Guide to Employer of Record (EOR) in Nepal

Employer of Record (EOR) in Nepal refers to a service that enables organizations to hire employees and manage compliance with local labor laws without the need to establish a legal entity in the country. This concept is especially significant in Nepal, where a complex legal framework governs employment practices, including regulations outlined in the Labor Act, 2074 (2017) and the Labor Rules, 2075 (2018). EOR services is important for businesses seeking to navigate these complexities, ensuring adherence to laws concerning employment contracts, taxation, visa requirements, and employee rights while minimizing risks associated with labor law violations and compliance failures.

Notably, the EOR model is beneficial for expatriates and foreign businesses operating in Nepal, as it streamlines the hiring process, mitigates legal risks, and facilitates the onboarding of international employees. The unique provisions of Nepal’s labor laws, such as employment classifications, termination policies, and required documentation, add layers of complexity for employers.

Controversies surrounding the EOR model may arise from misunderstandings about employee classification, compliance with local labor standards, and the potential for exploitation of workers if not managed correctly. Key issues related to the EOR landscape in Nepal include the management of employment agreements, adherence to taxation regulations, and the process of securing necessary work and residence permits for expatriates.

Moreover, challenges such as navigating language barriers, understanding local employment rights, and ensuring quality control in global operations can complicate the effective implementation of EOR services. By understanding these factors, companies can effectively leverage the EOR model to achieve operational efficiency while complying with Nepal’s labor laws and regulations.

Legal Framework

The legal framework governing employment in Nepal is primarily outlined in the Labor Act, 2074 (2017) and the Labor Rules, 2075 (2018). The Labor Act came into effect on 4 September 2017, while the Labor Rules took effect on 22 June 2018.

These laws apply to various entities, including companies, private firms, partnership firms, cooperatives, associations, and other organizations established under the prevailing laws of Nepal, irrespective of their profit orientation.

Key Provisions of the Labor Act

Employment Types

The Labor Act categorizes employment into several types, each with specific provisions:

• Work-based Employment: This involves hiring an employee to perform a specific task without a fixed duration for the employment. The contract becomes void upon completion of the assigned task.
• Fixed-term Employment: Employment is established with a specific end date but may be extended if the associated project continues.
• Casual Employment: Employees are hired for a period of seven days or less in a month, and either party can terminate the employment at will.
• Part-time Employment: Employees work for 35 hours or less per week.

Employment Agreements

The Labor Act mandates that all employees, except casual workers, must have a written employment agreement that outlines the type of employment, responsibilities, salary, terms, and conditions. Additionally, foreign nationals must receive an employment agreement in a language they understand or in English.

Termination Policies

The Act specifies various grounds for terminating employment, which include unsatisfactory performance over consecutive reviews, misconduct, absence without leave, and other serious offenses such as theft or drug use during working hours. It allows employers to terminate regular employees if performance does not improve within a specified timeframe.

Applicability and Non-Applicability

The Labor Act is applicable to a wide range of organizations operating in Nepal, including those registered abroad that conduct business in the country. However, certain entities, such as the civil service, Nepal Army, and specific organizations in Special Economic Zones, are exempt from its provisions unless explicitly stated in a contract.

Compliance and Legal Assurance

Organizations operating in Nepal must ensure strict adherence to labor laws, including employment contracts, tax compliance, and workplace regulations. This is where Employers of Record (EOR) play a crucial role, providing legal assurance by managing compliance with labor laws, payroll processing, and benefits administration. This can help mitigate risks associated with labor law violations and ensure that companies meet all regulatory requirements for hiring employees in Nepal.

Hiring Process

The hiring process in Nepal involves several key steps and adherence to local labor laws to ensure compliance and successful onboarding of employees.

Job Posting and Candidate Screening

The process begins with the employer posting job openings and screening candidates to identify suitable applicants. It is essential for employers to provide clear information regarding the position, including job responsibilities, required qualifications, and employment type.

Employment Agreement

Once a candidate is selected, the Employer of Record (EOR) prepares a legally binding employment contract that must cover essential details such as the type of employment, job description, salary, benefits, and termination guidelines.

In Nepal, it is required that no employee, except for casual employees, may commence work without a written employment agreement. The contract must also state that the organization’s bylaws will be an integral part of the agreement, ensuring that all parties are aware of their rights and obligations.

Compliance with Labor Laws

Employers must ensure that all employment contracts comply with Nepalese labor laws, which govern various aspects of employment, including working hours, overtime compensation, and employee rights. For instance, the standard workweek in Nepal consists of 48 hours spread over six days, with specific regulations regarding overtime pay, which is typically 1.5 times the regular pay.

Onboarding and Administrative Support

After the employment contract is signed, the EOR assists with the onboarding process, which includes handling necessary documentation such as tax forms, social security registration, and bank information for payroll operations. The onboarding process may also involve cultural integration and ongoing support to ensure that new employees can adapt to their roles and the organizational culture effectively.

