The Labour Act, 2074 (2017) introduces a structured legal framework for regulating the engagement of workers through third-party labor outsourcing in Nepal. Recognizing the growing prevalence of outsourced labor in both public and private sectors, the Act seeks to ensure transparency, accountability, and fairness in such arrangements.
By establishing clear criteria and limitations, it aims not only to formalize outsourcing practices but also to uphold the dignity, rights, and entitlements of contract-based workers, ensuring they are not treated as a secondary labor force. The Labour Act, 2074 (2017) includes specific provisions to manage the supply of labor through third-party companies, also known as labor suppliers.
These provisions aim to prevent the misuse of contract-based workers and ensure they are treated fairly. According to the Act, the Ministry of Labour, with a recommendation from the Labour Council, can issue an official notice in the Nepal Gazette to list the types of work that can be legally outsourced. However, companies are only allowed to outsource non-core or supportive tasks—not the main work for which the business was established.
For instance, a manufacturing company cannot outsource its production work, but it may hire cleaning or security services through a labor supplier. The law defines “main work” as the key activities mentioned during company registration and anything directly related to those functions.
Obtaining a License for Labor Outsourcing: Legal Requirements under Section 59 of the Labour Act, 2074
Under the Labour Act, 2074, any company intending to operate as a labor outsourcing company in Nepal must obtain a proper license. This licensing system ensures that only legally recognized and accountable companies are allowed to supply workers, helping to protect the rights of both workers and employers.
To qualify for the license, the company must be formally registered under Nepal’s prevailing company laws. An application must be submitted in the prescribed format to the relevant regional labor office, along with all required documents, details, and fees. However, if the company intends to supply labor across multiple regions (i.e., areas under the jurisdiction of more than one labor office), the application must be submitted directly to the Department of Labour.
Once the application is received, the concerned authority will examine it. If the application is found satisfactory, the license must be issued within 15 days—subject to conditions and upon the deposit of a security amount or a bank guarantee as prescribed. The issued license will clearly mention the type of work or service and the geographical area in which the company is authorized to supply labor. Importantly, no company is allowed to supply labor for more than two different types of work or services under a single license.
Step-by-Step Procedure to Obtain Labor Outsourcing License in Nepal:
Step 1
Incorporate a company under prevailing Nepali company law.
Step 2:
Determine licensing office:
- Apply to the Labor and Employment Office for a single-area operation.
- Apply to the Department of Labor and Occupational Safety for multi-area operations.
Step 3:
Collect and notarize the following documents:
- Company Registration Certificate
- Memorandum and Articles of Association
- Updated Shareholder Structure
- PAN or VAT Registration Certificate
- Tax Clearance Certificate
- SSF Registration Certificate
- Citizenship Certificates of Directors
Step 4:
Prepare additional documents:
- Contact details of all directors (name, address, phone, email)
- Work/service details for which labor will be supplied
- Self-declaration letters from each director (no criminal conviction, not blacklisted)
- Board decision to appoint a representative (if applicable)
- Representative’s citizenship and ID card copy
- If supplying security guards, letter submitted to Office of Company Registrar
Step 5:
Fill out the prescribed application form and attach all required documents.
Step 6:
Submit the completed application to the appropriate authority (office or department).
Step 7:
Wait for verification. If all documents are in order, the license will be issued within 15 days, with mention of authorized services and areas.
Legal Documentation Required for Labor Supply Licensing in Nepal
To register as a labor supply company in Nepal, businesses must fulfill specific legal documentation requirements. These documents ensure legal registration, financial transparency, and ethical operations. According to Section 59 of the Labour Act, 2074 and supporting regulations, the following documents must be submitted while applying for a labor outsourcing license:
Key Documents to Be Submitted:
- Company Documents
- Notarized copy of company registration certificate
- Notarized Memorandum and Articles of Association
- Updated shareholding structure (notarized)
- PAN/VAT registration certificate (notarized)
- Latest tax clearance certificate
- Registration certificate with the Social Security Fund (notarized)
- Details of Work Scope
- Clear specification of the types of work or services the company intends to supply labor for
- Director and Authorized Person Details
- Citizenship certificates of all directors (notarized)
- Contact details of each director
- A self-declaration letter from each director confirming no criminal convictions or blacklisting
- A formal decision designating an authorized representative for license-related work, with their contact details and ID proof (notarized)
- Special Case (if applicable)
- If the company plans to supply security guards, a copy of the letter requesting opinion from the Company Registrar’s Office
Where to Submit
- Companies operating in a single area must apply at the concerned Labor and Employment Office.
- Companies intending to operate in multiple regions must apply directly to the Department of Labor and Occupational Safety using the official format.
