Nepal Gratuity Calculation Guide: Formula, SSF Interaction, and Bank File Disbursement

Gratuity in Nepal sits at the intersection of three things that don’t always agree: the Labour Act 2074, the Social Security Act 2074, and your company’s actual payroll system. Most of the gratuity questions we get aren’t about the formula — they’re about which formula applies, whether SSF replaces it, and how to actually disburse the lump sum once you’ve calculated it.

This guide covers all three.

The Labour Act formula

Under the Labour Act 2074, employees with at least one year of continuous service are entitled to gratuity. The standard formula:

Monthly accrual = 8.33% of basic salary Lump sum at termination = sum of monthly accruals over service period

For an employee earning Rs 50,000 basic per month over 5 years:

• Monthly accrual: 50,000 × 8.33% = Rs 4,165
• Annual accrual: ~Rs 50,000
• Five-year lump sum: ~Rs 250,000 (subject to basic-pay changes during the period)

If basic salary changes during service, the accrual is computed on the basic that applied during each period — not on the final basic. This is a common error: companies that compute “current basic × 8.33% × months of service” overstate gratuity for employees whose basic has gone up.

How SSF changes the picture

The Social Security Fund (SSF) was introduced in 2018 and made gratuity contributions a monthly remittance to the central fund rather than an employer-held liability. For SSF-enrolled employees:

• The employer remits 8.33% of basic (and other contributions) to SSF monthly.
• The SSF holds and grows the balance.
• On termination, retirement, or other qualifying event, the SSF disburses the accumulated amount directly to the employee.
• The employer does not pay an additional gratuity lump sum at termination — that obligation is fulfilled by the monthly SSF remittance.

This is the single most-misunderstood point in Nepal payroll. Companies running both schemes — SSF for newer employees and pre-SSF gratuity for older ones — sometimes pay gratuity twice for SSF members.

The rule:

Enrolment	Employer’s gratuity obligation
SSF member	Monthly contribution to SSF; no additional lump sum at termination
PF only (pre-SSF)	Monthly accrual on the employer’s books; lump sum at termination
Mixed-tenure employee (PF before, SSF after)	Pre-SSF service paid as lump sum on termination; SSF service disbursed by SSF

Mixed-tenure cases are where most errors happen. Track the SSF enrolment date carefully and split service accordingly.

Tax treatment of gratuity

Gratuity is taxable income, but with significant exemptions under the Income Tax Act:

• For SSF members: the SSF disbursement is taxed at concessional rates per the Income Tax Act provisions on retirement payouts.
• For non-SSF members receiving an employer-paid lump sum: a portion is exempt up to limits set by the Income Tax Act, and the remainder is added to taxable annual salary in the fiscal year of termination.

The §27 termination payout rules then apply to the taxable portion — meaning the gratuity lump sum increases the year-to-date taxable salary, and TDS is recomputed on the higher base.

In practice, this means the gratuity disbursement is rarely paid at the same rate as the employee’s last regular paycheque. The TDS line on the termination payslip will look larger than usual because it reflects the entire year’s recomputed liability against what’s been deducted so far.

Disbursement via bank file

Once gratuity (or the equivalent termination package) is calculated, the actual payment usually goes through the company’s corporate banking portal as part of a bulk salary disbursement. Each major Nepali bank has its own file format:

• NMB Bank: CSV with specific column ordering
• NABIL Bank: tab-delimited with header row
• NIC Asia: CSV with branch code per row
• EBLL (Everest Bank): positional text format
• Prabhu Bank: CSV with account validation digits

PayrollApp generates the file in the format that matches your disbursement bank. The export is a single click after the termination payslip is finalised. You upload the file to the bank’s corporate portal and authorise the disbursement.

If your company uses multiple banks (e.g., a primary corporate account at NMB and a backup at NIC Asia), you can generate either format from the same payslip data.

A worked example

Employee profile:

• Joined 1 Shrawan 2078 BS (mid-July 2021), enrolled in SSF from day one
• Basic salary: Rs 60,000 throughout
• Resignation effective 30 Ashad 2082 BS (mid-July 2025), 4 years complete service

SSF accumulation (employer’s monthly remittance over 4 years):

• 60,000 × 8.33% × 48 months = Rs 239,904 contributed to SSF for gratuity component
• (Plus separate contributions for PF, medical, and other SSF heads)

Employer’s lump-sum obligation at termination:

• Rs 0. SSF disbursement covers the gratuity benefit.

What’s owed at termination from the employer:

• Wages up to last working day
• Leave encashment per §41
• Notice payment in lieu (if applicable)
• Pro-rated festival allowance and any other contractual amounts

If this employee had not been on SSF — i.e., on a pre-2018 PF-only scheme — the employer would owe a gratuity lump sum of approximately Rs 240,000 at termination, with applicable tax exemptions and §27 recomputation.

The difference between the two scenarios is what makes SSF enrolment-tracking essential for correct termination calculations.

Where Leave Balance + PayrollApp fit

The split between the two products mirrors the split between HR and payroll responsibilities:

LeaveBalanceApp owns:

• The resignation workflow
• Service-tenure tracking
• The gratuity record on the employee
• Approval and termination preview UI

PayrollApp owns:

• The actual gratuity calculation (with SSF logic, mixed-tenure handling, basic-pay history)
• The §27 tax recomputation
• The bank file generation for disbursement
• The annual tax certificate that reflects gratuity

The integration is event-driven: the resignation approval triggers a webhook to PayrollApp, which generates the termination payslip including the correct gratuity calculation, and returns the bank file ready for upload.

Common gratuity calculation errors

• Using current basic for all service years. Use the basic that applied during each period.
• Paying gratuity to SSF members. Don’t. The SSF disbursement is the gratuity benefit.
• Forgetting mixed-tenure splits. Pre-SSF service still creates an employer obligation.
• Skipping §27 recomputation. The lump sum is taxable income for the fiscal year and changes the TDS base.
• Using wrong service start date. Continuous service starts at hire, not at the most recent rehire if there’s been no break in employment.

The bigger point

Gratuity is one of those compliance topics where the formula is easy and the edges are hard. The edges — SSF interaction, mixed tenure, basic-pay changes, termination tax recomputation — are where most companies lose money or create employee disputes.

Get the formula right once in a system that knows the edges, and gratuity becomes a one-click step at termination. Skip the system and run it on a spreadsheet, and gratuity becomes the line item that requires three separate audits over the next year.