Hire employees in Nepal
What a foreign company needs to know before employing people in Nepal in 2026: whether you need a local entity, what the 31% Social Security Fund and the Dashain allowance really cost, how the new FY 2083/84 income tax schedule works, how notice and retrenchment rules apply, and why labour supply licensing matters for EOR. Written for CHROs, CFOs, General Counsel and founders.
Employer of record in Nepal: quick answers
The questions leadership teams ask first.
Do I need a local entity in Nepal to hire?
No. There are three routes:
- Employer of Record. Dryft Global employs the person through a compliant Nepali employer registered with the Social Security Fund (SSF) and the Inland Revenue Department, issues the appointment letter and runs payroll, tax and the Dashain allowance. You direct the work.
- Direct local entity. You obtain foreign investment approval from the Department of Industry, register a private company with the Office of the Company Registrar, then register with the SSF and for tax before the first payroll.
- Independent contractor. Lawful only for a genuinely independent business. Someone who works full time under your direction is an employee whatever the contract says.
When should I use an EOR instead of registering locally?
Use an EOR for your first hires and for engineering, support or back-office teams of up to about 50 people. Foreign investment approval, incorporation and registrations take several weeks, and foreign investment generally needs a minimum of NPR 20 million unless an exemption applies. Your own entity earns its keep for a large delivery centre, when you will sell into the Nepali market, or when you want to claim IT export tax concessions yourself.
What does an employee actually cost beyond salary?
The employer pays 20% of basic salary to the Social Security Fund and the employee pays 11%, for 31% in total. That 31% already includes the provident fund, the 8.33% gratuity and medical and accident cover. The employer also pays a Dashain festival allowance of one month's basic pay a year. With basic set at 60% of gross, the employer cost is about 12% on SSF alone and about 17% with the festival allowance.
How difficult is termination in Nepal?
Notice under the Labour Act 2074 is 1 day in the first 4 weeks, 7 days up to one year and 30 days after that, or pay in lieu. Misconduct dismissal needs written notice and 7 days for the employee to respond. Retrenchment for financial reasons needs 30 days' notice to the Labour Office and one month's basic pay per year of service, but does not apply to employers with 10 or fewer workers. Employees can appeal to the Labour Court within 35 days.
Can Dryft Global legally employ my team in Nepal?
Yes. Dryft Global acts as the legal employer through a compliant Nepali employer. We issue appointment letters under the Labour Act 2074, enrol staff in the SSF, withhold income tax, pay the Dashain allowance and manage leave, notice and terminations. Supplying workers to other businesses requires a labour supplier licence and is limited to non-core work, so we structure each engagement so the employing company's role is real and confirm it with local counsel.
Hiring routes compared
Speed, local registration, tax administration and liability differ by route.
| Factor | Direct local entity | Dryft Global EOR | Independent contractor |
|---|---|---|---|
| Time to operational state | Several weeks including foreign investment approval and registrations | Days to 2 weeks | Days |
| Local entity required | Yes, private company with foreign investment approval | No | No |
| SSF and income tax | Your registrations and filings | Handled by Dryft Global | Contractor self-reports; 15% withholding on service fees |
| Statutory liability | Direct corporate exposure | Assumed by Dryft's local employer | High if reclassified |
| Best fit | Large centre, local sales, IT export concessions | Teams of 1 to about 50 | Discrete project work |
What an employee costs in Nepal
Contributions and the festival allowance are calculated on basic salary, so the basic share of the package drives the cost. The model below is a Kathmandu software engineer on NPR 150,000 a month with basic set at 60% of gross (NPR 90,000), a common structure but not a legal rule.
| Component | Employer share | Notes |
|---|---|---|
| Social Security Fund | 20% of basic (12% of gross) | Includes provident fund, gratuity, medical and accident cover; employee pays 11% of basic |
| Statutory recurring cost | 12% | NPR 18,000 a month on the model salary |
| Dashain festival allowance | ~5% | One month's basic pay a year, accrued monthly |
| Total employer on-cost | ~12% to 17% | NPR 175,500 a month all-in on the model salary |
For an employee on NPR 150,000 a month, budget about NPR 2.1 million a year before the EOR fee, approximately USD 14,000 at NPR 149.91 to the dollar. At a 100% basic structure the on-cost would rise to about 28%. Ask us for a cost model with your salary structure.
Payroll and tax
Salaries are paid monthly in rupees, and the gap between pay dates cannot exceed one month. Payroll runs on the Nepali Bikram Sambat calendar: months start in the middle of the Gregorian month and the fiscal year runs from mid July, so FY 2083/84 began on 17 July 2026. SSF contributions and income tax withheld are both due within 25 days after the end of each Nepali month. New employees must be enrolled in the SSF within three months of joining, and late SSF deposits carry 10% interest and sanctions.
Income tax, FY 2083/84
The Finance Act 2083 replaced the separate single and couple schedules with one schedule: 1% on the first NPR 1 million a year, 10% on the next NPR 500,000, 20% on the next NPR 1 million, 27% on the next NPR 1.5 million and 29% above NPR 4 million. The 1% band is waived for SSF contributors, and women with only employment income get a 10% rebate. Retirement contributions are deductible up to the lowest of actual contributions, one third of income or NPR 500,000. Non-residents pay a flat 25%. On the model salary, monthly tax is about NPR 8,700 and employee SSF NPR 9,900, so net pay is about NPR 131,400.
Statutory minimum wage
The national minimum is NPR 19,550 a month (basic NPR 12,170 plus dearness allowance NPR 7,380) from 17 July 2025, or NPR 754 a day. It is reviewed every two years, with the next review due around July 2027. Professional salaries are many multiples of the floor.
