Termination of Employment and Final Settlement in Nepal

Expiry of Fixed / Task-based Employment

Time-based employment generally ends when the agreed employment period expires.

Work-based employment generally ends when the specified work is completed.

Casual employment can end according to the statutory casual-employment framework.

However, employers should ensure the contract genuinely reflects the actual nature of employment.

Employee Resignation

A worker may terminate employment by submitting a: written resignation to the employer.

The employer must generally accept and notify the worker within: 15 days.

If the employer does not act within that period, the resignation is deemed accepted from the following day.

The resignation can be withdrawn by mutual agreement.

Notice Period

Section 144 ordinarily requires notice from either party, except employment ending through misconduct action. Its wording gives at least one day for employment up to four weeks, at least seven days from four weeks to one year, and at least thirty days beyond one year.

The first two descriptions meet at four weeks. Review that boundary against the actual service dates before relying on the shorter notice; a payroll table should not silently resolve the statutory wording. Where the employer omits required notice, remuneration for the notice period is payable. A worker leaving without required notice may face the deduction permitted by section 144(3).

Poor Performance

Employment can be terminated for persistent inadequate performance where the statutory performance-evaluation framework has been followed.

Section 142 requires unsatisfactory/poor performance in at least: three consecutive performance evaluations under the applicable system.

For an establishment employing 10 or more workers, the employee must be given at least: 7 days

to provide an explanation before termination on this ground.

Health-related Termination

Employment may be terminated on health grounds where a recognised medical practitioner supports the conclusion that the worker cannot perform the work or requires prolonged treatment affecting work.

However, if the worker can reasonably perform another suitable job compatible with the health condition, the employer should assign such work where available before terminating solely due to disability/injury.

Misconduct

Misconduct termination follows a separate disciplinary procedure.

Before imposing punishment for misconduct, Section 135 generally requires the worker to receive a notice clearly stating:

• alleged misconduct;

• possible punishment; and

• evidence/basis,

with at least: 7 days to provide an explanation.

Do not use an ordinary termination letter to bypass disciplinary due process.

Retrenchment

A business may retrench workers due to matters such as:

• financial difficulty;

• merger producing excess workforce;

• partial/complete business closure.

Section 145 generally requires at least: 30 days' advance notice to the Labour Office and the relevant trade union/labour relations committee, stating:

• reason;

• likely retrenchment date;

• likely number of workers affected.

Consultation on alternatives and selection criteria is then required under the statutory process.

Section 145(10) states that section 145 does not apply to an establishment employing 10 or fewer workers. This does not remove other employment, notice or final-settlement obligations.

Retrenchment Compensation

A retrenched worker generally receives:

One month's basic remuneration for each year of service

as compensation.

For service of less than one year, the compensation is proportionate.

However, where the worker is entitled to unemployment allowance under the applicable social-security law, Section 145(8) excludes the duplicate retrenchment compensation.

Mandatory Retirement

A worker in regular employment generally reaches compulsory retirement at: 58 years of age under Section 147. A lower compulsory-retirement age for specified work requires Councilpermission and provision in the service rules.

Final Settlement — 15 Days

This is one of the most important employer obligations.

Section 148 requires all amounts due to the worker—including remuneration and benefits—to be paid within: 15 days after employment ends.

The final settlement can include, depending on the case:

• unpaid salary;

• overtime;

• earned allowances;

• festival expense;

• accumulated leave encashment;

• benefits/contributions;

• retrenchment compensation;

• other contractual/statutory amounts.

Consequence of Delayed Final Settlement

Where the employer fails to pay the amounts due within the 15-day period or fails to provide necessary assistance to obtain SSF/insurance benefits, Section 148 can require payment of remuneration as though the worker remained in service until the dues are paid.

This makes delayed settlement potentially expensive.

Uncollected Final Settlement

If the worker does not come to collect amounts due, the employer may:

• deposit the amount directly into the worker's account; or

• deposit it with the Labour Office

according to Section 148.

Employee Priority on Closure

Where an establishment closes or is liquidated, unpaid worker remuneration and benefits have statutory priority, subject to insolvency law where the Insolvency Act applies.

Experience Certificate

Where a terminated worker requests an experience certificate, the employer must provide a certificate stating the:

• employment period; and

• position held.

Final Settlement Checklist

• Establish lawful termination ground

• Review employment agreement

• Give required notice

• Complete disciplinary process where applicable

• Calculate salary to last working day

• Calculate overtime

• Calculate leave encashment

• Calculate festival/other benefit

• Reconcile SSF contribution

• Calculate retrenchment compensation if applicable

• Calculate notice pay

• Calculate lawful deductions

• Calculate salary TDS/final tax treatment

• Pay within 15 days

• Provide SSF/insurance assistance

• Issue experience certificate when requested

• Obtain settlement acknowledgement

• Remove bank/system access

• Preserve termination file

Common Errors

Terminating an employee verbally

Using poor performance without documented performance evaluations

Treating retrenchment as ordinary dismissal

Failing to give notice/pay in lieu

Ignoring accrued leave

Paying final settlement after several months

Failing to coordinate SSF benefits

Further guidance and practical checks

Termination should be reviewed before the termination letter is issued. Once an invalid process has been completed, correcting the procedural defect can be substantially more difficult.