The Social Security Insecurity

Despite nearly a decade since the Contribution Based Social Security Act 2017 came into force in Nepal, private sector employer enrollment in the Social Security Fund (SSF) remains low. According to the National Economic Census 2018, Nepal has about 900,000 enterprises but only around 3% are enrolled in the SSF. While government approved retirement funds are not new, the SSF introduced schemes like the Old Age Protection Scheme and Medical Treatment Scheme to distinguish itself. However, several practical challenges have hindered its widespread adoption.

Ambiguous Enrolment Deadline

Section 20(1) of the Social Security Act required existing employers to enrol with the SSF within six months of its commencement. Rule 23(2) of the Labour Rules 2018 allowed a two-year period for transferring worker gratuity to the SSF, which implies that the Labour Act 2017 and Social Security Act envisioned a minimum transition period of 2.5 years. The SSF has extended the enrolment deadlines multiple times, with the last extension expiring mid-July 2021. However, the Social Security Act does not specify a general enrolment deadline for newly established employers. 

Enforcement Uncertainty

Sections 17(1)(b) and 17(1)(c) of the Social Security Act empower the SSF to order employers who have defaulted in enrolling with the SSF (defaulting employers) to enrol with the SSF and pay outstanding contributions with 10% interest, or to compensate workers if the employment relationship has ended. A recent amendment to Section 9(4) of the Social Security Act (published in the Nepal Gazette on July 30, 2025) expanded SSF’s enforcement powers – such as freezing bank accounts and properties, cancelling licence, and withdrawing passports – to cover defaulting employers as well. Prior to the amendment, Section 9(4) did not prescribe specific enforcement actions for employer’s non-compliance with their enrolment requirement and was limited to sanctioning employers who failed to deposit worker’s contribution amount to the SSF.

Uncertainty persists regarding whether SSF will enforce Section 9(4) against existing employers who wish to enrol after the cutoff date. Also, since the enrolment timeline is unclear for newly registered entities, it is uncertain whether they are subject to Sections 17(1)(b) and 17(1)(c) of the Social Security Act. There is confusion as to whether voluntary compliance after the cutoff date will be met with leniency or severe penalties. In practice, the SSF has not utilised these powers to issue orders or take enforcement actions nor issued clear guidelines, leaving employers in a state of limbo.

Limitations within the Scheme Structure

The Old Age Protection Scheme pools 28.33% of total contribution (31%), split between the Retirement Scheme (8.33%) and Pension Scheme (20%). To encourage timely enrolment, the SSF provided a facility to employers who joined the SSF before the cutoff date (mid-July 2021) to transfer 20% contribution of their Pension Scheme to a Retirement Scheme and withdraw the full 28.33% upon termination of employment or retirement. This benefit, which workers find crucial, is off the table for those workers enlisted into SSF by employers after mid-July 2021.

This has become a major source of discontent for those workers’ considering enrolment in the SSF at present. Those enrolling after the cutoff date are allowed to withdraw the contributions within Pension Scheme as ‘monthly pension’ only after age 60 and 180 months of contribution.

Section 23(3) of the Social Security Schemes Operational Directives 2018 (Operational Directives) requires three years of continuous contributions to qualify for special loans amounting to 80% of the Retirement Scheme contribution but it does not clearly define what constitutes ‘continuous’. This creates challenges, especially if an employer is unable to make contributions during financial hardships where workers who are kept on extended reserve are owed at least half their monthly remuneration. There is a lack of practical guidance on whether the employer should prioritise immediate liquidity for workers by paying out the half remuneration or deposit the SSF contribution based on half remuneration to maintain the ‘continuous’ status.

Section 57 of the Labour Act exempts employers from procuring medical and accidental insurance should they enlist workers with SSF.

However, SSF’s Medical Treatment Scheme is only activated after three months of continuous contributions and protection for occupation disease under the Accident and Disability Protection Scheme is activated after two years of continuous contributions. Further, this has created confusion about whether employers should be liable for medical treatment or occupational hazard during this vacuum period. As there is no transitional provision to bridge the gap, workers may find themselves without coverage during the first three months or two years of SSF enrolment which could expose employers to several claims.

Another practical issue arises when workers are on unpaid or sabbatical leave or on reserve. Section 8(1) of the Social Security Act attempts to address this by requiring employers to continue making contributions for at least three months after the termination of regular remuneration. Section 8(2) of the Social Security Act allows employers to deduct these amounts from future payables to the worker. There is a lack of clarity about what happens if there is no such outstanding payable remaining or if it is insufficient to fund the recovery.

Interplay with Sector-Specific Laws

The complexity is further exacerbated by inconsistencies between the Social Security Act and sector-specific laws. For instance, the Working Journalist Act 1993 and its Rules mandate a lump sum gratuity payment at termination, that too, to only permanent workers who have completed five years of continuous service. In contrast, the Social Security Act requires monthly contributions to the SSF, from the first date of appointment, irrespective of regular or non-regular status. The SSF has indicated that media and communication entities are expected to prioritise compliance with the Social Security Act, including full deposits, even where inconsistencies with the Working Journalist Act may exist, creating compliance dilemmas for employers in this sector.

Way Forward

SSF should issue clear guidelines to address existing gaps. The Operational Directives could also be revised to eliminate vacuum periods within various scheme structures. Coordinating with sector-specific stakeholders is essential to resolve compliance dilemmas. It is natural that employers/citizens are wary to trust a new scheme like SSF, unlike Citizen Investment Trust or Employees Provident Fund which have existed for much longer. A coordinated, transparent and pro-worker approach will be crucial for 
the SSF to gain public confidence.