Your annual profit bonus in Nepal: the 10% rule, the 6-vs-8-month cap, and who actually gets it

Two friends compared notes in Asoj. One works at a commercial bank and got a payment worth several months of salary on top of his Dashain festival money. The other, at an early-stage startup, got exactly one month of basic and called it his "bonus." They assumed they were getting the same thing in different sizes. They were getting two completely different things, governed by two different laws, and only one of the two was ever guaranteed.

The word "bonus" in Nepal hides this split. One payment is a fixed festival entitlement every employer owes. The other is a slice of company profit that a loss-making firm never pays. Knowing which one you are owed, and how big it can legally get, is the whole game.

Two payments, one word

Start by separating them, because almost every argument about "my bonus" is really a confusion between the two.

The festival expense is the Dashain payment. Under Labour Act Section 37, every employer owes each worker one month of basic remuneration once a year, profit or no profit. A jobs-portal explainer puts the point bluntly: the festival allowance "is not actually a bonus, it is a festival allowance," and mislabeling it leads some employers to treat it as optional when it is not (merojob). The full mechanics, and why it makes your Kartik slip look strange, sit in the Dashain bonus and tax post. This post is about the other one.

The profit bonus is a share of company profit under the Bonus Act 2030. It is contingent, capped, and the part most people understand least. The rest of this post is that payment.

The 10% rule: how the pool is built

The starting point is Section 5: "Each profit making enterprise shall have to allocate an amount equivalent to ten percent of its net income of one fiscal year for bonus to the employees." Net income is assessed under the Income Tax Act 2058, with prescribed deductions, so it is the taxed-profit figure, not headline revenue.

That 10% becomes a pool. The pool is then shared among the eligible employees and the per-person amount is bounded by the cap below. Two consequences fall straight out of the design. A very profitable firm with a small headcount produces a large pool spread thinly across few people, so individuals hit the cap. A thin-margin firm produces a pool that, divided among staff, lands well under the cap. And a firm that lost money produces no pool at all.

Who actually qualifies

Eligibility is narrower than "everyone on payroll." Section 6 sets the bar: an employee who has worked at least half of the period to be worked in a fiscal year qualifies. Casual and shift-basis workers are excluded.

The Act itself reaches enterprises with 10 or more workers (AHN Legal), counting anyone engaged on the relevant date or in the prior 12 months. But the obligation to pay only binds profit-making enterprises. So three conditions stack: the firm has 10-plus workers, it turned a profit, and you personally worked at least half the year. Miss any one and there is no profit bonus to claim, even though your festival expense is untouched.

The 6-vs-8-month cap, and why higher earners get less

Section 7(3) caps any individual's bonus by wage band, and the band lines up against the minimum wage:

Your monthly pay	Bonus cap
Up to twice the minimum wage (about Rs 39,100)	8 months' salary
Above twice the minimum wage	6 months' salary

The threshold moves with the minimum wage: twice the FY 2082/83 floor of Rs 19,550 is Rs 39,100 a month. The inversion surprises people. The lower-paid band gets a higher month-multiple, 8 rather than 6, because the cap is designed to give more relative protection to workers nearer the floor.

Worked against two employees at the same profitable firm:

Employee A — basic-band pay Rs 30,000/month (under 2x minimum wage)
  Cap: 8 months × 30,000 = Rs 2,40,000

Employee B — pay Rs 80,000/month (over 2x minimum wage)
  Cap: 6 months × 80,000 = Rs 4,80,000

The higher earner still takes more rupees, just a smaller multiple of their own salary. And both numbers are ceilings. Whether either actually reaches the cap depends on how large the 10% pool is once divided, which is why the same job title pays a banner bonus at a bank and a token one at a struggling firm.

When it must land

A bonus you earned is not payable whenever the company feels flush. Section 9 requires it to be distributed in cash within eight months of the close of the fiscal year. The fiscal year ends in mid-July, so the deadline falls around mid-March. Management can ask the Labour Office for up to a three-month extension, or to roll two years' bonus into the next year, but those are exceptions that need approval, not a default the employer can assume.

Until it is paid, an earned bonus is a debt the company owes you, which is why it travels with you when you leave.

A loss year means zero

This is the line that separates the profit bonus from the festival expense, and it is worth being blunt about. The festival expense is guaranteed: a loss-making employer still owes you one month of basic at Dashain. The profit bonus is not. If the company made no net profit, Section 5 produces no pool, and there is nothing to distribute.

Banks, large insurers and profitable hydropower firms are where the profit bonus regularly runs toward the cap, because those are among the most consistently profitable sectors on the market; the relative profitability of NEPSE's sectors is a decent proxy for where bonuses are fat and where they are thin. Many smaller service-sector firms pay nothing in a flat year. Counting on a profit bonus as regular income is a mistake; it is a variable payment by design.

If your bonus is skipped or short

A bonus you qualified for is part of your dues, and there are two routes to it. If you leave the company, accrued bonus for your qualifying period forms part of your final settlement, alongside unpaid salary and leave encashment. If a profitable employer withholds or short-pays a bonus you were owed, the path is a complaint to the local Labour Office, which opens negotiation and can issue a binding order.

The evidence that matters is your appointment letter and pay records, because a claim turns on your salary band, which sets your cap, and the period you worked, which sets your eligibility. Keep both.

The tax

Both payments are fully taxable employment income. A reputable Nepali tax firm lists bonuses explicitly among taxable employment payments and records no exemption for festival expense or profit bonus (NBSM). A profit bonus large enough to clear several months of salary can push you into a higher slab for the year, and the recurring "one month is tax-free" claim has no basis in the Income Tax Act 2058. The slab mechanics, and why a bonus inflates your TDS projection, are walked through in the Dashain bonus and tax post.

What you actually need to know

• The profit bonus and the Dashain festival expense are different payments. The festival expense is one month of basic, guaranteed under Labour Act Section 37. The profit bonus is 10% of net profit under the Bonus Act 2030, paid only by profitable firms. Confusing the two is how people end up expecting money a loss-making employer never owed.
• The cap is 8 months' salary below twice the minimum wage, 6 months above it. The lower band gets the higher multiple by design. But the cap is a ceiling, not a promise; what lands is your share of the 10% pool, which only reaches the cap at the most profitable employers.
• It must be paid within eight months of fiscal year-end, and it survives your exit. An earned bonus is a debt: claimable in your final settlement if you leave, and enforceable through the Labour Office if a profitable employer withholds it. Both payments are fully taxable.

If you are unsure which bonus you are actually owed, or whether your profit bonus was capped correctly, email parjanya57@gmail.com with your monthly pay, your join date, and what the company paid.

This post is part of the Nepal Money Basics guide — the earn-more section.