Software
Payroll software in Nepal: requirements and evaluation
Payroll is the module where localisation either exists or does not. These are the calculations a Nepali payroll system has to get right.
Updated August 2026
Payroll is where a Nepali organisation discovers whether its HR system is genuinely localised. Every other module tolerates approximation; payroll does not, because the output is money and a statutory filing.
The calculations that must be right
- 1Retirement contributions as a percentage of basic salary, with the employee share deducted from gross and the employer share added on top as cost to company.
- 2Annual taxable income built from twelve months of gross plus festival bonus, less allowable deductions.
- 3The retirement deduction ceiling applied jointly across the fund contribution and CIT — the lower of NPR 5,00,000 or one-third of annual salary income.
- 4Progressive bands applied to taxable income, with the 1% first band waived for fund members.
- 5The female rebate applied to computed tax, and the wider exemption band applied to the band structure.
- 6Annual tax divided across payroll months as monthly TDS.
Festival bonus handling
A festival bonus is fully taxable in the year it is paid, and it usually lands in a single month. Payroll should include it in the annual projection from the start of the fiscal year so the tax it creates is spread across all months.
Software that recomputes only when the bonus is paid will load the entire additional liability onto one payslip. It is not wrong in total, but it is a poor outcome that a correct projection avoids.
Salary structures
- Basic and allowance components defined per grade, since basic drives every contribution.
- Basic set as a flat amount or as a fixed share of gross, applied consistently across a grade.
- Overtime and unpaid leave feeding gross pay from attendance data.
- Mid-year joiners, leavers and salary revisions triggering a rebuilt annual projection.
Outputs and reporting
Each figure should be traceable back to the employee and the rule that produced it. That traceability is what makes an audit or an employee query answerable without rebuilding the month.
| Output | Recipient |
|---|---|
| Payslip showing gross, each deduction and net | Employee |
| Contribution schedule | The retirement fund |
| TDS statement | Inland Revenue Department |
| Payroll register | Finance and audit |
| Bank payment file | The bank |
Migrating from spreadsheets
Most Nepali organisations are moving from Excel rather than from another system. The parallel month is the step that matters: run one cycle both ways and reconcile line by line before switching.
Differences found in a parallel run are usually informative. They often reveal that the spreadsheet was applying the retirement ceiling separately to each contribution, or resetting accumulators on the wrong year boundary.
Frequently asked questions
Does payroll software in Nepal need to handle SSF and EPF differently?
Yes. SSF is typically 11% employee and 20% employer of basic salary, EPF 10% from each side. Both waive the 1% first-band social security tax, and both employee shares count against the same combined deduction ceiling as CIT.
How should payroll software handle a mid-year salary increase?
Reproject annual income from the new salary, recompute annual tax, subtract what has already been withheld, and spread the remainder across the remaining months of the fiscal year.