Introduction: Outsourcing Jobs in Nepal
In Nepal’s evolving corporate and service sector landscape, labour outsourcing has become a strategic tool for businesses looking to improve efficiency, manage workforce costs, and focus on core operations. From hospitality and IT to manufacturing and security services, outsourcing non-core tasks helps companies maintain flexibility and compliance with employment regulations.
However, the Labour Act of Nepal (Labour Act, 2074) governs employee engagement practices in a detailed and structured way. Misunderstanding the legal boundaries—especially when dealing with employee supplier agencies—can lead to severe penalties, labour disputes, or license revocations.
This article, developed by the legal team at Onesphere Law Associates, explores the legal provisions, licensing mechanisms, compliance risks, and practical strategies for outsourcing jobs in Nepal—specifically within the purview of labour law compliance in Nepal.
Understanding Labour Outsourcing in Nepal: What Does the Law Say?
Labour outsourcing refers to the practice of hiring employees indirectly through a third-party agency instead of directly employing them. This method is commonly used for peripheral or support services such as security, cleaning, clerical assistance, and other non-core tasks.
The Labour Act, 2074 (2017) is the principal legislation that regulates outsourcing and defines who can supply employees and for what services.
What is a Labour Supplier Agency?
According to Section 2(y) of the Labour Act, a Labour Supplier is defined as:
“A person or entity that has obtained a license under Chapter 11 of this Act to supply workers to another entity.”
These entities are known as employee supplier agencies in Nepal and are legally recognized only when they hold a valid labour supply license issued by the Ministry of Labour, Employment, and Social Security (MOLESS).
What Types of Jobs Can Be Outsourced in Nepal?
As per Section 58(1) of the Labour Act, only specific services can be outsourced. These services are published by the Ministry via notification in the Nepal Gazette.
The most recent notification was published on 19 Ashoj 2075 (October 5, 2018) and lists the following areas:
- Security services
- Support staff
- Business assistance
- Household support
These are non-core services, meaning they do not directly involve the essential operation or service delivery of the company.
Core vs Non-Core Functions
Section 58(2) of the Labour Act makes it unlawful to outsource core business functions. For example:
- A hospital cannot outsource surgeons or nurses (core health service).
- A software company cannot outsource developers writing product code (core operation).
However, hiring janitors, receptionists, and security guards via an employee supplier agency is permitted.
Licensing Requirements for Labour Supplier Agencies
Labour Supply License (Section 59 of the Labour Act)
Any entity that wishes to operate as a labour supplier must apply for and obtain a licence from the government. The license:
- Specifies the categories of services the company can supply.
- Restricts the agency from supplying more than two types of labour.
- Must be renewed and maintained in good standing to remain valid.
Companies seeking to outsource jobs in Nepal must confirm that their partner agency is licensed and supplying within their approved categories. Engaging with an unlicensed or non-compliant agency is a serious violation under Nepali law.
Can Employers Outsource Employees for Services Not Listed in the Gazette?
The answer is generally no.
The Labour Act requires that outsourcing via labour suppliers be strictly limited to the services listed in the Government Gazette. Therefore, outsourcing for roles outside this list—such as accounting, IT development, marketing, legal advice, or production—is not permitted through labour supply contracts.
Doing so risks reclassification of the outsourced workers as direct employees, exposing the employer to:
- Back pay liabilities
- Social security obligations
- Administrative penalties
- Labour court litigation
Legal Alternative: Service Procurement Contract Model
If your enterprise needs to engage individuals for roles not listed in the Gazette, such as consulting, IT development, or technical services, the law provides an alternative: the Service Procurement Model, governed by general contract law rather than labour law.
How Does It Work?
An enterprise may enter into a service contract with a company whose business objectives include delivering the required service (e.g., IT support, accounting services). This model avoids employment classification if:
- The contract clearly outlines project-based deliverables.
- The provider retains control over its personnel.
- The client does not supervise or direct individual workers.
Key Legal Distinctions
| Labour Supply Contract | Service Procurement Contract |
|---|---|
| Controlled by Labour Law | Controlled by Contract |
| Involves supply of personnel | Involves provision of services |
| Subject to employee rights & obligations | Treated as a business-to-business engagement |
| Limited to Gazette-listed services | Broadly applicable if objectives match |
Caution: Avoiding Misclassification
If a service contract resembles an employment arrangement (e.g., includes working hours, job titles, supervision, direct reporting), the court may reclassify it as labour supply, making the employer liable under the Labour Act.
Best Practices for Legal Labour Outsourcing in Nepal
To remain compliant with Nepal’s labour laws and avoid legal liabilities, employers should adopt the following practices:
Verify the Supplier’s License
Ensure that the agency holds a valid labour supplier license from MoLESS and that it is authorized for the service being outsourced.
Avoid Outsourcing Core Functions
Focus outsourcing on support functions only, such as admin, cleaning, transport, or facility services.
Use Service Contracts Cautiously
When using the Service Procurement Model, confirm that the vendor’s company registration objectives align with the services contracted. Draft contracts that emphasize output, results, and non-supervision.
Keep Contracts Legally Vetted
Have all contracts, whether for labour supply or service procurement, reviewed by legal professionals to avoid misclassification or non-compliance.
Labour Law Compliance in Nepal: Why It Matters
Non-compliance with Nepal’s labour laws can result in:
- Fines and penalties from the Labour Office
- Suspension or revocation of business licenses
- Employee reclassification and compensation liabilities
- Labour court disputes
These risks make it essential for companies to obtain legal services in Nepal when engaging in any employment or outsourcing-related transaction.
How Onesphere Law Associates Helps You Stay Compliant
At Onesphere Law Associates, we provide comprehensive legal advisory and support services for:
- Structuring legal labour outsourcing contracts
- Labour law compliance audits
- Vetting supplier licences and scopes
- Drafting and negotiating service procurement agreements
- Representing clients before the Labour Court or Labour Office
We serve both domestic and international clients in ensuring safe, strategic, and compliant outsourcing practices in Nepal.