Leave and mandatory benefits
- Home (annual) leave. 1 day for every 20 days worked, about 15 days a year, fully paid. Up to 90 days can accumulate.
- Sick leave. 12 days a year, fully paid, accumulating up to 45 days.
- Public holidays. 13 paid days a year, or 14 for women, chosen by the employer from the government calendar, typically including Dashain and Tihar.
- Maternity. 98 days (14 weeks) around the birth, 60 of them fully paid.
- Paternity. 15 days on full pay.
- Mourning leave. 13 days on full pay.
- Working time. 8 hours a day and 48 hours a week. Overtime is paid at 1.5 times basic, limited to 4 hours a day and 24 hours a week.
- Dashain festival allowance. One month's basic pay a year, pro rata in the first year.
- Annual increment. At least half a day's basic pay per year of service after the first year.
Termination and notice periods
Probation can last up to six months, and the employer may end the contract during probation if work is unsatisfactory. After that, notice depends on length of service.
| Situation | Requirement |
|---|---|
| Notice, up to 4 weeks of service | 1 day, or pay in lieu |
| Notice, 4 weeks to 1 year | 7 days, or pay in lieu |
| Notice, over 1 year | 30 days, or pay in lieu |
| Misconduct dismissal | Written notice with 7 days to respond; no notice period needed |
| Retrenchment | 30 days' notice to the Labour Office and union; one month's basic pay per year of service; not for employers with 10 or fewer workers |
| Final dues | Within 15 days of termination; gratuity paid through the SSF |
- Labour Court. Employees can appeal a termination or misconduct penalty within 35 days. Remedies include reinstatement with back pay or compensation.
- Poor performance. Termination on performance grounds requires unsatisfactory performance over three or more consecutive years, with 7 days to respond.
- Restrictive covenants. Confidentiality and IP clauses are standard. Non-competes should be narrow and reasonable.
Can I use independent contractors?
Only where the person genuinely runs their own business: their own clients, schedule and tools, invoicing for output rather than a fixed monthly fee. Nepal has no statutory employee test, and substance decides. Misclassification can bring back SSF contributions on basic salary, the festival allowance, leave and notice, and employing someone without an appointment letter can be fined. Service fees paid to resident individuals generally carry 15% withholding. For anyone who works like an employee, an EOR is the compliant route.
The legal framework in brief
Employment is governed mainly by the Labour Act 2074 (2017) and the Labour Rules 2075. The Ministry has begun work on amendments, but no draft bill has been published. The instruments you will hear most:
- Labour Act 2074 (2017). Contracts, probation, hours, leave, festival allowance, notice, retrenchment, foreign workers and labour supply.
- Contribution Based Social Security Act 2074. The Social Security Fund, which includes the provident fund and gratuity.
- Income Tax Act 2058 and the Finance Act 2083. Employment income tax, withholding and corporate tax of 25%.
- Labour supply. Supplying workers to other businesses needs a labour supplier licence and is limited to non-core work; workers from an unlicensed supplier are treated as the client's employees.
- Foreign investment. The Foreign Investment and Technology Transfer Act 2019 sets a minimum of NPR 20 million per investor, with a reported exemption for IT companies to confirm, and a negative list that caps foreign ownership of consultancy services.
- Data protection. The Individual Privacy Act 2075 and Rules 2077 require consent and purpose limits for personal data. There is no dedicated regulator, and breaches are enforced through the courts.
- Immigration and right to work. A labour permit from the Department of Labour and Occupational Safety after local advertising, then a non-tourist work visa renewed yearly; about 3 to 6 weeks in total.
- Authorities. Ministry of Labour, Employment and Social Security, Department of Labour and Occupational Safety, Social Security Fund, Inland Revenue Department, Department of Industry, Office of the Company Registrar and Department of Immigration.
Where the talent is
About 29.2 million people at the 2021 census, with unemployment of 12.6% in the 2022/23 living standards survey. IT exports were estimated at about USD 1 billion in 2025, and the industry employs about 100,000 people, roughly 90% of them in the Kathmandu Valley. Nepali is the official language and English is widely used in business, IT and higher education. Nepal Standard Time is UTC+5:45 with no daylight saving.
| Region | Talent and industry concentration |
|---|---|
| Kathmandu | Most IT, outsourcing, finance and analytics employers |
| Lalitpur and Bhaktapur | Part of the Kathmandu Valley technology cluster |
| Pokhara | Smaller hub with a growing technology base |
| Biratnagar | Industrial city in the east with emerging service businesses |
Nepal Implementation Kit
This page tells you the rules. The kit tells you what to do, in what order, and what goes wrong when you skip a step.
- Step-by-step checklist, from route selection to first payroll
- Appointment letter essentials under the Labour Act 2074
- SSF enrolment and income tax registration sequence with the Nepali monthly calendar
- FY 2083/84 tax worksheet with the new single schedule
- Salary structure guide: how the basic share drives SSF and festival allowance
- Notice, misconduct and retrenchment pack
- Every official Nepali authority with direct links
Hiring in nearby markets
Employer of record and hiring guides for other countries in Asia Pacific: New Zealand · Pakistan · the Philippines · Singapore · South Korea · Sri Lanka · Taiwan · Thailand. See all global hiring guides or compare routes in EOR vs PEO vs entity.
This guide is general information, not legal, tax or immigration advice. Income tax rates change with each annual Finance Act, and the minimum wage is reviewed every two years. Confirm current figures with a qualified adviser or with Dryft. Last reviewed November 2026.
Ready to hire in Nepal?
Tell us who you want to hire and where they sit. You will get a cost model and a compliant route within a day, from a person who has done this before.