Payroll compliance in Nepal: what your HR software has to handle
SSF, TDS, gratuity, the Bikram Sambat calendar and Labour Act leave rules. What payroll software built abroad usually gets wrong about Nepal.
Most HR software sold internationally assumes a January-to-December year, a Gregorian calendar, and a tax regime that looks nothing like Nepal's. You can make it work. You will be maintaining a spreadsheet alongside it to do so, which rather defeats the point.
Here is what running payroll in Nepal actually requires a system to do.
A note on the figures below. Rates and thresholds change with each year's Finance Act, and this post reflects FY 2083/84 as at Bhadra 2083. Verify current figures against the Inland Revenue Department and the Social Security Fund before you run payroll against them. This is an explanation of the moving parts, not tax advice.
The Bikram Sambat problem
Start with the thing that breaks first, because it is the least negotiable.
Nepal's fiscal year runs Shrawan to Ashadh — roughly mid-July to mid-July — and payroll periods, tax withholding and statutory reporting all follow Bikram Sambat months, not Gregorian ones. Shrawan does not start on the first of any Gregorian month, and BS months vary between 29 and 32 days depending on the year.
This is not a formatting preference. If your payroll system thinks a month is "August 2026", it is computing a period that does not correspond to any period the Inland Revenue Department recognises. Every downstream number — attendance days, per-day deductions, monthly TDS — inherits that mismatch.
Software that handles this properly either works natively in BS or maintains a proper mapping. Software that does not leaves someone reconciling dates by hand every month.
Social Security Fund contributions
For employers registered with the SSF, contributions total 31% of basic salary: 11% withheld from the employee and 20% paid by the employer on top of gross salary. Registration is mandatory for employers with ten or more employees and voluntary below that.
Two things a payroll system has to get right here:
The base is basic salary, not gross. If your salary structure has allowances sitting outside basic — and most Nepali structures do — computing 31% of the wrong figure is a systematic error repeated every month for every employee.
The employer's 20% is not a deduction. It never appears in the employee's net pay calculation. It is a cost to the organization. Systems that model all contributions as payslip deductions produce payslips that are simply wrong.
There is also a contribution ceiling — raised to NPR 350,000 of monthly salary in FY 2082/83 — above which contributions stop scaling. Any system that applies a flat percentage with no cap will over-deduct for senior staff.
Income tax and TDS
Nepal taxes salaried income at progressive slabs, withheld monthly by the employer. For FY 2083/84 the Finance Act 2083 merged what had been separate schedules for single and married taxpayers into one table:
| Annual taxable income (NPR) | Rate |
|---|---|
| Up to 1,000,000 | 1% |
| 1,000,001 – 1,500,000 | 10% |
| 1,500,001 – 2,500,000 | 20% |
| 2,500,001 – 4,000,000 | 27% |
| Above 4,000,000 | 29% |
That is a substantial change from the year before, when the first band ended at NPR 500,000 and the top rate was 39%.
The detail that catches payroll systems out is the first band. That 1% is Social Security Tax, and it is not levied on people contributing to the Social Security Fund — nor on contributors to an approved pension fund, pension recipients, or sole proprietorships. For an SSF-registered employer, the entire first NPR 1,000,000 band is exempt rather than taxed at 1%.
A payroll engine that applies the slab table without checking SSF status will over-withhold from every employee, every month. It is a small percentage and a large number of people, which is exactly the kind of error that goes unnoticed for a year.
Retirement contributions are deductible up to the lowest of the actual contribution, NPR 500,000, or one third of assessable income — so the deduction is not a flat figure either.
Gratuity and provident fund
Employers not in the SSF typically run Provident Fund and gratuity separately, with contributions to an approved retirement fund. Employers inside the SSF have gratuity folded into the employer's 20% contribution — 8.33% of it is the gratuity component.
That means the two regimes produce genuinely different payslips, and a system needs to know which one an employer is in. Configuring gratuity as an additional deduction for an SSF-registered employer double-counts it.
Leave, and why it belongs in payroll
The Labour Act 2074 sets statutory minimums that interact directly with pay:
- Home leave accrues at one day for every twenty days worked — roughly eighteen days a year — and accumulates up to ninety days.
- Sick leave is twelve fully paid days a year, accumulating to forty-five.
- Public holidays are thirteen a year, and fourteen for women.
- Maternity leave is fourteen weeks; paternity leave is fifteen days; mourning leave is thirteen days.
The payroll consequence is the accumulation. Accrued leave is a liability, and unused sick leave up to the cap is payable at basic salary on termination. If leave balances live in a spreadsheet and payroll lives somewhere else, that liability is invisible until someone resigns — at which point it becomes an argument.
This is the strongest practical reason to have leave and payroll in one system rather than two: the final settlement calculation needs both, and it needs them to agree.
What to actually check before buying
If you are evaluating HR software for a Nepali organization, these six questions separate the systems that will work from the ones you will end up patching:
- Does it handle Bikram Sambat periods, or will we be mapping dates by hand?
- Can SSF be calculated on basic salary specifically, with the contribution ceiling applied?
- Does the employer contribution stay out of the employee's net pay?
- Are the tax slabs configurable, or hard-coded to a year that will be wrong next Ashadh?
- Does the tax calculation know about the SSF exemption on the first band?
- Does the final settlement calculation read actual leave balances?
Question four matters more than it looks. Nepali tax bands change most years and changed dramatically this year. A system where the slabs are configuration rather than code is one you can update yourself in an afternoon. A system where they are hard-coded is one you wait for a vendor to update — and international vendors update for Nepal slowly, if at all.
That is the honest argument for self-hosted software with source access in this market. Not that it is cheaper, though it usually is. That when the Finance Act changes in Jestha and payroll runs in Shrawan, you are not waiting on anyone.
Ace HR is self-hosted HR software with configurable salary components and tax brackets, licensed for a one-time fee. Work a payslip through the salary calculator, see the payroll module, or read what a licence includes.