The EOR prepares the employment contract in Nepali language with all mandatory clauses under Section 11 of the Labour Act 2074, reviews it with you and the employee, and collects signatures. Timing depends on how quickly both parties review and return the signed contract.
• Stage 2: Government registrations (3 to 5 business days): The EOR registers the employee with the Inland Revenue Department for income tax withholding and with the Social Security Fund within the 30-day legal deadline set by the Social Security Act 2074. Registration must be completed before the first payroll run to avoid penalties and ensure statutory contributions are remitted correctly.
• Stage 3: Payroll configuration and first cycle (3 to 5 business days): The EOR configures the employee's payroll profile, including salary breakdown, tax calculation at the correct bracket under the Income Tax Act 2058, and social security deductions at 31% of basic salary. Nepal operates a monthly pay cycle, and the first payslip is issued at the end of the first calendar month of employment or sooner if an off-cycle payment is required.
• Stage 4: Nepal-specific requirements (2 to 4 business days): If the role falls under a registered collective agreement or requires coordination with a trade union in sectors such as banking or manufacturing, the EOR ensures compliance with any notification or consultation requirements, which can add 2 to 4 business days. This stage often runs in parallel with contract preparation and does not always extend the overall timeline.

Timelines can extend if the employee's documentation is incomplete, if collective agreement negotiations require additional approvals, or if the employee is a foreign national requiring work permit processing by the Department of Immigration, which can add several weeks to the overall timeline. Delays in contract review or signature collection can also push the start date, as the contract must be signed before the employee begins work under the Labour Act 2074.

In contrast, setting up your own Private Limited Company in Nepal takes 8 to 12 weeks before you can legally employ staff, and you must budget additional time for bank account opening, PAN registration, and hiring or contracting local HR and payroll support.

How Playroll's Employer of Record Process Works in Nepal

Hiring through Playroll in Nepal is straightforward and designed to get your team member onboarded and compliant in as little as 10 business days.

1. You tell us who you want to hire and on what terms

You provide the candidate's details, proposed start date, salary, job title, and any additional benefits you want to include. Playroll reviews your offer against the applicable minimum wage under the Minimum Wage Fixation Committee determinations and confirms it meets all statutory and sector-specific requirements.

2. Playroll prepares a compliant employment contract

We draft a written employment contract in Nepali language that includes all mandatory clauses under Section 11 of the Labour Act 2074, such as job duties, salary breakdown, probation period, working hours, leave entitlements, and notice periods. You and the employee review and sign the contract before the start date, and Playroll retains copies for all statutory purposes.

3. Your employee is onboarded and payroll goes live

Playroll registers the employee with the Inland Revenue Department and Social Security Fund, typically within 3 to 5 business days, and configures payroll to process monthly in Nepali rupees with accurate income tax withholding and social security contributions. Your employee receives their first payslip at the end of the first calendar month, and you receive a detailed breakdown of all statutory costs and deductions.

4. Playroll manages all ongoing compliance and statutory filings

We handle every recurring obligation under Nepal law, from quarterly TDS returns to annual income reconciliation, leave tracking, public holiday pay, and any updates to minimum wage or social security rates. If your team in Nepal grows to the point where establishing your own entity makes strategic sense, Playroll can handle that transition too through our global entity setup service, so you stay with one provider from first hire through to full in-country operations.