When Maya, an HR Manager at a growing mid-sized IT company in Kathmandu, received a resignation letter from a junior staff member who had worked for just 18 months, she didn’t think twice about settling the final pay. Like many HR professionals in Nepal, she assumed gratuity was only applicable after five years of service, a belief deeply rooted in Nepal's traditional employment culture.

However, when the employee questioned his gratuity entitlement, Maya was caught off guard. She turned to the Labour Act, 2074, and what she discovered not only changed her approach to employee benefits, it highlighted a widespread compliance gap that many Nepali businesses are still struggling with.

This scenario isn’t uncommon. Despite a clear shift in Nepal’s legal provisions, many employers and even experienced HR professionals continue to operate under outdated assumptions about employee benefits, especially gratuity.

The Labour Act, 2074 and the Social Security Fund Nepal have introduced a new structure of monthly gratuity contributions, applicable from the very first day of employment, regardless of the employee’s tenure or exit conditions. Yet, the "5-year gratuity myth" persists in workplace policies, employment contracts, and payroll calculations across industries.

This article aims to break down these misconceptions and provide accurate, actionable guidance on:

• Provident fund in Nepal and its contribution rules
• Gratuity in Nepal, as redefined by current laws
• Mandatory insurance and Social Security Fund integration

Whether you're an HR professional, business owner, or payroll manager, this guide will help you understand your legal obligations, avoid compliance risks, and build a transparent and trusted workplace.

Nepal’s evolving labor legislation has taken a more inclusive and forward-looking approach by embedding the principles of financial security, dignity, and risk protection for workers. But to truly understand the value of these provisions, it’s important to go beyond the percentages and compliance requirements, and explore the rationale behind them.

Let’s unpack what you need to know, and what you might have been getting wrong all along.

Provident Fund in Nepal: Key Provisions and Compliance Rules

The provident fund (PF) is designed as a compulsory retirement savings tool, helping employees accumulate long-term capital during their working years. By mandating both employee and employer contributions, it builds a culture of savings and provides a financial cushion post-retirement, especially critical in a country like Nepal where formal pension systems are limited.

The PF system ensures that employees leave the workforce with accumulated wealth, not just experience. It also reduces long-term dependency on family members or government aid in old age, promoting financial independence for the elderly population.

Legal Basis: Section 52 of the Labour Act, 2074

The provident fund (PF) is a mandatory retirement savings contribution shared by both employer and employee. The law requires:

Contribution Guidelines:

• Contributions must start from the employee’s first day at work.
• Funds must be deposited into the Social Security Fund (SSF).
• Until SSF becomes applicable, contributions can be made to an alternative retirement fund, such as EPF or CIT.
• Employers must transfer any previously held PF balances to SSF once integration is applicable.
• If SSF deposit is not feasible, employers must still pay an additional 10% directly to the employee’s PF account.

HR Implementation Tip:

Ensure payroll software is configured to automatically calculate and report contributions accurately across PF systems.

Gratuity in Nepal: From Tenure-Based Benefit to Monthly Accrual

Historically, gratuity in Nepal was treated as a post-tenure reward, payable only after a minimum of five years of continuous service. However, this system disproportionately favored long-term employees and excluded a large segment of the workforce, especially in sectors with high turnover or project-based employment.

The Labour Act, 2074 introduced a transformational change by making gratuity a monthly accruing benefit from day one, with no tenure threshold. The logic behind this reform is clear:

• Every employee contributes to an organization’s success from day one.
• Even short-term employees deserve a proportional share of long-term benefits.
• It ensures equality and transparency in benefit distribution.
• It reduces disputes and ambiguities during employee exit or termination.

Gratuity is no longer a “bonus” for loyalty, it is a rightful entitlement for every day worked.

Legal Basis: Section 53 of the Labour Act, 2074

Gratuity, once a post-tenure benefit, is now a monthly employer-funded contribution:

Key Provisions:

• The contribution starts from the first day of employment.
• Funds are to be deposited in the Social Security Fund, or in alternative funds until SSF becomes applicable.
• Previously accumulated gratuity must also be migrated to SSF upon activation.
• Employers who fail to deposit gratuity must pay 8.33% directly to employees.
• Employees entitled to pension under a different scheme are excluded from this gratuity provision.

HR Implementation Tip:

Update employment contracts and HR policies to reflect the monthly gratuity structure, eliminating old misconceptions around the 5-year rule.

Mandatory Insurance Requirements Under Nepal Labour Law

The inclusion of medical and accidental insurance as mandatory employer responsibilities addresses another critical dimension of worker welfare, protection against unforeseen health or life risks. In a country where medical costs can quickly become catastrophic for households, this provision ensures:

Employees can access health care without facing financial ruin.

Families are not left vulnerable in case of accidents or fatalities.

The burden of risk is shared by employers, not just the employees.

Insurance is not just a compliance item, it’s a human safety net embedded into the employment ecosystem.

Medical Insurance (Section 54)

• Employers must provide medical insurance coverage of NPR 100,000 per employee per year.
• Premium is shared proportionally between employer and employee.

Accidental Insurance (Section 55)

• Minimum coverage: NPR 700,000 per employee.
• Premium is 100% employer-funded.
• In case of death or full disability, the insured amount is paid to the employee or legal heirs.
• Partial disabilities are compensated based on a predefined scale.

