- contribution on basic
- 31%
- employer plus employee
- 20% + 11%
- annual labour audit
- 1
The contribution
| Part | Rate on basic salary | Who pays |
|---|---|---|
| Employer share | 20% | Employer |
| Employee share | 11% | Deducted from salary |
| Total | 31% | Deposited by the employer |
Advisers commonly break the employer's 20% into 10% provident fund, 8.33% gratuity and 1.67% for accident, medical and dependant protection, and the employee's 11% into 10% provident fund and 1% social security tax. Allocations vary in sources, so check the Fund's own schedule.
For employees in SSF, the 1% first-band income tax is waived. Use our salary tax calculator and salary cost calculator to see the effect.
Employer duties, in sequence
Register the employer with the Fund and enrol every eligible employee.
Deduct the employee share and add the employer share each month on basic salary.
Deposit by the due date (advisers quote the 15th of the following Nepali month; confirm with the Fund) and file the monthly statement.
Keep the records: appointment letters, attendance, payslips and contribution proof.
Handle exits properly: final settlement including leave encashment and any dues. See terminating an employee under the Labour Act.
Prepare for the labour audit: a compliance review that covers the Labour Act, the SSF Act, the Bonus Act and related laws.
Gratuity
Outside SSF, gratuity is broadly one month's basic per completed year, and should be accrued monthly at 8.33%. Inside SSF, the 8.33% goes into the Fund and no separate gratuity is owed. Use the gratuity calculator.
What the labour audit finds
Contributions calculated on gross pay or on a basic that has been artificially low.
Employees left out, such as long-term contract staff or trainees.
Late deposits, which attract charges.
Gratuity not accrued for staff outside the Fund.
Bonus and leave not calculated on the right base.
Records missing for staff who left.
Fix it before the audit
Run a payroll reconciliation: basic salary by employee, contributions by month, deposits against statements, and a list of every employee by status. Correct differences, and decide how to deal with earlier years. Our payroll services run this monthly, and the payroll tool handles batch calculations. This note is general; confirm the current rules with the Fund and the labour office.
A worked example: payroll with SSF for one employee
An employee has a monthly basic salary of NPR 50,000, a dearness allowance of NPR 5,000 and a transport allowance of NPR 3,000. The employer is enrolled in SSF. Figures are illustrative, and the base for contributions follows the Act's definition of basic salary and the Fund's rules.
| Item | Amount (NPR) |
|---|---|
| Basic salary | 50,000 |
| Employer contribution at 20% | 10,000 |
| Employee contribution at 11% | 5,500 |
| Total deposited with the Fund at 31% | 15,500 |
| Allowances paid in cash | 8,000 |
| Gross pay to the employee before tax | 58,000 |
| Employee's net pay before income tax (gross less employee contribution) | 52,500 |
The employer's total cost for the month is the gross pay plus the employer's contribution: NPR 68,000. The employee's contribution is deducted from salary, but the employer is responsible for depositing the whole 31%. The employee's 1% social security tax portion is part of the 11% and is why the first-band income tax of 1% is waived for SSF contributors.
The employee builds a fund balance and gets protection benefits, while the employer gets a cleaner employment record and relief from separate gratuity and provident fund arrangements.
The compliance calendar
| When | Task |
|---|---|
| On hiring | Enrol the employee, get their details and issue an appointment letter |
| Each month | Compute contributions on basic, deduct the employee share, deposit the total by the due date and file the monthly statement |
| Each month | Deduct income tax at source from salary and deposit by the 25th; see TDS rates |
| Each year | Reconcile the Fund's records with payroll; update staff data; prepare for the labour audit |
| On exit | Compute final settlement, including leave and any dues, and update the Fund |
Late deposits attract charges, and an employee's account that has gaps causes disputes. If your payroll is manual, move to a system that calculates contributions automatically; see our payroll tool.
Contract workers, consultants and interns
A frequent area of doubt is whether someone must be enrolled. The answer depends on the relationship, not the label.
An employee works under the employer's control and is paid for time or for a role. Enrolment is expected.
An independent consultant with their own business, other clients and control of how the work is done may be outside payroll, but the contract must reflect reality, and TDS applies to the fee.
