Gratuity & Severance Pay Under Nepal Labour Act 2074: 8.33% Formula & Rules
The Nepal Labour Act 2074 modernized employee rights by establishing mandatory monthly gratuity accrual starting from the first day of employment. Employers must deposit or reserve 8.33% of each employees basic remuneration monthly, ensuring transparent separation benefits upon resignation or retirement.
- Gratuity equals 8.33% of monthly basic salary, equivalent to one month of basic pay for every year of completed service.
- Gratuity applies strictly to basic salary; performance allowances and transportation perks are excluded.
- Accumulated home leave up to 90 days and sick leave up to 45 days must be encashed upon separation.
- Employers enrolled in the formal Social Security Fund deposit this 8.33% directly into each workers individual retirement account.
Statutory Gratuity Accrual Formula
The Labour Act 2074 removed the older 3-year service barrier. Gratuity accrues from day one:
| Service Metric | Statutory Rate | Calculation Basis |
|---|---|---|
| Monthly Gratuity Accrual | 8.33% | Monthly Basic Remuneration |
| Annual Equivalent | 100% of 1 Month | 1 Month Basic Pay per Year of Service |
| Home Leave Encashment Limit | Up to 90 Days | Daily Basic Salary * Unused Days |
| Sick Leave Encashment Limit | Up to 45 Days | Daily Basic Salary * Unused Days |
Severance Payment During Redundancy
Under Section 145, if an enterprise retrenches employees due to structural reorganization, employers must pay retrenchment compensation equal to one month of basic wage for each year of continuous service, in addition to earned gratuity and leave encashment balances.
Final Thoughts
Understanding statutory separation rights ensures fair settlement between employers and team members. Calculate your exact entitlements using our Labour Act Gratuity and Leave Encashment Calculator.
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