Legal Insights
Legal Insights
How Gratuity is Calculated in Nepal Under the Labour Act 2017: A Complete Guide
2026-05-12
Admin
Gratuity is an important financial benefit provided to employees in Nepal as a reward for long-term service. It acts as a form of social security, helping employees build a financial cushion over time.
In Nepal, gratuity is governed by the Labour Act, 2073 (Nepal), which mandates employers to contribute a certain percentage of an employee’s salary toward a gratuity fund. Whether you are an employee trying to understand your benefits or an employer ensuring compliance, knowing how gratuity is calculated is essential.
Gratuity is a retirement or service benefit paid to employees after a certain period of employment. Unlike salary, it is not paid monthly to the employee but is accumulated over time in a fund.
Under Nepalese law, gratuity is typically deposited into:
A separate gratuity fund, or
The Social Security Fund (SSF), where applicable
The Labour Act, 2017 (Nepal) requires employers to contribute gratuity for employees working in enterprises covered by the Act.
The law ensures:
Mandatory employer contribution
Protection of employee benefits
Transparency in fund management
Employees are eligible for gratuity if they:
Are employed in organizations covered by the Labour Act
Work on a regular basis (not purely casual workers)
Continue employment for a certain period
In most cases, gratuity applies to full-time employees.
Under the Employment and Labour Act, 2073 (Nepal):
Employers must contribute 8.33% of the employee’s basic salary toward gratuity
This contribution is made monthly and accumulated over time.
Gratuity calculation in Nepal is relatively straightforward.
Gratuity=Basic Salary×8.33%×Years of ServiceGratuity = Basic\ Salary \times 8.33\% \times Years\ of\ ServiceGratuity=Basic Salary×8.33%×Years of Service
Basic Salary = Monthly base salary (excluding allowances)
8.33% = Employer’s contribution rate
Years of Service = Total years worked
Let’s understand with a practical example:
Basic Salary = NPR 30,000 per month
Contribution Rate = 8.33%
Monthly Contribution = 30,000 × 8.33% = NPR 2,499
Years of Service = 5 years
Annual Contribution = 2,499 × 12 = NPR 29,988
Total for 5 years = 29,988 × 5 = NPR 149,940
This is the accumulated gratuity amount payable to the employee.
If an employer is enrolled in the Social Security Fund:
Gratuity contributions are deposited in SSF
The fund manages and disburses benefits
Employees receive gratuity as per SSF rules
This system improves transparency and security of funds.
Gratuity is generally paid:
Upon resignation
Upon retirement
Upon termination (except in misconduct cases, depending on law)
In SSF cases, payment may follow fund withdrawal rules.
Employers must maintain a gratuity fund or contribute to SSF.
Gratuity is not paid directly to employees monthly it is accumulated.
Employers cannot misuse gratuity funds for business purposes.
Failure to contribute may lead to penalties under the Labour Act, 2017 (Nepal).
Not contributing regularly
Miscalculating basic salary
Mixing gratuity funds with company funds
Ignoring SSF requirements
Delaying payment after employee exit
Thinking gratuity includes allowances (it usually doesn’t)
Expecting monthly payment
Not tracking employer contributions
Confusing gratuity with provident fund
Feature | Gratuity | Provident Fund |
Contribution | Employer only | Employer + Employee |
Rate | 8.33% | Typically 10% each |
Payment | End of service | Withdrawable under conditions |
Purpose | Long-term benefit | Savings + retirement |
Check if your employer contributes regularly
Maintain employment records
Understand your SSF status
Ask for gratuity statements
Maintain proper records
Contribute monthly without delay
Use accounting systems for tracking
Stay compliant with SSF rules
Financial security for employees
Encourages long-term employment
Builds trust between employer and employee
Ensures legal compliance
Gratuity is a vital employee benefit under the Labour Act, 2073 (Nepal), designed to provide financial support after years of service. With a fixed contribution rate of 8.33% of basic salary, the calculation is straightforward but requires consistent compliance.
Both employers and employees must understand how gratuity works to ensure transparency, avoid disputes, and secure financial benefits.
The employer must contribute 8.33% of basic salary under the Labour Act, 2017 (Nepal).
No, it is accumulated and paid at the end of employment or as per SSF rules.
No, it is calculated only on basic salary.
Either the employer (separate fund) or the Social Security Fund (SSF).