Fixed-term and casual workers can be employees for the period, and the rules for contributions apply.
Interns are a grey area. Where they are paid and work like employees, treat them as such. An unpaid internship with real training is different.
Directors who are paid for executive work are usually employees; non-executive directors paid fees are not.
Labelling a worker a consultant to avoid contributions is a common trigger for audit findings. Decide each case on its facts and document the reasoning.
Gratuity, leave and other benefits
Beyond SSF, the Labour Act gives employees rights to leave, overtime where applicable, bonus under the Bonus Act for eligible businesses and other benefits. The final settlement on exit combines these. For an employee in SSF, the gratuity element is the 8.33% already deposited. For employees not covered, the employer accrues and pays gratuity as described in terminating an employee. Accrual in the accounts gives a true profit and avoids a surprise. Use the gratuity calculator.
Mistakes we see in labour audits
Contributions on a reduced base, where basic is set low and allowances high.
Enrolment delays, with staff added months after joining.
Staff missing from the Fund's records because of name or ID errors.
Deposits that do not match the payroll, often due to rounding or late corrections.
No records for former employees, so benefits cannot be checked.
Bonus and leave computed on the wrong base.
Contract staff treated inconsistently, with some included and others not.
No policy for overtime, so that hours worked are not recorded.
Questions people ask
Is SSF mandatory? The law requires enrolment for covered employers and employees; check how the Act applies to your business and its size.
Does the employee have a choice? Contributions are a legal obligation and not a matter of choice for covered employees.
What happens if we have been behind? Make a plan: compute the arrears, discuss with the Fund and pay with the charges the rules require. Voluntary correction is far better than discovery in an audit.
Is there an annual report? Employers keep records and may be asked for returns and information by the Fund and the labour authorities.
Who can help? Our payroll services set up and run the monthly cycle, reconcile with the Fund and prepare you for the audit. Rules, rates and deadlines change, so confirm them with the Fund and the labour office.
Setting up payroll controls that make compliance automatic
Compliance is easiest when the payroll process is designed so that errors are hard to make. A good design has these features.
A single employee master record that holds the name, ID, date of joining, basic salary, allowances, SSF number and PAN. Changes are made in one place and approved by someone other than the person who enters them.
A monthly payroll checklist that runs in the same order each month: attendance and leave inputs, changes in pay, calculation, review, approval, payment, deposit of SSF and tax, and filing. Each step has an owner and a due date.
Reconciliations built into the cycle: the total of salaries in the payroll equals the ledger; the SSF deposit equals the computed 31% of basic; the tax deducted equals the tax payable; and the bank payments equal the net pay.
Segregation of duties: the person who prepares payroll does not approve it or release payments.
Exception reports: new joiners, leavers, large changes in pay and employees with no SSF number are listed for review each month.
An annual review of the structure of pay. If basic is a small proportion of total pay, the contributions will be low and the labour audit will ask why.
Employer obligations beyond SSF
SSF is one part of employment compliance. An employer should also cover:
Written appointment letters with terms, probation, notice and benefits.
A staff handbook that sets out leave, conduct and grievance procedures.
Working hours, overtime and rest periods as the Act requires.
Leave records: annual, sick, public holiday and maternity or paternity leave.
Bonus for eligible businesses under the Bonus Act, computed on profit as the Act provides.
Safety and welfare provisions for workplaces of certain sizes.
Termination procedures, with notices and documentation; see employee termination under the Labour Act.
Tax deduction at source from salary, and reporting at year end.
Keeping a compliance calendar for the year, with each obligation, its due date and its owner, prevents the most common lapses.
What to do if you have found a problem
If a review of your payroll shows underpaid contributions or staff who were not enrolled, follow this path.
Quantify the problem: which employees, which months and how much.
Stop the leak: correct the process from the next payroll.
Seek advice on the position for past periods and how to approach the Fund.
Communicate with staff where they are affected, in a clear and honest way.
Pay the arrears with the charges the rules require.
Document the correction and the changes to the process.
Voluntary correction is treated more favourably than discovery during an audit or a complaint, and it is far cheaper than a dispute with employees.
