Mon, April 22, 2024

Labour Audit Practice in Nepal

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We are all aware that corporates need to undertake Financial Audits periodically. The law also mandates Labour Audits for all corporates. Labour Audit fundamentally provides a method for determining and identifying possible areas of vulnerability and balances the relationship between the employer and employee. The requirement of Labour Audit was introduced to implement the existing labour laws of the country. It is a legal compliance checking tool relating to the employment practices and policies of an employer. It is imperative for all businesses to understand this fundamental compliance. In this article we have explained what the term Labour Audit actually entails:

Legal Framework

Realising the importance of balancing the relationship between an employer and employee, Section 100 of the Labour Act 2017 has made it mandatory for all enterprises to conduct Labour Audit. In line with the provisions of the Labour Act, the Labour Rules 2018 has set out the procedure for Labour Audit. Pursuant to Rule 56 of the Labour Rules, enterprises are required to conduct and submit Labour Audit by the end of the Nepali month of Poush (mid-January) every year. The Labour Audit should be conducted as per the criteria defined by the Ministry of Labour, Employment and Social Security. Using the power conferred by Rule 56, the Ministry of Labour, Employment and Social Security has issued the Labour Audit Standard 2018. The Labour Audit Standard came into effect on November 22, 2018.

Technical Aspect and Procedure of Labour Audit

Labour Audits are integral in today’s professional world for proper functioning of and assurance of availability of minimum rights to employees guaranteed in the Labour Act 2017. The Labour Audit Standard has prescribed the procedures and major factors that are to be considered while conducting a Labour Audit. Pursuant to Rule 56 of the Labour Rules 2017, a qualified Labour Auditor must conduct the Labour Audit. Further, the Labour Auditor could be an individual or an entity, and their qualifications are laid out in the Labour Audit Standard. While conducting the Labour Audit and preparing a report, the Labour Auditor assesses if the concerned enterprise has implemented the provisions of the following major laws;
  • Labour Act 2017 and Rules 2017
  • Social Security Act 2017 and Rules 2018
  • Bonus Act 1973 and Rule 1982
  • Trade Union Act 1992 and Rules 1993
  • Matters included under Audit Report pursuant to Schedule 10 of Labour Rules
  • Internal rules and by-laws of the enterprise
  • Other relevant issues
During the assessment, the Labour Auditor also provides feedback and suggestions on the areas that the concerned enterprise must improve upon in order to meet its legal obligations in relation to the given labour laws of Nepal. Pursuant to the Labour Audit Standard, the Labour Auditor is required to follow various methods to finalise the Labour Audit report. The Labour Auditor has to collect and analyse comprehensive details of the concerned enterprise; conduct onsite/field visit and investigation; interview relevant personnel; and deploy an audit team at the enterprise along with other appropriate procedures as regarded necessary. In this process the enterprises are required to provide true and actual information and details, remuneration details and information on other benefits to the Labour Auditor. Further, the Labour Audit Standard has also set out responsibilities of the Labour Auditor. The auditor shall prepare the report based on the true information of the enterprise as provided, complete the audit within the stated time, and not disclose confidential information acquired during the audit to any other person. The completed Labour Audit report is to be submitted to the Labour and Employment Office and the Labour Relation Committee in Nepal before the above-given deadline.

Opportunities and Challenges

A Labour Audit stands at a different footing from a Financial Audit. It is more concerned with the operational aspect of how an enterprise balances employer and employee relations. A Financial Audit checks the financial health of an enterprise, whereas a Labour Audit checks the human resource well-being. The Labour Audit Form/Report expects the auditors and the enterprises to give minute and accurate details as possible. Inculcating such fair and precise answers in the report is a challenging job. Further, the Labour Act and Labour Rules have also prescribed penalties of up to Rs 20,000 in case false details are found in the Labour Audit report. Such fine is imposed on the person providing false details or on the management of the enterprise. Keeping such challenges in mind there are certain qualifications and eligibility criteria that Labour Auditors should meet.


The Labour Audit as introduced by the Labour Act 2017 is instrumental in bridging the gap created by the power dynamics of an employer and employee. Conducting it periodically and systematically helps in meeting the minimum standards and obligations prescribed by the law. This also ensures the viability of an enterprise as human resources are an integral part of an enterprise’s success. The Labour Audit procedure allows enterprises and employers to identify their gaps and bridge the problems in the existing compliances. It further confirms that the labour law is complied with and properly carried out by the enterprises. There are enterprises that still do not follow the prescribed format of filling out the Labour Audit report. At times there are many enterprises and Labour Auditors drafting the Labour Audit report poorly and providing objective answers with no reference to past audit reports. Therefore, these are some things that are to be strictly considered by the auditors and enterprises while drafting the Labour Audit report. READ ALSO:
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MARCH 2024

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