Industrial establishments in Nepal are increasingly turning to outsourcing for workforce recruitment, raising serious concerns about job security and labour rights. A recent study report of the General Federation of Nepalese Trade Unions (GEFONT) highlights a sharp rise in the use of outsourced labour across industries. According to the study titled The Labour Audit 2024, the proportion of workers hired through outsourcing companies rose to 14.91% in 2024, up from 9.93% in 2023 and 7.30% in 2022. This trend reflects a growing shift away from regular employment, weakening long-term labour protections and collective bargaining rights.

GEFONT argues that the widespread use of outsourced labour is eroding the stability traditionally associated with formal employment. It warns that this practice not only undermines job security of workers but also limits their access to benefits and weakens negotiating power.

Industry representatives claim that outsourcing offers flexibility, lowers administrative burden and improves cost efficiency in a competitive market. However, labour rights advocates argue that this flexibility often comes at the cost of fair wages, decent working conditions and legal protections. The report reveals that 77.2% of companies employing workers through labour supply firms in 2024 failed to provide minimum wages and basic benefits such as overtime pay, up from 72.6% in 2023. According to GEFONT, these statistics clearly indicate that outsourcing companies have become major centers of labour exploitation. It also criticized the negligence of the Labour and Employment Offices which are responsible for labour inspections and collect annual labour audit reports.

Outsourcing is particularly prevalent in labour-intensive sectors like manufacturing, textiles and food processing where short-term contracts and third-party hiring are now widespread. Many outsourced workers lack formal contracts, social security coverage and representation in workplace decision-making processes.

As the outsourcing trend deepens, GEFONT and other labour organizations have called for stricter regulation and oversight. They have urged the government to revise labour laws and auditing mechanisms to ensure companies fulfill their responsibilities toward directly employed workers.

Labour experts say the rise in outsourcing reflects broader structural challenges in the country’s labour market. They call for a need to balance economic efficiency with the protection of workers’ rights.

Rise of Part-Time and Contractual Workforces

Nepal’s labour market witnessed a significant transformation in 2024, as traditional full-time jobs gave way to more flexible and contingent labour arrangements. Recent labour statistics show that the share of regularly employed workers dropped from 59.72% in 2023 to 53.35% in 2024, signaling a diversification in employment types driven by evolving business models and economic pressures.

One of the most notable developments was the sharp increase in part-time employment, which rose from 5.52% to 8.58%. This shift suggests a growing preference for flexible work among both employers and workers, driven by the expansion of the gig economy, shifting worker expectations, and efforts of employers to cut labour costs.

The share of workers in occasional employment more than doubled, from 1.13% to 2.91%, further reflecting a move toward non-standard forms of labour. Meanwhile, transitional categories of employment experienced declines. The proportion of trainee workers fell from 1.66% to 1.10%, and apprentice workers dropped by nearly half, from 1.56% to 0.80%, possibly reflecting a slowdown in skill development and entry-level training opportunities.

The proportion of foreign workers remained largely stable, declining only marginally from 4.74% in 2023 to 4.73% in 2024, suggesting a steady reliance on external labour. On the other hand, roles saw a slight uptick from 4.98% to 5.18%, hinting at modest growth in leadership positions amid broader structural changes. Other employment categories, such as casual and seasonal work, saw marginal declines, likely due to the continued shift toward institutionalized or contract-based hiring practices. Overall, the 2024 data reflects a nuanced reconfiguration of Nepal’s labour market, marked by the rise of part-time, outsourced and non-traditional employment. While this transition may offer increased flexibility and adaptability for employers, it also raises important concerns around job security, social protection and long-term career development for a growing segment of the workforce.

Growing Challenges in Enforcing Labour Laws

The report reveals systemic non-compliance with existing labour laws and regulations. The audit found that 21.7% of industries and institutions failed to pay the legally mandated minimum wage. The government had revised the monthly minimum wage to Rs 17,300 on July 17, 2023, an increase of 15.33% from the previous rate of Rs 15,000. The new wage includes a basic salary of Rs 10,820 and an allowance of Rs 6,480.

