Employee Termination in Nepal: Notice Period Rules for HR

Understanding Different Types of Employee Separation

Employee termination in Nepal refers to the ending of an employment relationship between an employer and an employee. However, not every situation in which an employee leaves a company is an employer-initiated termination. The Labour Act, 2074, distinguishes between different forms of separation, so HR should identify the circumstances before applying the relevant process.

Resignation occurs when an employee voluntarily ends the employment relationship. This should be distinguished from a termination initiated by the employer.

Employer-initiated termination occurs when the employer ends the employment relationship in accordance with applicable legal requirements, employment terms, and relevant circumstances.

Dismissal for misconduct is a separate disciplinary matter. Where an employee is alleged to have committed misconduct, HR should follow the applicable disciplinary provisions and procedures rather than treating the case as an ordinary termination.

For HR teams, identifying the type and reason for separation is important before preparing termination or resignation documents, determining the applicable notice requirements, and calculating the employee’s final dues.

What are the Legal Grounds for Employee Termination in Nepal

The Labour Act, 2074, sets conditions under which an employment relationship may be terminated and provides specific rules for different circumstances. HR teams should identify the applicable ground before initiating termination because the required process can vary depending on the reason for separation.

1. Completion or Expiry of Employment

For fixed-term employment, the employment relationship may end when the period specified in the contract expires, subject to applicable legal provisions. HR should review the contract before treating the end of the term as an employer-initiated termination.

2. Termination on Permitted Grounds

The Labour Act provides for termination in specific circumstances, including incompetence, health-related situations, misconduct, and retrenchment. HR should identify the applicable legal ground and maintain supporting records before proceeding.

3. Misconduct and Disciplinary Action

Termination arising from misconduct should be handled under the applicable disciplinary provisions rather than treated as an ordinary notice-based termination. HR should follow the required disciplinary process and maintain records of the action taken.

4. Incompetence and Performance-Related Termination

Where termination is based on incompetence, HR should follow the specific requirements applicable to that ground. Relevant performance evaluation records should be maintained where they support the termination decision.

Notice Period Requirements for Employee Termination in Nepal

Under Section 144 of the Labour Act, 2074, the minimum notice period generally depends on the length of the employee’s service. The statutory notice requirements are as follows, subject to applicable exceptions.

1. Notice During the Termination Process

The applicable notice should be provided before the employment relationship ends. HR should record the date notice is issued and the employee’s final working date in an employee information system to ensure the required period is properly accounted for.

2. Exceptions to the Notice Requirement

The ordinary notice requirement under Section 144 does not apply to termination resulting from action taken for misconduct. Other forms of termination may have separate statutory requirements, so HR should identify the legal basis before applying the standard notice rule.

3. Payment for Unserved Notice

If the required notice is not provided, the employer must pay an amount equivalent to the remuneration for the applicable notice period. This amount should be included when calculating the employee’s final settlement.

What are the Resignation Rules in Nepal

Resignation is different from employer-initiated termination because the employee chooses to end the employment relationship. HR should still follow the applicable legal requirements and complete the employee’s separation and final settlement properly.

Under the Labour Act, 2074, an employee who wants to resign should submit a written resignation to the employer. The employer is required to respond within the prescribed period, and the resignation may take effect according to the applicable legal rules if the employer does not respond within that period.

HR should also confirm the employee’s final working date, complete the required handover, and calculate any outstanding salary, leave-related payments, and other applicable benefits before closing the employment record.

Employee Termination Process for HR

A structured termination process helps HR manage legal requirements, employee communication, payroll, and records consistently. The exact steps may vary depending on the reason and type of separation.

