Is Annual Salary Increment Mandatory in Nepal? Understanding the Legal Requirements
“We don’t wait a year to give raises. We reward performance!”
Sounds like a modern and progressive approach, right? Rewarding employees based on their performance, irrespective of the time? Fair, transparent, and employee-friendly!
But, can employers actually skip the annual salary increment? Is it legally required in Nepal?
Let’s dive into what Nepal’s Labour Act, 2074 (2017) actually says about this.
What Does the Labour Act Say About Annual Salary Increments?
According to Section 36 of the Labour Act, annual salary increments are mandatory. Here’s a simple breakdown:
If you’ve completed 1 year of service with an employer:
You are legally entitled to receive a salary increase of at least half a day’s basic pay.
How Does the Math Work?
Let’s break this down with a simple example:
- Basic monthly salary = Rs. 20,000
- Daily rate = Rs. 20,000 ÷ 30 = Rs. 666.67
- Half-day increment = Rs. 333.33
So, the mandatory annual increment, in this case, is Rs. 333.33. (Yes, that little!)
While it may not sound like much, it’s the legal minimum that an employer must provide.
Key Takeaways for Employers:
- Non-negotiable by law: This increment is legally binding. You can’t skip it.
- Applies even during financial strain: Even if the company is facing financial difficulties, this increment is still required.
- Separate from performance raises or promotions: The mandatory annual increment is distinct from any performance-based raises or promotions.
- More is allowed, but not less: Employers can give more than this minimum increment, but they cannot give less (or skip it altogether).
What Some Employers Say
Some employers claim:
- “We don’t wait a whole year. We increase salary every 3 months if the employee is doing well.”
- “If the employee is average, we’ll delay the increment for 2 years to maintain standardization.”
While this sounds flexible and performance-driven, it doesn’t align with the law.
What Employers Should Do:
If you run a company, especially a startup or SME, here’s what you should do:
- Reflect the legal requirement in your employment contracts.
- Tie the salary increment to your annual review cycle.
- Offer performance-based increments, but ensure you meet the legal minimum.
Final Thoughts
It’s not just about legal compliance. It’s about maintaining consistency and credibility in your organization.
Even small, timely salary increments send a strong message to your employees:
“We value your time and contributions.”
And it’s that consistency that helps you build strong, motivated teams.
