Officials said more than 3,000 hotels will send their staff home because they can't keep paying their salaries with no revenue coming in due to the lockdown.
"It is hard for operators to keep paying the employees as nobody knows how long the pandemic will last," said Binayak Shah, senior vice-president of the Hotel Association Nepal.
"Even if the lockdown is lifted, the tourism industry will take time to recover because travellers will not immediately book foreign trips. The hotels will all be bankrupt by the time tourism rebounds as they have to pay staff salaries while income has come down to zero," he said. "So closing the hotels is the best way to protect ourselves."
According to him, an emergency meeting of the association held on Sunday decided to pay only 12.5 percent of the basic salaries to the employees while asking the government to pay the workers through the social security fund.But the trade unions are not happy with the association's decision.
Madhav Pandey, president of the All Nepal Hotel Casino and Restaurant Workers’ Union, told the Post that the association's decision would leave 300,000 workers in the hotel business stranded without any support.
"In addition, it will impact another 700,000 workers in non-member hotels and restaurants," he said. "We are surprised that the hotels have given up in just one and a half months, and they want the workers to die without any income."
Every destination in the world now has travel restrictions in place as a result of the coronavirus pandemic, according to a recent study.
The analysis of all 217 destinations was carried out by the United Nations World Tourism Organisation, which said this represents the 'most severe restrictions on international travel in history'.
There is a difference between automatic closure of hotels due to the crisis and closing hotels lawfully. Lawful closure means hoteliers can significantly slash employee salaries and apply for payment from the social security fund to which all employees contribute 1 percent of their salaries.
The member hotels of Hotel Association Nepal are currently holding discussions with the Labour Ministry to protect the workers and close the hotels lawfully.
This will allow them to pay 12.5 percent of the basic salary while the social security fund covers the rest. "We have urged the government to officially approve the closure of hotels in order to get the social security fund payment for affected employees," said Shah.
The basic salary for each employee set by the government is a little over Rs13,000. "In addition, employees will also get the service charges that are accumulated and often distributed after six months, Shah said.
Hotels and restaurants have been levying a service charge on food and beverage bills since 2007 which is added to the salary of their employees.
"As part of the bailout measures for the hospitality industry, the government should pay the workers through the social security fund. The objective of the fund is also to ensure security for the workers," Shah said.
"This way, the hotels will be saved from bankruptcy too," said Shah, adding that the government needs to approve the closure of the hotels this week as the next payday occurs in mid-May. "Otherwise, we will be forced to lay off workers under Article 145 of the Labour Act by declaring bankruptcy," said Shah.
"That option may be a win-win situation, and it's up to the hotels and the government to decide," said Pandey. "But there should be no reduction in worker salaries during the crisis," he said.
"We understand the situation because if the hotels collapse, tens of thousands of people will lose their jobs and the banks will suffer too. The situation is grave, and serious attention is needed to protect the hospitality industry, banks and workers."
According to Nepal Rastra Bank, banks and financial institutions had a loan exposure of Rs138.68 billion in the hotel and restaurant sectors as of the first seven months of the current fiscal year.
According to Hotel Association Nepal, 95 percent of its 3,000 member hotels earned exactly zilch in March and April.
“We are also worried about the recovery of the loans,” Bhuvan Dahal, president of the Nepal Bankers’ Association, a grouping of the chief executive officers of commercial banks, told the Post in a recent interview.