Since the wage hike, the share of institutions failing to comply has risen to 29%, suggesting that more businesses are now openly flouting legal wage frameworks designed to protect the livelihood of workers. Beyond wages, workers are also being denied other legally mandated benefits. The percentage of institutions failing to provide festival allowances surged from 8.9% last year to 29.3% this year. Similarly, the proportion of employers not granting regular grade increases rose from 21.7% to 36.9%. Cases of irregular salary payments also increased slightly, from 28% to 30%.

Ramhari Nepal, president of GEFONT, termed the findings as deeply troubling. “Although there are clear legal guidelines, the enforcement aspect has remained weak and ineffective,” he said.

Labour rights advocates are calling for stronger regulatory oversight, stricter penalties for non-compliance and systemic reforms to ensure fair treatment, timely pay and guaranteed benefits to workers. Without urgent government intervention, the gap between labour laws and workplace realities is likely to widen further, they say.

Labour Offices Under-Resourced

A key obstacle to ensuring labour rights in Nepal is the limited capacity of the government institutions responsible for monitoring and enforcement. There are only 11 Labour and Employment Offices across the country. These offices, under the Department of Labour and Occupational Safety within the Ministry of Labour, Employment and Social Security, are understaffed and lack adequate logistical support. “The mandate is broad, but the resources are negligible,” Nepal said. “Most inspections are just paperwork, with little to no field verification.”

The Labour Act mandates annual labour audits of all institutions to ensure compliance with wage laws, benefits and working conditions. However, audits are rarely conducted in practice, and when they are, they often lack depth or onsite verification. Nepal argued that strengthening labour enforcement must become a national priority. This includes expanding the number of offices, hiring and training more inspectors and equipping them with digital tools to monitor violations effectively, he added. Experts also advocate for the establishment of a centralized, publicly accessible database for labour audit reports. Digitalization and real-time complaint-tracking systems could vastly improve transparency and accountability, they say.

“Inspection is the weakest link in the system. Even when audits are done, there is little clarity on who reviews the reports,” Jeevan Baniya, a labour policy expert, said. “Labour governments must play a greater role in labour oversight.”

Economic Slowdown Worsens Labour Exploitation

Nepal’s slow economic recovery in the aftermath of the COVID-19 pandemic is exacerbating labour rights violations. The report documents widespread breaches, from non-payment of minimum wages to the denial of social security and unsafe working conditions.

Many businesses, particularly small and medium-sized enterprises, cite financial strain as the reason for neglecting labour law compliance. “The economic situation has pushed many firms into survival mode,” said Baniya. “They use the slowdown as an excuse to underpay workers and disregard legal benefits.” Although the labour law mandates a biennial review of minimum wages by a tripartite committee, Nepal questions its effectiveness. “Private sector representatives sit on the committee but do not follow the rules they help create,” he said. “Even employees are often unaware of their rights.” Unless institutions are empowered and laws are strictly enforced, experts warn, Nepal risks seeing more workers pushed into informal, insecure and underpaid jobs, he added.

Social Security System Undermined

The Social Security Fund (SSF) was launched with the promise of improving worker welfare. But weak enforcement and poor compliance have eroded public trust in the system.

According to the report, only 47.8% of industries and institutions audited were registered with the SSF, down from 69.4% last year. Among those registered, only 44.4% were making regular contributions, leaving more than half of eligible workers effectively excluded from benefits such as insurance, pensions and maternity leave. “This is not just administrative neglect, it is a systemic failure,” said Baniya. “Labour offices are supposed to ensure compliance, but they lack capacity.”

Sectoral data shows wide disparities. While 58.5% of production-based industries are registered with the SSF, registration rates drop to 53.1% for hotels, 45.5% for textile firms, 30.8% for private schools, 27.8% for cooperatives and microfinance institutions and just 20% for trekking and travel companies.

“The laws exist, but enforcement is missing,” Nepal said. “Even large firms that can afford to contribute are failing to do so. This is not just non-compliance—it is systemic avoidance of responsibility.”

Without consistent contributions and credible enforcement, experts warn that Nepal’s SSF risks becoming symbolic rather than substantive—offering formal coverage on paper but little real protection for workers.

(This article was originally publihsed in  July 2025 issue  of New Business Age Magazine.)