Labour outsourcing in Nepal is permitted, but only within limits. An employer may take staff from a licensed labour supplier for a short list of gazetted services, and only for work that is not part of its core business.
The framework sits in the Labour Act, 2074 (2017) and its associated regulations and directives, together with a notice published in the Nepal Gazette that fixes which services may be supplied.
This note answers three questions that recur in practice: what the legal provisions actually require, whether services outside the gazetted list can be taken from a labour supplier, and whether a service procurement contract offers a lawful alternative.
The Legal Framework
Who counts as a labour supplier
Section 2(y) of the Labour Act defines a labour supplier as a person or body having obtained the licence pursuant to Chapter 11 of the Labour Act to supply labour. Supplying labour without that licence is therefore outside the scheme entirely.
The list of works
Section 58(1) requires the Ministry of Labour, Employment and Social Security, on the recommendation of the Council, to publish a list of works in which labour may be employed through labour suppliers. That publication is made by notification in the Nepal Gazette.
Core work is excluded
Section 58(2) adds the decisive limit: where an employer hires through a labour supplier, it must engage them for work other than the core work of its business or service.
Key Provisions at a Glance
| Provision | What it establishes |
|---|---|
| Section 2(y) | Defines a labour supplier as a person or body licensed under Chapter 11 to supply labour. |
| Section 58(1) | The Ministry, on the Council’s recommendation, publishes the list of works open to labour supply, by Nepal Gazette notification. |
| Section 58(2) | Labour hired through a supplier must be engaged for work other than the core work of the business or service. |
| Section 59(1) | A company seeking to supply outsourced employees must obtain a licence. |
| Section 59(4) | The licence must state the type of work or service and the scope of the supply. One company is typically not permitted to supply labour for more than two types of work or service. |
Services That May Be Outsourced
Under Section 58(1), the Ministry of Labour, Employment and Social Security published a notice in the Nepal Gazette on 19 Ashoj 2075 (5 October 2018). The notice lists the services that may be procured from labour suppliers:
- Security
- Support staff
- Business assistance
- Household support
Reading Sections 58(1) and 58(2) together with the notice, an employer may engage labour from a licensed supplier for security, support staff, business assistance and household support, provided those services do not form part of the core work of its own business or service.
Licensing of Labour Suppliers
A company intending to supply labour must hold a licence under Section 59(1). Section 59(4) requires the licence to specify the type of work or service and the scope of the supply, and the same company is typically not permitted to supply labour for more than two types of work or service.
The practical effect is twofold: a supplier can only provide what its licence authorises, and an employer can only draw on the services set out in the notice, kept clear of its core activities.
Can Other Services Be Taken From a Labour Supplier?
No. Labour suppliers are constrained by their licence to provide employees only for the specific services they are authorised to offer. It is therefore not feasible for an enterprise to use a labour supplier for services falling outside the scope of those named in the notice.
The Service Procurement Contract Model
The Labour Act does not expressly address the procurement of services that are not included in the notice, and labour-supplying companies remain limited to the types of work they are licensed for. However, the law does not prohibit a labour supplier from having objectives beyond labour supply.
Where a company’s objectives are broad enough to allow it to provide the service an enterprise needs, the enterprise may be able to procure that service from it. Equally, the enterprise could go to a different provider whose primary objective is to offer the service in question.
Such an engagement is made by service contract, and its terms are governed by general contract law rather than labour law. That distinction has to be visible on the face of the document:
- The contract must state expressly that it is for the provision of a service, for example business analysis services.
- It must not be framed as labour supply, for example supplying a business analyst.
- Any indication that the arrangement is in substance labour supply brings it back within the licensing restrictions above.
So services outside the notice can potentially be obtained through a service procurement model, but the counterparty must not operate exclusively as a labour supplier. It must genuinely be a provider of the service being bought.
Key Contacts
If you have questions about outsourcing arrangements or your existing supplier contracts, get in touch with Bishal Panthi, Fellow Chartered Accountant (FCA), Partner, or Tanija Singh, Attorney at Law, Senior Associate. You can also contact the firm directly, or read more about our HR and labour law services.
This publication is not intended to be used as a basis for undertaking any significant transactions, financial or otherwise, without consulting appropriate professional advisers.
Read the Original Briefing
The full briefing, including the original formatting, is reproduced below and available to download.