The Employee Welfare Fund (EWF) plays a pivotal role within Nepal’s labour regulations. Rule 84 of the Labour Rules, 2075 (2018) mandates its establishment and use in enterprises following the distribution of bonuses under the Bonus Act, 2030 (1974).
The fund is built from what is left over once statutory bonuses have been paid out. Because the Bonus Act caps how much any one employee can receive, the 10 per cent set aside for bonuses often exceeds what is actually distributed, and that surplus has to go somewhere.
This note examines the statutory background, how the surplus is calculated and split, what the fund may lawfully be spent on, and the reporting obligations that follow.
Statutory Framework
Section 5 of the Bonus Act requires every profit-making enterprise to allocate a sum equivalent to ten per cent of its net income for a fiscal year for the purpose of disbursing bonuses to employees:
Amount to be allocated for bonus distribution = 10% × Net Income (Profit) before Statutory Bonus and Taxes
The term net income here does not carry its customary accounting meaning. For the purposes of the Bonus Act it refers to total earnings prior to the inclusion of statutory bonus and tax deductions. That reading was confirmed in Labour Union of Indushankar Chini Udhoj Limited v. Indushankar Chini Udhoj Limited, Supreme Court, 069-WO-0029 (decision dated 2073/04/30).
Section 6 sets out which employees are eligible. Those engaged in casual or substitute work are expressly excluded. Section 8 further provides that an employee is not eligible where they have been subject to disciplinary action or dismissal for certain acts.
How each employee’s bonus is calculated
Under Section 7, the amount designated for bonus distribution is divided by the remuneration earned by entitled employees in the fiscal year, and the resulting figure gives the bonus percentage:
Bonus percentage = Amount allocated for bonus distribution / Total salary or wage of all employees entitled to receive the bonus × 100
The Bonus Ceiling
Section 7(3) caps what any individual can receive, and it is this ceiling that generates the surplus feeding the welfare fund.
| Employee remuneration | Maximum bonus |
|---|---|
| Up to twice the minimum wage stipulated by the Government of Nepal | Eight months’ salary |
| More than twice the minimum wage stipulated by the Government of Nepal | Six months’ salary |
Because of these caps, and the exclusions in Sections 6 and 8, the amount allocated for bonus distribution may leave a surplus. That surplus is required to be deposited in the Employee Welfare Fund.
Splitting the Surplus
Rule 84 of the Labour Rules requires that, when distributing bonuses under Section 13 of the Bonus Act, any remaining surplus is allocated to create the EWF for the benefit of employees.
Section 13 divides that undistributed amount in fixed proportions: seventy per cent is deposited at the enterprise level, and the residual thirty per cent is directed to a national-level welfare fund established by the Government of Nepal.
What the Fund May Be Spent On
Rule 84 empowers the EWF to be used for specific purposes benefitting employees or their family members. Under Rule 84(4), the fund may be used for:
- Medical expenditure: medical expenses incurred during sickness or accidents, providing support to employees and their families.
- Educational development: supporting the education and development of employees or their children.
- Sports or entertainment: promoting activities that enhance the physical and mental well-being of employees.
- Other activities benefitting employees: any other activity that benefits all employees collectively.
Reporting and Governance
| Obligation | Provision | Timing |
|---|---|---|
| Report to the Labour Office, including details of the EWF allocation | Section 14, Bonus Act | Within 7 days of distributing bonuses |
| Furnish financial statements, including EWF details | Rule 2, Bonus Rules, 2039 (1983) | Within 6 months of the end of the fiscal year |
| Management of the national-level fund | Rules 11 and 13, Bonus Rules | Currently the Department of Labour and Occupational Safety |
Section 26 of the Contribution Based Social Security Act, 2074 (2017) provides for the fund to be deposited and managed by the Social Security Fund established under that Act. As at the date of the briefing, that transfer had not yet been implemented.
Conclusion
The EWF plays a vital role in promoting employee welfare and development in Nepalese enterprises. To ensure transparent and lawful use, enterprises and the Labour Relation Committee need to interpret Rule 84 judiciously.
Adherence to the statutory framework, to the reporting requirements, and to the discretionary powers vested in the Labour Relation Committee will improve the fund’s efficacy and support a work environment that fosters employee well-being. Clarity in how the EWF is applied reinforces the commitment to a progressive and equitable labour regime in Nepal.
Key Contacts
If you have questions about bonus calculation, welfare fund deposits or your reporting obligations, get in touch with Prakrit Shrestha, Attorney at Law, Managing Partner, 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.
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