What is a Labour Audit?

Q1. What is a Labour Audit?

A. Labour Audit is a legal compliance-checking tool relating to employment practices and policies of an employer. It is an important exercise to scrutinize minutely the adherence of employer and employees to the prevalent labour laws of the country.

Q2. Is Labour Audit mandatory provision?

A. Yes. Pursuant to Section 100 of the Labour Act 2074 (2017) and Rule 56 of the Labour Regulation, 2075(2018), Labour Audit is a mandatory legal provision of the law to be followed by all employers.

Q3. Where is Labour Audit applicable?

A. All local, national, native, foreign, multinational and international organisations, institutions, companies, firms, entities that are profit making or not operating in Nepal (defined as an ‘enterprise’ by the Labour Act) and have hired employees for their operations are liable to have labour audits. Where there is employer and employee relation, unless they are governed by any other laws of Nepal relating to employees, the labour Act prevails and the labour audit becomes mandatory for them.

Q4. What are the objectives of Labour Audit?

A. The main objectives of the Labour Audit is to support in increasing timely production and productivity by maintaining good industrial relations through assurance of labour rights and effective implementation of the prevailing laws in the workplace. In addition to this, other objectives are as following:

a) To increase the standard on adherence to the policies and legal provision relating to labour.

b) To increase the oneness of laborers by reducing their complaints.

c) To reduce the load of the government in monitoring, regulation and inspection. d) To make institutions responsible and accountable themselves to implement policy and legal provisions.

Q5. What are the benefits of Labour Audit?

A. There are multiple benefits of Labour Audit. It is beneficial to every employer, employee and to the government. Some of the benefits are:

Benefits to the employer:-

Increased productivity, high yield, higher profit.
Good recognition by the Government.
Timely payment of entitlements will reduce absenteeism in the organisation. Strict compliance followed by the employers, thus reduction or elimination of penalties/ damages/fines that may be imposed by the Government.
Improved labour relations, co-operation of and understanding with the workers. Therefore, the congenial atmosphere becomes good for corporate governance.

Benefits to the employee:-
It will increase their Social Security.
It will secure timely payment of wages, gratuity, bonus, overtime and compensation of the workers.
Timely payment of entitlements will reduce financial insecurity.
It will give appropriate recognition of hard work and opportunity for career development.

Benefits to the Government:-

Reduction in the cost or burden for inspection of Industries/Factories/ Commercial Establishments.
Compliance in the law of the nation rises.
The revenue of the Government will increase as statutory compliances increase.
Image of the country before the international arena will improve as a country with sound compliance of labour legislation.

Q6. What is the jurisdiction of Labour Audit?

A. The jurisdiction of the labour audit is to check the compliance of the employer against to the adherence of the following statutes:

Labour Act, 2074 and Labour Regulation, 2075
Contribution based Social Security Act, 2074 and Regulation, 2075
Bonus Act, 2030 and Regulation, 2039
Trade Union Act, 2049 and Regulation 2050
Mandatory subjects to be mentioned as per Schedule-10 of the Labour Regulation, 2075
Human Resources Rules and Regulations of Employer
Other necessary relevant subject matters for Labour Audit;

Q7. Who is responsible for the Labour Audit?

A. Head of the enterprise is responsible for Labour Audit.

Q8. What are the responsibilities of an Employer for Labour Audit?

The employer has the following responsibilities for the Labour Audit:-

Provide true information and details of enterprises;
Provide remuneration and other benefits to labour auditor;
Provide any other assistance if required; and
Submit labour audit to the concerned authority.

Q9. What are the responsibilities of a Labour Auditor for a Labour Audit?

A. Labour Auditor has the following responsibilities for the Labour Audit:

Preparing of the report based on true facts;
Completion of the audit within the stated time; and
Not disclosing confidential information known during the audit to any other parties.

Q10.What are the consequences of not having a Labour Audit?

A. There will be punishment as per the labour law personally to the head of the enterprise as well as to the enterprises for not abiding by the Labour Law.

Q11.Who can do the Labour Audit?

A. Internal: Any officer level employee of the enterprise as assigned by the head of the enterprises may do the labour audit.

External: Any Nepali citizen having bachelor’s degree qualification and two years’ experience of working at managerial level position in any enterprise is eligible to do labour audit of any enterprise.

Q12.When is the time to do a Labour Audit?

