Social Security Act, 2017 (2074)

Major Highlights

September 22, 2017

Contribution Based Social Security Act 2017 (2074) (Social Security Act) was passed by the Parliament on July 24, 2017 (Shrawan 09, 2074) and accorded the assent by the President on 13 August, 2017 (2074-04-29). The Social Security Act will be effective from November 11, 2017 (Kartik 25, 2074) by virtue of Section 1(2) of the Act. Section 1 (2) of the Social Security Act provides that it will be effective from 91 (Ninety One days) from the date of assent by President.

The Social Security Act is enacted first time in Nepal. The major provisions of the Social Security Act are outlined as follows[1]:

1.                  Applicability


1.1       Government notification is required for the Social Security Act to be applicable to any industries, business or service sector. The Social Security Act provides that the government publishes the notice in Nepal gazette prescribing the sector, industries,  business, service  or employer undertaking certain transaction to whom the Social Security Act applies.


1.2       The Social Security Act does not apply to the employer unless the Nepal gazette publishes covering the employer.


2.                  Listing


2.1       Listing of Employer


2.1.1   The government specifies the timeline within which the employer is required to be listed in the Social Security Fund (“Fund“). The time is specified in the Gazette notice that prescribes the sectors, business, industry or service that the Social Security Act applies.


2.1.2   The employer should submit an application to the office of the Fund in the prescribed format with the prescribed details. Upon the receipt of the application, the office of the Fund provides the listed number.


2.2       Listing of Employees


2.2.1   The Social Security Act requires the employer to enlist the employees in the Fund. The timeline for enlisting the employees depends on applicability of the said Act to the employer.  For example, the employers to whom the Social Security Act is applicable at its effective date i.e. Nov.11, 2017 should enlist its employees within six (6) months from the effective date. The other employers should enlist the employees in the Fund within 3 months from the date of appointing or establishing the employment relation with such employee.


2.2.2   The employees can give an application for being enlisted if the employer does not enlist the employees with the time specified in 2.2.1 above.


2.2.3   The listing of the employees in informal sectors and self-employed employees is as prescribed. The Fund provides the Register (Listing) Number to the employer and Social Security Number the employee. The employer having the Register Number and the Employee with the Social Security Number is deemed to have been listed with the Fund.


2.3       Deemed Listing


2.3.1    The Social Security Act also provides that the employees, among others, who have been depositing the amount at the Social Security Fund as per the prevailing laws at the time of commencement of the Social Security Act, the employee is deemed to have been listed with the Fund from the date of such deposit.


2.3.2    There is no sufficient clarity as to whether this provision refers to the Social Security Tax as provided in the concerned Fiscal Act. The Fiscal Act required the employer to deduct 1% salary of the employee as Social Security Tax to deposit the same for the Social Security Fund.


2.3.3    The Social Security Act provides that the amount of Social Security Tax collected so far or to be collected is managed by the Fund. In view of this, it may be inferred that the employee whose Social Security Tax has been deducted may be deemed to have been enlisted in the Fund.


2.4       Notification of Ceasing the Employment


2.4.1    The listed employer is required to notify the Fund of the employment relation with an employee is ceased to exist. The Social Security Act also provides for the time for termination.


2.4.2 If the service of any employee is terminated by any reason the listed employer should notify to the Fund within one (1) month from the date of termination of the employment.


3.                  Contribution


3.1       Rate of Contribution


3.1.1    Contribution is mandatory for getting any benefits from Social Security Fund. No one is entitled to any social security benefits without contribution.


3.1.2    The Government of Nepal specifies the rate of contribution to be made by the employer.


3.1.3    The employees in informal sector or self-employed persons may also participate in the social security plans by depositing the amount as prescribed by the Ministry in the recommendation of the Committee by publishing notice in Nepal Gazette. For the purpose of encouraging such participation, Government of Nepal should deposit the prescribed amount in the Fund.


3.2     Contribution during Unpaid Period


3.2.1    The listed employer is required to deposit the contribution of the employee in a situation where the employee is not entitled to salary.  The employer has to deposit the amount to the Fund for maximum three months.


3.2.2    The employer can deduct such amount from the remuneration, allowance and other benefits payable to the employee.


3.3       Time for Contribution


3.3.1    The Contribution to the Fund starts from the date of enlisting of the employee to the Fund till the last day of his/her service with the employer.  The contribution to the Fund should be made in a monthly basis, unless otherwise provided.


3.3.2    The contribution should be deposited to the Fund within fifteen (15) days from the date of end of the month in which the income subject to contribution is payable.


3.4      Recovery by the Fund


3.4.1    The Social Security Act has provided the authority to the Fund to recover the contribution from the employer if the employer fails to deposit the contribution to the Fund within the specified time as above. The Fund can recover the contribution from the employer with 10% interest except the time for contribution is extended by the Fund at the request of the employer. The Fund can extend the time for the employer for additional 30 (thirty) days at the request in writing by the employer. The Fund can also waive the interest in full or part while extending the time.


