Gratuityउपदान
Gratuity is a retirement benefit an employer funds throughout an employee's service rather than paying as a lump sum at exit. Under the Labour Act 2074 the employer deposits 8.33% of basic salary every month into the Social Security Fund or an approved retirement fund.
Also called: gratuity nepal, upadan, gratuity calculation
Key facts
- Rate
- 8.33% of basicDeposited monthly by the employer.
- Paid by
- Employer onlyNo employee deduction.
- Held in
- SSF or approved fundNot on the company's own books.
- Vesting
- From the first monthAccrues from the start of employment.
What changed with the Labour Act 2074
The older arrangement paid gratuity as a lump sum at the end of service, calculated on years worked, and only after a qualifying period. It left the liability sitting on the employer's books and left employees exposed if the company could not pay.
The Labour Act 2074 replaced that with a funded model. The employer deposits 8.33% of basic salary every month into the Social Security Fund or another approved retirement fund, and the benefit accrues from the first month of employment rather than after a qualifying number of years.
Where gratuity sits inside the SSF contribution
For an employee enrolled in the SSF, gratuity is not a separate payment. It is part of the employer's 20% contribution: 8.33% of that total is the gratuity accrual, alongside the 10% that stands in for provident fund and the remainder that funds the social security schemes. A company that pays SSF and also accrues gratuity separately is double counting.
What this means at exit
- There is no gratuity line to settle in a final settlement for the funded period. The balance is already with the fund.
- Service before the Act came into effect may still carry a legacy entitlement, which is settled under the rules that applied then.
- The employee claims their accumulated balance from the fund, on the fund's terms, rather than from the employer.
Annual gratuity accrual on a NPR 30,000 basic salary
- Monthly basic
- NPR 30,000
- Monthly gratuity accrual (8.33%)
- NPR 2,499
- Accrued over 12 months
- NPR 29,988
Roughly one month's basic salary per year of service, which is what the 8.33% rate is designed to produce.
Gratuity, answered
As 8.33% of basic salary, deposited every month by the employer into the Social Security Fund or another approved retirement fund. Over a year that comes to roughly one month's basic salary.
No. Gratuity is funded entirely by the employer. Nothing is deducted from the employee's pay for it.
Not for service under the funded model. The money is already deposited with the fund month by month, so the employee claims their balance from the fund rather than receiving a settlement figure from the employer.
- Labour Act 2074, provisions on gratuity and the retirement fund deposit.
This page explains general practice in Nepal. It is not legal or tax advice, and statutory figures are revised from time to time. Check the current Act, rule or notice before acting on it.
Related terms
- Social Security Fund (SSF)सामाजिक सुरक्षा कोषThe Social Security Fund is Nepal's contributory social security scheme. Employer and employee together deposit 31% of the employee's basic salary every month (11% from the employee, 20% from the employer), and that pool pays out medical, accident, dependent-family and old-age benefits.
- Basic Salaryआधारभूत तलबBasic salary is the fixed core of an employee's pay, before allowances, overtime and bonuses. In Nepal it is also the base every statutory contribution is assessed on, which makes it the most consequential number in a salary structure.
- Labour Act 2074श्रम ऐन २०७४The Labour Act 2074 is Nepal's principal employment statute, in force since 2074 BS (2017 AD) and applied together with the Labour Rules 2075. It sets employment types, working hours, overtime, leave entitlements, probation and notice, and the funded gratuity and social security model.
- Full and Final Settlementअन्तिम हिसाबFull and final settlement is the closing calculation when an employee leaves: salary for days worked, leave encashment, any dues owed to them, less any recoveries, paid once every clearance is complete.
- Provident Fund (PF)कर्मचारी सञ्चय कोषThe Provident Fund is a retirement savings deposit held at the Employees Provident Fund (Karmachari Sanchaya Kosh). The employee contributes 10% of basic salary, the employer matches it with another 10%, and the combined 20% is deposited monthly against the employee's PF number.
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