In November 2018, the government of Nepal finally launched a new mandatory, contribution-based social security plan mandating private sector employers contribute to the Social Security Fund (SSF). Employers are required to register their employees with the SSF before 21 May 2019. Mandatory contributions to the new SSF will begin on 22 May 2019.
On 13 August 2017, the government of Nepal passed the Contributions Based Social Security Act, 2017 (the Act), introducing mandatory social insurance for private sector employees. On 19 November 2018, the SSF published the implementing regulations (the regulations)for the Act. Pending the introduction of the necessary social security legislation a levy of 1% of employees’ taxable income has been in place since 2009 as a temporary measure.
In addition, prior to the passage of the Act and regulations, an Employees Provident Fund (EPF) was set up with mandatory retirement savings contributions for public employees. Private sector employers with a minimum of 10 employees were able to join the EPF on a voluntary basis. EPF contributions for private sector employees are being transferred to the SSF. The EPF will continue to co-exist until funds are fully transferred to the SSF and further regulations should clarify the role of the EPF going forward.
The Act and regulations aim to ensure employees receive baseline financial coverage for medical, health, maternity, old-age, accident, disability and dependent family benefits. Employers will now contribute 20% of employees’ base monthly salary to the SSF, and employees will contribute 11% of their base monthly salary.
The combined 31% contribution is mandatory to all employees and employers and is allocated as follows:
- Medical treatment, health and maternity protection – 1%
- Accident and disability protection – 1.4%
- Dependent family protection – 0.27%
- Old age protection – 28.33%
Once the employee is registered in the SSF, they will receive a unique social security number and identification card. All future contributions for the employee, regardless of their employer, will be recorded with this same social security number.
There is no waiting period for participation in the SSF and contributions should begin from day one of employment. For some benefits there are minimum contribution duration requirements before employees can claim the benefit. The minimum duration requirement varies depending on the benefit. For example, to claim a medical benefit a worker must have contributed to the SSF for a minimum of six months. However, workers are entitled to accident and disability benefits from the first day of contribution.
Contributions should be deposited in the SSF within 15 days after the end of the month. Non-compliance or false submission of information leaves employers liable to imprisonment for a term not to exceed one year, a fine up to NPR 100,000 or both.
Beginning 22 May 2019, the new regulations will be enforced for formal private sector employees. Employers should ensure accurate and timely registration with the SSF and review contribution allocations with their payroll provider. Additional regulations expanding the SSF to informal sector workers is expected to follow.