A. Between the ends of the fiscal year to the end of Poush every year.

Q13.What is the procedure of Labour Audit?

A. The procedure of labour audit is generally as below:-

The enterprises appoints a Labour Auditor.
The enterprise compiles a set of all the required documents as mentioned in the Q17 below in a folder ready for inspection by the Labour Auditor.
An officer or manager level employee of the enterprise fills up the Labour Audit Report Form as per Schedule -10 of the Labour Regulation 2075, get it approved by the Head of the enterprise and presents it to the Labour Auditor for the audit purpose.
Labour Auditor visits the enterprise’s premises and verifies the information filled up in the Labour Audit Report Form against the provided set of documents and information. e) Labour Auditor cross checks the information and their labour practices with employees, as necessary.
Labour Auditor issues a finding report upon auditing the labour practice by scrutinizing the submitted documents and interviewing employees
Enterprise submits the report of the Labour Auditor and the Labour Audit Report Form along with a cover letter to regulatory bodies and ensures a set of labour audit report form, labour Auditor’s finding report and copies of the set of documents available instantly for future inspection by Labour Inspectors appointed by DoLOS.
Enterprise keeps the Labour Audit Report submission record in the file once it is collected from the regulatory bodies.
The Government Officials in their routine check from Department of Labour and Occupational Safety may inspect the enterprise’s premises any time and cross check the labour audit report and documents used for the labour audit.

Q14.What are the benefits of appointing external Labour Audit?

A. There are many benefits for having external auditor for labour audit. Some of them are:

True and fair audit without any influence
Opportunity to rectify any problems or issues
Better understanding and trust relationship between employer and employee
Increased confidence of the enterprise in handling labour issues
Better public image of the enterprises
No hassles with DoLOS later

Q15.How long does it take to complete a Labour Audit?

A. Subject to the size of the enterprise, it may take two days to two weeks of time to complete the labour audit.

Q16.How much does it cost to complete a Labour Audit?

A. It depends on case by case and on mutual agreement between the Labour auditor and the enterprise.

Q17.What are the documents required for Labour Audit?

A. In order to provide true information and details of the enterprise as above, the following documentary evidence are required to be inspected by the labour Auditor along with interview of head of enterprise and randomly selected employees:

Recent Annual Report as submitted to the regulatory bodies.
Recent Financial Audit Report as submitted to the Inland Revenue Office.
Salary payment/account transfer sheets for all the staff.
Gratuity & PF Payment sheets and vouchers for all employees.
Leave encashment payment sheets and vouchers, if any.
Appointment letters /contracts of all employees and external service providers.
Experience Letters of those staff who have left the enterprise
Contracts with labour suppliers ( e.g. security guard or driver, etc)if outsourced staff are working
Registration, renewed license certificates, labour audit report of external labour supplier, if any.
Approved and signed HR Policy and guideline of the enterprise.
Agreement with Insurance company re accidental insurance and or medical insurance
In the case of INGO, General Agreement signed with Social Welfare Council
In the case of INGO, Project Agreement signed with Social Welfare Council
Work permit of expatriate staff (other than Nepali citizen)
Working Visa of Expatriate staff
PAN certificate
Recent Tax Clearance certificate
Income tax exemption certificate and its renewal, if any.
Warning Letters issued to staff, if any
Collective Bargain negotiations, if any.
Staff complaints made, if any
Employee Relation Committee (generally known as staff union) details and their meeting minutes, if any
Health and Occupational safety committee details and their meeting minutes, if any
Proof of HR Policy Registration at Department of Labour/Labour Office.
Previous year's Labour Audit Report submission proof to regulating agencies (SWC/DoLOS).
Any other documents that may seem relevant during the inspection of the above documents or conducting the process of labour audit.

Q18. Where to submit the Labour Audit Report?

A. The enterprise should submit the labour audit report to their respective regulating bodies, i.e. the entity from where the enterprise has got its registration certificate or operation license. For example:

Private Companies ? Office of the company registrar
Non-Governmental Organisations ? District Administration Office
International NGOs ? Social Welfare Council
Banks and financial institutions ? Nepal Rastra Bank
Cooperatives ? Department of Cooperatives
Industries ? Department of Industries
Community Service Organisations? Local Government
Schools ? Local Government
Hospitals ? Local Government, Provincial Government or Ministry of Health of Federal Government