Employment Types

In Nepal, various types of employment contracts can be utilized, including work-based, fixed-term, casual, and part-time employment. Each type has specific characteristics regarding duration and termination conditions, which need to be clearly defined in the employment agreement to avoid misunderstanding. By following these outlined steps, organizations can establish a compliant and efficient hiring process, facilitating smooth operations while adhering to Nepalese labor laws and fostering positive employee relations.

Visas for Expats

In Nepal, expatriates seeking to work and reside in the country must obtain both a work permit and a residence permit. These permits are essential for legal employment and residency, and the application process involves several steps and compliance with local regulations.

Work Permit

Expatriates must secure a work permit from the Department of Labor and Employment to legally work in Nepal. This process typically starts with the employer, who is responsible for initiating the application on behalf of the expatriate employee. The work permit is usually valid for one year and can be renewed upon application.

Application Process

The application process for a work permit includes several critical steps:

1. Secure a Job Offer: The foreign employee must have a formal job offer from a registered Nepalese employer.
2. Prepare Documentation: Necessary documents include a valid passport, educational certificates, job description, and health certificate.
3. Submit Application: The employer submits the application to the relevant authorities for review.
4. Wait for Approval: The processing time for work permits can vary but generally takes about 2 to 4 weeks.
5. Receive Work Permit: Once approved, the work permit is issued, allowing the employee to commence work in Nepal. Certain professionals, such as diplomats and representatives of international organizations, may be exempt from the work permit requirement.

Residence Permit

In addition to the work permit, expatriates must obtain a residence permit issued by the Department of Immigration. Applications for this permit must be submitted within 30 days of entering Nepal or receiving the work permit. The residence permit is typically linked to the validity of the work permit and must be renewed accordingly

Types of Visas

Nepal offers various types of visas for foreign workers, including:

• Employment Visa: For expatriates engaged in full-time employment.
• Business Visa: For those intending to conduct business activities in Nepal.
• Organization Visa: For employees of non-governmental organizations and similar entities. Each visa category has specific requirements and application procedures, which employers must follow to sponsor foreign workers.

Compliance and Regulations

Employers and expatriates must adhere to the relevant laws and regulations governing work and residence permits in Nepal. Non-compliance can result in penalties, fines, or even deportation.

Employers are also required to provide proper documentation and ensure that the expatriate meets the eligibility criteria for the visa.

Employee Rights and Benefits

Employment Contracts and Types of Employment

In Nepal, the nature of employment is categorized into several types, which determine the conditions of employment and the rights of employees.

• Regular Employment: This type has no specified end date, as the job is continuously required by the employer.
• Fixed-Term Employment: Contracts are established for a specific duration, which can be extended if the associated project or job necessitates it.
• Casual Employment: Employees are hired for short periods, typically seven days or less in a month, and can terminate their employment at will.
• Part-Time Employment: Involves working 35 hours or fewer per week. In the case of disputes regarding the nature of employment, the Labor Office is tasked with determining whether an employment agreement is regular or otherwise based on specific criteria, including the necessity for job continuity beyond the contract term.

Disciplinary Actions and Employee Misconduct

Employee rights include protection against unjust disciplinary actions.

• Warning: Minor misconducts may result in warnings, such as unauthorized absence or frequent lateness.
• Salary Deductions: More serious offenses, like participating in illegal strikes or causing work delays, can lead to a deduction of a day’s salary.
• Withholding Promotions: Continued misconduct may lead to withheld salary increases or promotions.

Grievance and Dispute Resolution

Employees have the right to address grievances. An employee may submit a written claim to their employer, who must respond within seven days to negotiate. If unresolved, disputes may be escalated to arbitration, especially in collective claims or essential services. The government of Nepal covers arbitration costs.

Working Hours and Overtime

Employees in Nepal are entitled to a maximum of 8 working hours per day and 48 hours per week. For employees under 18, the limits are reduced to 6 hours a day and 36 hours a week. Overtime work is compensated at a rate of 1.5 times the basic salary, although other benefits may be agreed upon through collective bargaining agreements.

Health and Safety Provisions

Employers must ensure the safety and health of employees, particularly in the case of accidents or occupational hazards. Employees undergoing treatment for work-related injuries are entitled to job security for the duration of their treatment, with full salary coverage. In cases of non-work-related health issues, employment cannot be terminated for six months unless advised otherwise by a medical practitioner.

Benefits for Foreign Employees

Foreign employees in Nepal are entitled to remuneration as per their employment contracts, which should comply with local labor laws. These contracts must specify the terms of service and benefits, ensuring that they are not less favorable than those provided to local employees. Additionally, foreign employees are permitted to repatriate their earnings in convertible foreign currency.

