Introduction to Labour Audit in Nepal
Labour compliance has become a critical focus for both businesses and the government in Nepal. To ensure transparency and protection of workers’ rights, the Labour Act, 2074 mandates that certain enterprises conduct a Labour Audit annually. This audit assesses how well an organization adheres to labour laws, employment standards, and workplace policies.
What Is a Labour Audit?
A labour audit is a systematic evaluation of a company’s employment practices, HR policies, and compliance with labour laws. It ensures that employees' rights are protected and the employer fulfills legal obligations.
Why Is Labour Audit Important in Nepal?
It helps organizations:
- Stay compliant with national labour regulations
- Identify risks and rectify violations
- Improve employee satisfaction
- Avoid legal penalties or government action
Legal Framework of Labour Audit in Nepal
Labour Act, 2074 and Labour Rules, 2075
The Labour Act, 2074 (2017 AD) introduced several reforms in employment and workplace policies. Under Section 80 of the Act and Rule 51 of the Labour Rules, every business entity with 10 or more employees must conduct an annual labour audit.
Government Mandates and Penalties
If a business fails to comply, it may face:
- Fines and penalties
- Suspension of business operations
- Negative reputation and trust issues with employees
Who Needs to Conduct a Labour Audit in Nepal?
Applicability to Different Types of Businesses
The audit is mandatory for:
- Companies with more than 10 employees
- Educational institutions, hospitals, hotels, factories, NGOs/INGOs.
Responsibilities of Employers
Employers must:
- Arrange an independent audit annually
- Submit the audit report to the Labour Office and Social Security Fund (SSF)
Key Components of a Labour Audit Report
A labour audit report typically covers the following areas:
Employment Contracts and Working Conditions
- Are contracts issued to every employee?
- Are working hours and job descriptions clear?
Wages, Working Hours, and Leave Records
- Is minimum wage followed?
- Are overtime and leave entitlements properly recorded?
Social Security and Employee Benefits
- Has the business enrolled all employees in SSF?
- Are provident fund and gratuity contributions being made?
Occupational Health and Safety Compliance
- Are safety measures, equipment, and training provided?
- Is there a health insurance policy in place?
Labour Audit Process in Nepal
Preparing for the Audit
- Collect employee records, contracts, and policies
- Review payroll, leave, and attendance logs
Conducting the Audit Step-by-Step
- Hire a licensed Labour Audit professional or Chartered Accountant
- Evaluate each aspect of labour compliance
- Interview staff and HR personnel (if needed)
Post-Audit Reporting and Documentation
- Prepare a comprehensive labour audit report
- Submit it to the Department of Labour and Social Security Fund
Benefits of Labour Audit for Businesses
Risk Mitigation and Legal Compliance
Labour audits help avoid fines, lawsuits, and disputes.
Improving Workplace Standards
By identifying issues, businesses can upgrade internal policies and improve HR practices.
Enhancing Employee Satisfaction
A compliant and transparent workplace builds employee trust and reduces turnover.
Common Issues Found in Labour Audits
Non-Compliance with Labour Laws
- Failure to register employees in SSF
- Non-payment of minimum wage
Incomplete or Missing Documentation
- Lack of formal employment contracts
- Poor record-keeping
Underpayment and Benefit Denials
- Delayed salary payments
- Failure to provide sick leave or maternity benefits
How to Conduct a Labour Audit in Nepal: A Practical Guide
Checklist for Employers
- Appoint an auditor
- Gather all HR and compliance records
- Update employment files
- Review payroll systems
Role of Chartered Accountants and HR Professionals
They play a vital role in ensuring:
- Accurate audits
- Recommendations for improvement
- Timely reporting
Conclusion: Ensuring Labour Law Compliance in Nepal
Labour audits are more than just legal formalities. They’re essential tools for promoting ethical employment, safeguarding employee rights, and boosting organizational credibility. Whether you're a small business or a large enterprise, regular labour audits can help you stay on the right side of the law and build a positive work culture.
Long-Term Value of Regular Labour Audits
Consistent compliance leads to:
- Fewer legal disputes
- Better organizational performance
- Higher employee retention
Consulting Experts for Labour Audit Assistance
If you're unsure where to start, seek help from professionals specializing in labour law, HR, or registered Chartered Accountants.
Frequently Asked Questions
Is Labour Audit mandatory in Nepal?
Yes, as per Section 80 of the Labour Act, 2074 (2017), labour audits are mandatory for certain businesses, particularly those employing 10 or more workers. The audit must be conducted annually.
Who is responsible for conducting the labour audit?
Labour audits are typically conducted by certified auditors or labor law experts. The employer must arrange and submit the audit report to the relevant Labour Office.
What documents are reviewed during a labour audit?
A labour audit may include a review of:
- Appointment letters and contracts
- Attendance and leave records
- Salary and wage payment records
- Provident Fund (PF) and Social Security Fund (SSF) contributions
- Insurance policies
- Workplace safety measures
- Company policies and HR manuals
What happens if a company fails to conduct a labour audit?
Non-compliance can result in penalties, fines of Rs 20,000 or even legal action by the Labour Office. It may also affect business reputation and licensing.
What is included in a labour audit report?
The report includes:
- Compliance status with labor laws
- Gaps or violations found
- Recommendations for corrective actions
- Summary of workforce demographics and facilities
What is the deadline for submitting the labour audit report?
The audit must be conducted within six months after the end of each fiscal year and submitted to the Labour Office.
Is there a prescribed format for the labour audit report?
Yes, the Department of Labour provides a standard format for labour audit reports. It includes checklists and documentation templates for uniformity.
How can a company prepare for a labour audit?
To prepare, ensure:
- All HR records are updated
- Workers’ welfare benefits are in place
- Policies are aligned with labour law
- Regular internal HR audits are conducted
Can startups and small businesses be exempted?
Businesses with fewer than 10 employees are generally not required to undergo a formal labour audit, but they must still comply with relevant labour laws.
Can the labour audit be outsourced to consulting firms?
Yes, many businesses in Nepal hire HR and legal consulting firms to conduct internal audits or help prepare for formal audits.
How much does a labour audit typically cost?
The cost varies depending on company size, complexity, and the consultant’s fees. For SMEs, it generally ranges from NPR 10,000 to NPR 50,000.