• Review employment terms and applicable rules: Check the employee’s contract, employment category, company bye-laws, and relevant Labour Act provisions to determine which requirements apply.
• Document the basis for termination: Clearly record the reason for ending employment and maintain relevant supporting documents, such as performance evaluations where required for performance-related termination.
• Prepare termination documents: Include relevant details such as the termination date and applicable notice information, and retain evidence that the communication was properly provided to the employee.
• Complete separation formalities: Depending on the employee’s role, this may include returning company property, transferring responsibilities, closing system access, and completing the required handover.
• Complete the final settlement: Calculate outstanding remuneration and other applicable amounts due to the employee. Under Section 148, amounts and benefits receivable at termination are generally required to be paid within 15 days of termination.

Final Settlement and Employee Payments

Issuing a termination letter does not complete the employer’s responsibilities. HR should review the employee’s outstanding remuneration and applicable benefits and complete the final settlement within the required timeframe.

• Outstanding salary and remuneration: Calculate salary and other remuneration due up to the employee’s applicable final date, including any outstanding amounts payable.
• Leave-related payments: Review the employee’s leave balance and determine whether any leave-related payment is due under applicable law, rules, employment terms, or company policy.
• Payment in place of notice: Where employment is terminated without the notice required under Section 144, the employer must pay an amount equivalent to the remuneration for the applicable notice period.
• Other applicable entitlements: Review other statutory or contractual amounts payable at separation. Section 148 requires remuneration and benefits receivable at termination to be paid within 15 days, while the employer must also provide necessary assistance for amounts or benefits payable through the Social Security Fund, insurance, or another relevant body.

Termination Documentation and HR Records

Proper documentation gives HR a clear record of how the employment relationship was ended and helps demonstrate compliance with applicable requirements. Records should be accurate, organised, and retained according to the organisation's recordkeeping practices.

HR should maintain relevant documents such as:

• Termination or separation letter: Include the employee’s details, basis for separation where applicable, notice information, and relevant termination or last working date.
• Employment and employee records: Retain the employment contract and relevant employee information needed to support the separation process.
• Notice and supporting documents: Keep copies of notices, termination communications, acknowledgements, and documents supporting the reason for termination.
• Attendance, leave, and payroll records: Maintain relevant records used to verify salary, leave balances, deductions, and other amounts included in the final settlement using dedicated payroll software.
• Settlement and handover records: Retain final settlement calculations, payment records, company-property returns, handover documents, and other relevant separation records.

How HRMS Can Support Employee Termination

An HRMS can help HR teams organise the information required during employee separation. Instead of checking multiple spreadsheets and files, HR can maintain employee information in a centralised system. A useful HRMS can support:

• Centralised employee information: Keep employee profiles and employment records organised.
• Attendance and leave records: Review attendance and leave information when calculating final dues.
• Payroll and final settlement support: Access salary and payroll information required during separation.
• Employee separation records: Maintain relevant termination and exit information.
• HR reporting: Generate organised reports for HR administration and recordkeeping.

HRMS does not replace the need to interpret or verify applicable labour requirements. Instead, it can help HR maintain the records and information needed to apply those requirements consistently.

Managing Employee Separation With Pace HRMS

Pace HR Software brings employee records, attendance, leave, payroll, and HR information into one centralised system. For businesses handling employee separation, HR teams can access the information needed to support termination and final-settlement processes without relying on scattered spreadsheets and files.

By connecting employee and payroll data in one system, Pace HRMS can reduce manual recordkeeping and make separation-related information easier to access. It supports the administrative side of employee separation while HR remains responsible for applying the appropriate labour requirements and reviewing the final settlement.

Conclusion

Employee termination in Nepal requires HR teams to follow the applicable legal requirements, document the process properly, and complete the employee’s final settlement within the required timeframe. Reviewing the reason for separation, notice requirements, employee records, and outstanding payments can help HR handle the process more consistently.

Managing these details becomes easier when employee, attendance, leave, and payroll information is organised in one system. Pace HRMS helps businesses centralise this information and supports HR teams with employee management, payroll, and separation-related administration.

If your business wants to reduce manual HR work and manage employee information more efficiently, explore Pace HRMS or contact the Pace Infosys team for a demo.