Labor Outsourcing License Renewal Process in Nepal
As per Rule 30 of the Labour Rules, 2075 and Section 6 of the Labor Outsourcing License and Renewal Directive, 2081, licensed labor supply companies must renew their license annually by the end of Ashwin (mid-October) by submitting the following documents to their respective Labor and Employment Office:
Required Documents for Renewal:
- Financial Audit Report of the previous fiscal year
- Tax Clearance Certificate from the last fiscal year
- Labor Audit Report
- Details of Workers Supplied, including:
- Serial number
- Name of worker
- Designation
- Name of the client company
- Name of the principal employer
- Remarks, if any
- Salary Documentation:
- o Monthly salary sheet for all 12 months
- o Bank vouchers or communication proof confirming salary payment via bank
- o Evidence of festive allowance payments
- Bonus Distribution Report showing distribution of at least 10% of annual profit to workers
- Self-Declaration Letters from each founder or director:
- Declaring no criminal conviction or blacklisting
- Confirming compliance with the Labour Act, Labour Rules, and Bonus Act
- Updated Company Information:
- Notification of any changes in company name, address, or structure
- Record of company updates up to the last fiscal year
- Updated shareholder records
- Names, contact numbers, and email addresses of directors and company representatives
- Office location map
- Social Security Fund (SSF) Documents:
- Certified copy of SSF employer registration certificate
- Annual report of deposited SSF contributions
- Bank vouchers proving SSF deposits for the past 12 months
- Certified Copy of Existing Labor Outsourcing License
- .Additional Requirement for Security Guard Suppliers
- Re-approval letter issued by the concerned District Administration Office
Permissible Areas for Labor Supply and Registration Fees in Nepal
Under Section 58 of the Labour Act, 2074 and Clause 3 of the Labor Outsourcing Licensing and Renewal Procedure Directive, 2081, the Government of Nepal has specified a limited set of work categories where third-party labor supply is legally permitted. These restrictions aim to ensure that labor outsourcing is used for supportive, non-core functions and that workers are protected from exploitation.
Government-Approved Categories for Labor Supply:
Labor supply companies in Nepal can only deploy workers in the following four categories of services:
- Security Services:
- Security guards and related personnel
- Housekeeping and Support Services:
- Cleaning and waste management workers
- Gardeners and agricultural helpers
- Office assistants (e.g., tea/refreshment staff, messengers)
- Staff for canteen and catering services
- Business Support and Technical Services:
- Drivers and helpers (conductors)
- Workers for loading/unloading, transport, and storage
- Technicians and maintenance workers (e.g., plumbers, electricians, carpenters, masons)
- Workers providing repair, maintenance, or technical consultation
- Domestic Help Services:
- Housemaids, caregivers, and other domestic workers
Legal Restriction on Scope of License:
As per Section 59(4) of the Labour Act, 2074, a labor supply company is only permitted to obtain a license for two types of services from the list above. This limitation is enforced to maintain focus, operational quality, and compliance.
Labor Supply Registration Fees in Nepal
The licensing process to operate as a labor outsourcing is subject to a government-set registration fee, which varies based on the company’s intended area of operation:
- If operating within a single province:
The company must pay a registration fee of NPR 15,00,000 (Fifteen lakh rupees). - If intending to operate in more than one province:
An additional NPR 7,00,000 is required per extra province.
For example, if a company registers in three provinces, the total fee would be:- 15,00,000 (first province) + 7,00,000 (second) + 7,00,000 (third) = NPR 29,00,000
Legal Obligations and Compliance for Labor Supply Companies in Nepal
The Labour Act, 2074 has introduced specific rules and responsibilities that labor supply companies in Nepal must follow in order to operate legally and maintain their licenses. These provisions ensure transparency, worker protection, and employer accountability within the outsourcing industry.
Annual Reporting Requirements (Section 60)
Licensed labor suppliers, whether their license is issued by a local office or the central department are required to submit annual operational details to the relevant authority by the end of the month of Poush each year. This ensures continued oversight and proper documentation of labor supply activities.
Key Responsibilities of Labor Suppliers (Section 61)
Labor suppliers are expected to fulfill the following legal duties:
1 .Compliance with Rules: Labor suppliers must not engage in activities that violate the conditions of their license or the provisions outlined in the labour Act 2074 and related regulations.
2. Payment and Benefits: As employers under the law, labor suppliers are obligated to provide regular wages and employment benefits at a level no less than what is legally mandated.
3. Occupational Safety and Health: It is the duty of the principal employer (the company where the laborers are placed) to verify whether the labor outsourcing has ensured proper health and safety measures at the workplace. If gaps are found, they must recommend corrective action to the labor supplier.
4. Escalation to Authorities: If the principal employer fails to take corrective action, the labor outsourcing must inform the Department of Labour or concerned office to take appropriate steps.
License Suspension, Cancellation, and Fines (Section 62)
The Labour Act also includes clear enforcement mechanisms if a labor outsourcing fails to comply with legal requirements:
- License Cancellation: The issuing authority (department or local office) can cancel a license in the following cases:
- If the labor outsourcing requests cancellation in writing.
- If the outsourcing repeatedly violates legal conditions, even after being fined.
- Right to Defend: Before canceling a license for violations, the labor outsourcing must be given at least seven days to respond and defend their position.
- Public Disclosure: Any decision to cancel a license will be publicly announced for transparency.
- Unresolved Liabilities: Cancellation of the license does not exempt the labor outsourcing from settling any outstanding dues or liabilities to the Government of Nepal or affected workers.
- License Suspension: In cases of non-compliance, the Department or concerned office can temporarily suspend the license as per the law.
- Fines: For initial violations, a labor outsourcing can be fined up to NPR 25,000. Further non-compliance can lead to stricter action, including suspension or cancellation.
Conclusion
The Labour Act, 2074 (2017) provides a comprehensive legal framework for regulating labor supply in Nepal. It ensures that labor-supplying companies operate with transparency, accountability, and in compliance with established standards. From obtaining and renewing licenses to fulfilling annual reporting and ethical obligations, the law seeks to protect the rights of contract-based workers while preventing exploitation. Proper documentation, timely renewal, and adherence to labor standards are essential for maintaining legal status and credibility in Nepal’s growing outsourced labor market.