Gratuity in Nepal: Not Just After 5 Years—It’s an Obligation from Day 1
There’s a common misconception among employees, employers, and even HR professionals that gratuity is only payable after 5 years of service. However, under Nepal’s Labor Act, 2074 (2017), that is no longer the case.
In fact, gratuity is a monthly obligation from the very first day of employment—there’s no need to wait for 5 years to receive it.
The Myth of the 5-Year Waiting Period
The idea that gratuity is only applicable after a 5-year tenure comes from the earlier version of the Labour Act (pre-2017). However, the current law has done away with that waiting period, recognizing the importance of providing gratuity as an ongoing obligation.
What Does the Law Say?
Under the new law, employers are required to contribute 8.33% of an employee’s basic salary every month towards gratuity. Ideally, this amount should be contributed to the Social Security Fund (SSF). But if that’s not feasible, the employer has a couple of alternatives:
- The contribution can be directed to a prescribed internal retirement fund.
- If neither of these options is possible, the employer must pay the gratuity amount directly to the employee.
Key Things You Should Know About Gratuity
- Not Deducted from Salary: Gratuity is an additional contribution from the employer—it is not deducted from the employee’s salary.
- SSF is Optional for Some Companies: Even if your company isn’t able to contribute to the SSF due to its applicability or functionality, the employer still has to make arrangements to contribute the gratuity. If no arrangements are in place, the employer must pay it directly to the employee.
- Transfer of Previous Gratuity Funds: If your company has not been contributing to SSF, all previous gratuity funds must be transferred to the SSF once the employer begins contributing.
Update Your Policies
If your company is still calculating gratuity based on the old “5 years and beyond” rule, it’s high time to update your policies. The current law makes it clear: gratuity is applicable from Day 1 of employment.
Spread the Word
Gratuity isn’t something to be ignored or delayed. It’s an employee right from the very start of their employment journey. Repost this to ensure that everyone knows gratuity applies from Day 1—and is an employer responsibility, no matter the tenure.
Is your company up to date with gratuity policies? If not, it might be time to make some changes.