3.4.2    The Social Security Act provides different measures to the Fund for the recovery. Such recovery measures include, among other things (a) freeze the bank accounts, (b) freeze movable and immovable properties, (c) abrogate all the facilities received as per law, (d) cancel the license, (e)freeze the passport.


4.        Payment of Benefits


4.1              The Social Security Act does not specifically define as to how and when the amount deposited in the Fund is paid to the contributor. It provides the flexibility to the Scheme to define the event of payment.  Therefore, the payment out of the Fund shall be as provided in the concerned Scheme.


4.2              However, in the case of death, the amount is paid to the designated beneficiary or the dependent family in the absence of the designated beneficiary.  The dependent family includes (a) husband or wife, (b) son, daughter or daughter in law (c) father, mother, and father in law or mother in law (d) grandson or granddaughter.


5              Unclaimed Amounts


5.1              The Social Security Act also deals with the amount unclaimed by the employee or his/her dependent family members. If any employee or his/her dependent family in the case of death of the employee does not collect the amount payable by the employer up to five (5) years such amount should be deposited with the Fund. Such unclaimed amount should be deposited by the employer to the Fund within one (1) month from the expiry of the said five (5) year.


5.2              The Social Security Act does not provide the utilization of such amount however, says that such amount should be used for the purpose as prescribed.


6                    Schemes


6.1              The Social Security Act specifies the Scheme that shall operate. The Scheme Include (a) Medical and Health Protection Scheme, (b) Maternity Protection Scheme, (c) Accidental Protection Scheme, (d) Old-age Protection Scheme, (e) Dependent Family Protection Scheme, (f) Unemployment Protection Scheme. The Fund has also authority to introduce other Schemes.


6.2              The Scheme is introduced on priority basis. The Government of Nepal has the authority to set the priority of the Scheme.


6.3              The Fund is authorized to introduce different Scheme based on the nature of work and the requirement of the contributor. Again, there is a limitation such that the Scheme cannot be operated in such a manner that the contributor with the similar nature or making same contribution will have different benefits.


7              Establishment and Operation of the Fund


7.1              The Social Security Act provides for the establishment and operation of the Fund. The Fund is established as revolving fund the head office of which is located in Kathmandu and branches in any other places within Nepal. The Fund is recognized as separate entity.


7.2              The Social Security Act also provides for functional arrangements such as Board of Directors, Executive Director, Employees, Internal Control System, Audit and Actual Evaluation, Record and identity of the participant, etc.


8              The Amounts Subject to Deposit to the Fund


8.1              The Social Security Act also provides the amount to be deposited in the Social Security Fund. Such amount include contribution made by the employer and the employees, provident fund and gratuity of the employees, amount deposited in National Level Welfare Fund, amount collected as Social Security Tax, donation and grants from local or foreign government, loan among others. The Social Security Act also specifies the sector or areas to which the amount deposited in the Fund can be invested.


8.2              Out of such amounts, the amount of National Level Welfare Fund is utilized for providing the concerned employees.


9                     Sanctions


9.1              The Social Security Act provides the sanctions for the offence under the Social Security Act. The sanctions for the offence include fine or imprisonment or both.


9.2              The Social Security Act defines the office which include (a) misappropriate of the amount to be deposited with the Fund within the specified time, (b) obtaining the benefit submitting false or misleading information, or obtaining more benefits than entitlement, (c) committing irregularities in any Scheme related to the Fund.  The person committing the offence is subject to fine up to the amount involved (or Rs.100,000 if the amount cannot be determined) or imprisonment up to 1 (one) year or both. The accomplice is also subject to the punishment half of that of the main offender.


9.3              The Social Security Act also provides for the punishment for the person who violates any order given by the Fund. Such person is subject to fine up to Rs.50000/-


9.4              The government will be plaintiff for the cases initiated under the Social Security Act. The offender may be arrested, taken in judicial control and held for up to 25 (twenty five) days during investigation.


9.5               Any decision given by the Fund can be appealed to the concerned High Court within 35 (thirty five) days from the date of receiving information of such decision.


10                 Liability of the Nepal Government


10.1          The Social Security Act provides for the ultimate liability to Nepal government. The government is liable to continue the Social Security Scheme if the amount deposited in the Social Security Scheme is insufficient for providing the benefit to the participant of the Scheme. It means that the government will provide the benefit under the Scheme if the Fund is unable to provide the benefit as per the Scheme.


10.2          The Social Security Fund also provides that the assets and liabilities of the Fund is transferred to the Nepal Government should the Fund is dissolved by the government.



[1]  The brief is prepared for general understanding purpose and thus cannot be used for any legal purpose. PLA owns copyright on this document. 

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