Labor Audit Standard 2018

Background

The Labor Act 2017 (“Labor Act”) under Section 100 has envisaged the requirement of conducting Labor Audit by all Enterprises. In line with the provisions of the Labor Act, the Labor Rules 2018 (“Labor Rules”) sets out the procedure for Labor Audit. Pursuant to Rule 56 of the Labor Rules, the Enterprises are required to conduct Labor Audit by the end of Nepali Month of Poush (Mid-January) every year. The Labor Audit should be conducted as per the criteria defined by the Ministry of Labor. Using the power conferred by Rule 56, the Ministry of Labor, Employment and Social Security has issued the Labor Audit Standard 2018 (“Labor Audit Standard” or “Standard”). The Labor Audit Standard has come into implementation effective from November 22, 2018.

The major provisions of Labor Audit Standard have been outlined below.

Scope of Labor Audit

The Labor Audit Standard has prescribed the specific factors that are to be taken into consideration while conducting the Labor Audit. Pursuant to the Standard, while conducting the Audit, the Labor Auditor must ensure that the Enterprises have implemented the provisions of followings:

1. Labor Act 2017 and Rules 2017
2. Social Security Act 2017 and Rules 2018
3. Bonus Act 1973 and Rule 1982
4. Trade union Act 1992 and Rules 1993
5. Matters included under Audit Report pursuant to Schedule 10 of Labor Rules
6. Internal Rules and By-laws of the Enterprise
7. Other relevant issues

Eligibility of Labor Auditor

Pursuant to Rule 56 of the Labor Rules, the Enterprise may conduct the Labor Audit by the qualified Labor Auditor.  As per the existing laws, the Labor Auditor could be an individual or an entity. The Enterprise may conduct the Labor Audit by the Management Level Employee working in the same enterprise. In case the Enterprise chooses to conduct Labor Audit by an outsider, the Labor Audit Standard has set out following qualification and eligibility of the Auditor:

Labor Auditor: Individual

1. Nepali National;
2. Holding at least Bachelors’ degree;
3. One having experience of working in the Management Work of any Industry or Enterprise for at least 2 years

Labor Auditor: Entity

1. Registered pursuant to the existing laws;
2. Entity whose objectives and Working Area includes the matters relating to Labor;
3. The individual deployed by the Entity to conduct Labor Audit must meet the qualification and eligibility of Individual Labor Auditor (as mentioned above).

Procedure of Labor Audit

The Labor Audit Standard has prescribed the procedure for conducting Labor Audit. Pursuant to the Standard, the Labor Auditor is required to follow the procedure: (a) collect and analyze the comprehensive details of the concerned Enterprise; (b) conduct onsite visit and investigation; (c) Interview; (d) Deploying Audit Team at the Enterprise and (e) other appropriate procedure as deemed necessary.

Responsibility of the Enterprise

Pursuant to the Labor Audit Standard, it is the primary responsibility of the Enterprise to conduct Labor Audit within the stated time and submit the Report at the concerned authority. Furthermore, the Enterprises are required to fulfil following responsibilities:

1. provide true information and details of the activities of the Enterprise to Labor Auditor
2. provide remuneration and other benefits to the Labor Auditor (the benefits to the Labor Auditor has not been specified)
3. provide any other assistance as required while conducting Labor Audit
4. provide one copy each of Labor Audit Report at concerned Labor and Employment Office, Labor Relations Committee, Labor Inspector and the concerned regulating authority as mentioned below:

Responsibility of the Auditor

The Labor Audit Standard has also set out the responsibilities of Labor Auditor. The Labor Auditor is responsible towards the followings:

1. Prepare the Labor Audit Report based on the true facts of the Enterprise and submit the same to the Enterprise
2. Complete the Audit within stated time without coming under any kinds of influences
3. Not disclose the confidential information known during Audit to any other persons or parties

Sanctions

Labor Act and Labor Rules under has prescribed sanctions in case of false details in the Labor Audit Report. Pursuant to Rule 56 of Labor Rule and Section 163(2)(b) of Labor Act, if any false details are found in the Labor Audit Report, Department of Labor can impose a fine of up to NRs 20,000 (Nepalese Rupees Twenty Thousand) upon the person providing false details or upon the management of the Entity conducting Labor Audit.

Note: The Format of Labor Audit Report has been provided under Schedule 10 of Labor Rules.