Through these provisions, employees in Nepal are afforded various rights and benefits designed to protect their welfare and promote fair labor practices.

Why Use an EOR in Nepal?

Avoid Local Entity Establishment

Incorporating a company in Nepal takes time and involves paperwork, compliance checks, and approvals. With an EOR, you start hiring right away without forming a local entity.

Navigate Complex Labor Laws

Nepal’s Labor Act 2017 outlines rules for working hours, leaves, holidays, contracts, termination, and health and safety. Understanding each detail can be challenging for foreign companies. An EOR guides you through these regulatory requirements and keeps your employment practices compliant.

Manage Payroll and Social Security

Payroll in Nepal includes mandatory components like income tax (PAYE), Social Security Fund contributions, provident fund, and gratuity requirements. An EOR calculates, processes, and files everything accurately.

Reduce Compliance Risks

Mistakes in payroll, contracts, or terminations can lead to fines or disputes. An EOR reduces these risks by handling sensitive compliance matters correctly.

Hire Faster

Since you skip entity formation, you can onboard talent within days. This helps companies enter the market without losing time.

How the EOR Process Works in Nepal

Here is the typical flow:

1. You identify the role and select your candidate.
2. The EOR prepares a compliant employment contract in line with Nepali law.
3. The candidate signs and joins under the EOR’s legal employment.
4. You manage the employee’s day to day tasks and performance.
5. The EOR handles payroll, social security filings, taxes, and HR support.
6. You receive a monthly invoice covering salary, taxes, and the EOR service fee.

Challenges and Considerations

Common Challenges in Global Employment

When engaging in international employment practices, several challenges frequently arise that can hinder effective operations and compliance.

Communication Barriers

Language differences can lead to misunderstandings and misinterpretations, complicating day-to-day operations and interpersonal relationships within a multinational workforce.

Quality Control Issues

Ensuring consistency and quality across various locations can be difficult due to limited oversight, which may result in errors and inefficiencies.

Data Security and Compliance Risks

Organizations face heightened risks of data breaches and intellectual property theft, particularly when handling sensitive information across different jurisdictions. Compliance with international data protection laws such as GDPR and CCPA is essential but often complicated by varying legal frameworks.

Hidden Costs

Unforeseen expenses can arise from training, rework, and legal compliance, exacerbated by fluctuating exchange rates and travel costs for quality control.

Loss of Control and Dependency

Relying on third-party vendors can reduce direct oversight of processes and decision-making, increasing dependency on external parties. This can lead to risks in supply chain disruptions and challenges when attempting to switch providers if performance issues occur.

Legal and Regulatory Complexities

Navigating differing labor laws, taxation policies, and contract enforcement can be daunting. Noncompliance can result in fines and legal disputes, particularly when employment rights and benefits vary significantly between regions.

Cultural Misalignment

Diverse work ethics and expectations can create friction within teams, complicating efforts to cultivate an equitable work environment.

Considerations for Compliance

When implementing Employer of Record (EOR) services, specific considerations must be taken into account to ensure compliance and effective management of global teams:

Employment Contracts and Policies

Creating localized employment contracts and workplace policies is vital to avoid noncompliance pitfalls. Consulting local legal counsel to draft region-specific agreements while managing translations is often an intensive process, yet necessary for safeguarding the organization.

Competitive Benefits Packages

Building attractive benefits packages that comply with local regulations is complex but essential for retaining talent. EORs can assist in structuring compliant, appealing cross-border benefits by leveraging their knowledge of local laws.

Continuous Monitoring of Regulations

Staying updated with evolving employment regulations is critical. EORs can help companies navigate these changes by providing up-to-date contracts and policies that reflect the latest compliance landscape.

Onboarding Processes

Effective onboarding is crucial for integrating international hires. Companies must ensure clear communication, orientation, and support throughout the relocation process. Digital tools and structured onboarding playbooks can help streamline this process, preventing costly mistakes and loss of talent. By addressing these challenges and considerations, companies can enhance their global operations and mitigate risks associated with international employment.

Key Considerations When Choosing an EOR in Nepal

Local Expertise and Reputation

Choose a provider with strong knowledge of Nepali labor laws, payroll rules, and HR practices.

Range of Services

Some providers only offer payroll. Others offer full support including HR policies, onboarding, visa sponsorship, and exit management.

Technology and Reporting

Look for a system that allows easy access to payroll reports, invoices, attendance, and employee data.

Transparent Pricing

A good EOR explains all charges clearly. Avoid providers that add hidden fees or vague service descriptions.

Data Security and Compliance

Since the provider handles sensitive information, make sure they follow strict privacy and data protection standards.

Conclusion

Hiring in Nepal is full of opportunity, but it requires a strong understanding of local rules. An Employer of Record helps you bring talent on board quickly while staying compliant. For foreign companies, partnering with a trusted EOR is the safest and most efficient way to enter the Nepali market.