Introduction to Labour Audit in Nepal
Labour audit in Nepal is a systematic evaluation of a company’s compliance with labour laws, including employee welfare, remuneration, benefits, and working conditions. It ensures adherence to the Labour Act, 2074 (2017) and associated regulations. The audit reviews whether employers maintain legal documentation, pay statutory benefits, and follow safety standards. It is mandatory for certain businesses as specified by law. Labour audits promote legal transparency and help identify gaps in HR practices. The primary objective is to protect employee rights and uphold workplace standards as prescribed by Nepalese labour legislation. Medha Law and Partners Is a leading law firm in Nepal.
Legal Requirements for Labour Audit
The Labour Act, 2074 (2017) requires enterprises with ten or more employees to conduct annual labour audits. Rule 50 of the Labour Rules, 2075 (2018) elaborates the format, content, and submission process. Section 80 of the Labour Act mandates the employer to appoint a labour audit expert or certified auditor to examine compliance. The audit must be submitted to the Department of Labour or relevant Labour Office by the end of each fiscal year. Non-compliance can attract administrative action or monetary penalties under prevailing law.
Objectives and Purpose of Labour Audit
The labour audit serves several purposes under Nepalese labour law:
- Ensures employer compliance with employment contracts, remuneration, and benefits.
- Confirms adherence to workplace health and safety protocols.
- Validates payment of social security, bonuses, and leave entitlements.
- Identifies non-compliance areas and provides recommendations.
- Safeguards employee rights as enshrined in the Labour Act, 2074.
The audit promotes transparency in workplace practices and aids in policy improvements within an organization.
Steps Involved in Labour Audit Process
The labour audit follows a sequential process:
- Appointment of a registered labour auditor.
- Collection of employee records and payroll data.
- Review of compliance with applicable labour laws.
- Evaluation of HR policies, contracts, and internal guidelines.
- Examination of statutory contributions and benefits.
- Preparation of draft report.
- Submission of final labour audit report to the Labour Office.
The audit must be completed before the end of the fiscal year and submitted timely.
Required Documents for Labour Audit
Employers must provide several documents for the labour audit:
- Employee attendance registers
- Appointment letters and contracts
- Salary and wage sheets
- Social Security Fund payment receipts
- Bonus distribution records
- Leave and holiday records
- Insurance documents
- Workplace safety compliance records
- Staff training documentation
- HR policies and internal guidelines
All documents must be up-to-date and verified for audit validity.
Timeline to Complete Labour Audit
The labour audit must be conducted and submitted within the fiscal year. As per Rule 50 of the Labour Rules, 2075, the audit should be completed and submitted no later than the last day of Ashad (mid-July). The process generally takes 2 to 4 weeks, depending on company size and documentation readiness. Early appointment of auditors and timely record compilation ensures compliance with the statutory deadline.
Cost Breakdown of Labour Audit Services
Labour audit costs vary by organization size and auditor fees. Common cost elements include:
- Auditor’s professional fee
- Administrative and documentation expenses
- Internal HR preparation costs
- Miscellaneous legal or consultancy charges
Small firms may spend NPR 15,000–30,000, while larger enterprises may incur costs upwards of NPR 75,000. The actual cost depends on the audit scope and complexity.
Government Fees for Labour Audit Filing
There is no specific government fee solely for filing a labour audit. However, administrative penalties may be levied for late or non-submission as per Section 103 of the Labour Act. Additionally, fees may apply when companies use consultancy firms or legal advisors for audit filing. These are private service charges and not official fees by the Department of Labour.
Key Laws Governing Labour Audits
The labour audit procedure is governed by the following laws:
- Labour Act, 2074 (2017)
- Labour Rules, 2075 (2018)
- Social Security Act, 2074
- Bonus Act, 2030
- Social Security Fund Operation Procedures
These laws outline employer responsibilities, employee rights, compliance mechanisms, and penalties for breaches. The Department of Labour issues periodic directives for implementation.
Authorized Institutions for Labour Audit
Labour audits must be conducted by qualified professionals:
- Registered labour consultants recognized by the Department of Labour
- Licensed auditors familiar with labour law compliance
- Human resource and legal firms specializing in statutory audits
Only professionals with expertise in the Labour Act and experience in employment compliance audits should be appointed.
Labour Audit Report Structure and Format
The labour audit report should follow the format prescribed in Schedule-13 of the Labour Rules, 2075. It includes:
- Auditor’s introduction and appointment details
- Summary of company profile and employment structure
- Evaluation of compliance with key labour laws
- Detailed findings on HR practices, salaries, safety, and benefits
- Recommendations and corrective measures
The report must be signed by the auditor and submitted to the relevant Labour Office.
Checklist Before Labour Audit Submission
Before submission, employers should verify:
- All employee records are updated
- Salary and allowance calculations are accurate
- Contracts and HR policies are documented
- Social security and tax payments are complete
- Bonus and leave records are available
- Labour-related grievances are resolved
- Workplace safety measures are in place
- Audit report follows official format
A self-checklist helps ensure no data gaps exist in the submission.
Role of Employer During Labour Audit
Employers must:
- Appoint a certified labour auditor
- Provide access to employee records and internal policies
- Facilitate interviews with HR personnel or employees
- Cooperate with auditors during site visits or verification
- Review and address findings post-audit
The employer’s involvement is essential for a complete and fair audit.
Importance of Compliance for Companies
Compliance with labour laws enhances organizational credibility. It ensures fair treatment of employees and reduces the risk of legal disputes. Labour audits highlight potential violations and allow corrective action. They are often a requirement for renewing licenses or permits. A compliant company gains workforce trust and maintains a legally sound working environment.
Penalties for Non-Compliance with Labour Audit
As per Section 103 of the Labour Act, non-submission or falsification of labour audit reports can lead to penalties:
- Monetary fines ranging from NPR 10,000 to NPR 100,000
- Possible suspension of operating licenses
- Legal action by the Labour Office or employees
- Disqualification from government tenders or contracts
Employers are advised to maintain transparency and submit accurate reports within the deadline.
FAQs
What is a labour audit in Nepal?
It is a legal review of a company’s employment practices to ensure compliance with labour laws.
Who conducts a labour audit?
Certified labour consultants or auditors recognized by the Department of Labour conduct the audit.
When is labour audit mandatory?
It is mandatory annually for businesses employing ten or more staff as per the Labour Act, 2074.
How long does the audit take?
It typically takes between 2 to 4 weeks, depending on organizational size and readiness.
Is there a government fee?
There is no separate fee, but fines may apply for non-compliance or late submission.
What happens after an audit?
A report is submitted to the Labour Office, and corrective actions may be recommended.
Can a company fail an audit?
Yes. Non-compliance findings can lead to legal penalties or mandatory corrective steps.
Is it compulsory every year?
Yes. Annual submission is required under the Labour Rules, 2075.
What are the audit benefits?
It ensures legal compliance, reduces risks, and strengthens employee-employer relations.