Employer Liability (Section 56)

If an employee or dependent is unable to claim insurance benefits due to non-compliance or administrative errors, the employer must directly compensate the amount equivalent to the insured sum.

HR Implementation Tip:

Regularly review and renew insurance policies. Audit insurance coverage annually to ensure compliance.

Role of the Social Security Fund (SSF) in Nepal

The introduction of the Social Security Fund Nepal (SSF) marked a pivotal shift in how the government envisions employee welfare. Rather than treating provident fund, gratuity, medical insurance, accidental coverage, maternity benefits, and old-age protection as fragmented, standalone components, SSF aims to consolidate them under a unified, integrated framework.

This move brings multiple advantages:

• Centralized administration and record-keeping
• Simplified compliance for employers
• Comprehensive protection for employees under one umbrella
• Reduction in duplication of benefits and paperwork
• Promotion of a formal, secure and traceable social protection system

But What About Concerns Around Withdrawals?

One of the most common concerns raised by employees is the restricted access to PF and gratuity balances after resigning from a job when contributions are made under SSF.

Previously, under schemes like Employees Provident Fund (EPF) or in-house gratuity systems, employees could withdraw their full accumulated amount upon leaving an employer. Under SSF, however, the withdrawal is not immediate unless the employee retires or meets certain conditions.

While this may feel limiting in the short term, it serves a larger purpose:

• It preserves retirement funds, ensuring that the savings are not prematurely exhausted.
• It discourages fund misuse and builds long-term financial discipline.
• It encourages labour mobility without breaking the social protection cycle, because benefits can continue when the employee joins a new SSF-participating employer.
• It aligns with international social security standards, where withdrawal is tied to age, not job tenure.

In essence, the SSF isn't just about accumulating benefits, it’s about securing the future. While the immediate liquidity may be lesser, the long-term financial resilience it creates for employees is far greater.

HR’s Role: Communicate the Purpose, Not Just the Process

HR professionals must proactively educate employees about this shift:

• Explain how SSF ensures lifetime portability of benefits.
• Highlight that funds remain theirs, just not immediately accessible.
• Reassure that long-term financial health is the true objective of this structured scheme.

Legal Basis: Section 57 of the Labour Act, 2074

The Social Security Fund Nepal acts as a central platform consolidating employee welfare contributions under a single scheme. Employers contributing through SSF are exempt from additional obligations under Labour Act Chapter 9, as long as all applicable benefits are covered.

SSF Coverage Includes:

• Accident and Disability Protection
• Health and Medical Insurance
• Maternity Protection
• Old Age Security (includes PF and Gratuity)

HR Checklist for SSF Integration:

• Verify employee registration in SSF.
• Ensure correct monthly contributions under designated SSF codes.
• Migrate existing balances from EPF, CIT, or other retirement funds.
• Stay informed about any scheme updates or amendments from the SSF office.

Why Payroll Compliance Should Be a Strategic Priority

Non-compliance with provident fund Nepal, gratuity in Nepal, and Social Security Fund requirements can result in:

• Legal penalties and fines
• Labour audits and government scrutiny
• Employee dissatisfaction and turnover
• Damage to brand reputation

Streamline Your Compliance Strategy:

Our payroll services help organizations:

• Automate provident fund and gratuity calculations
• Integrate directly with SSF systems
• Track real-time compliance and generate reports
• Manage complete employee lifecycle from onboarding to exit

Conclusion: Build a Compliant, Transparent, and Trustworthy Workplace

HR professionals are at the forefront of shaping transparent and compliant workplaces in Nepal. With structured contributions for provident fund, gratuity, and mandatory insurance coverage, and through the efficient use of the Social Security Fund, organizations can foster employee trust while fulfilling their legal responsibilities.

Key Takeaways:

• PF and gratuity contributions begin from day one, not after years.
• Medical and accidental insurance coverage is legally required.
• SSF registration can simplify compliance, but requires active management.
• Technology-enabled payroll systems can streamline operations and reduce risk.

Ready to Ensure Full Labour Compliance? Let's Conduct Your HR Audit

Staying legally compliant is not just about making monthly contributions, it’s about building a strong internal HR ecosystem that reflects current laws, ensures fairness, and protects both your organization and your employees.

If your organization hasn’t yet audited its labour law compliance or updated HR bylaws and employee handbooks in light of the Labour Act, 2074 and the Social Security Fund integration, now is the time.

Our Services Include:

• Full-scale Labour Compliance Audits
• Detailed HR Policy and Bylaw Review
• Custom drafting or revision of your Employee Handbook
• Mapping of current practices against Labour Act & SSF Guidelines
• Practical implementation support for gratuity, PF, and insurance provisions
• Training sessions for your HR and management teams

Additional Resources

• Free Salary Slip Generator for Employers | Create Professional Payslips in Nepal Online
• Revised Revenue Codes for Tax Payment in Nepal That Every Tax Payer Should Know
• Salary Slip vs. Salary Certificate: Understanding the Difference
• Nepal’s Social Security Fund (SSF): Registration, Contribution & Benefits Explained (2025)

Let’s future-proof your HR practices.

Contact us today to schedule a free initial consultation and ensure your business is fully aligned with the evolving legal landscape.

 Phone: +977 9818098098