Japan: Japan Reforms Work Style Regulations

Last Updated: 13 September 2018
Article by Junichi Kato

Most Popular Article in Japan, September 2018

A country known worldwide for its pressurised work environment and unspoken requirement for long hours, Japan has passed a work reform bill aimed at changing that reputation.

The bill, enacted by the Diet on 29 June 2018, takes aim at Japan's "work styles" with regulations limiting overtime hours and raising the income of temporary and part-time workers. It sees eight labour-related laws revised despite some resistance in the Diet; opposition parties maintain the bill could lead to more suffering in some employee populations, including instances of "karoshi", or death by overwork. "Karoshi" involves employees committing suicide or suffering from heart failure and stroke because of long work hours.

The government pushed the reform in the wake of an increasingly elderly population which has resulted in a dwindling workforce. The labour force participation rate in Japan is expected to fall to about 50% by 2065. Munetomo Ando, a professor of economics at Nihon University, told Nikkei's Asian Review the government is trying to encourage people to join the workforce and so needs to ensure companies are flexible enough to employ people from diverse backgrounds and age groups.

Prime Minister Shinzo Abe was quoted as saying the legislation "has been enacted to allow people to have different work styles, including while raising children or caring for the elderly". He views the legislation as the most important agenda item during the current Diet session, and believes the law changes will increase productivity to make Japanese businesses more competitive globally.

The legislation consists of three key pillar:

  • setting a legal cap on overtime work
  • ensuring "equal pay for equal work" for regular and non-regular workers
  • exempting skilled professional workers with high wages from the regulations

The legal overtime cap

The current labour law allows a company to remove the upper limit on overtime if the company and the labour union (or the representative of the employees) agree on a special clause.

However, under the new law, even if the company and the labour union (or the representative of the employees) agree on the special clause for the upper limit on overtime, the overtime must be within 720 hours for a year, which is a monthly average 60 hours, with a single-month maximum overtime of 100 hours. 

The cap will come into force for most companies in April 2019, with smaller firms following one year later. It's the first time violation of mandatory caps will be penalised since the Labor Standards Act went into effect in 1947.

Equal pay for equal work

The difference in treatment of contractors, part-time and "non-regular" workers in Japan has long been a source of contention. A 2013 amendment to the labour contract law stipulated there should be no "irrational disparities" in the conditions of regular full-time employees and people on irregular contracts such as part-timers, contract workers and temporary dispatch staff. 

Irregular workers are said to be paid roughly 60% of full-timers in terms of hourly wages; in Europe, the norm is around 80%. Given these workers account for nearly 40% of the Japanese workforce, closing the gap was an important task.

The principle rules of "equal pay for equal work" include: 

  • a basic salary should be same between regular workers and irregular ones as long as the length of their services, their capabilities and their outputs are same level
  • transportation cost should be equally paid between them
  • for those who work late at night or on holiday, the overtime payment ratio should be equal.

Exempting skilled workers

Dubbed the "white collar overtime exemption", this pillar has been a major source of contention, but it didn't stop the bill passing. The exemption applies to those with annual incomes of more than 10.75 million yen (US$97,500), including roles such as product developers, financial traders, consultants and researchers. 

Opposition parties and labour unions had criticised this as a "zero overtime pay" scheme, and some business lobbies are encouraging firms to give these professionals 104 days off from work a year.

As a way to ease opposition fears, a provision was added to the bill allowing white-collar workers to give up the exemption status if they wanted to.

What does this mean for your business in Japan?

This is a legally-binding act of government, and businesses ignore it at their peril. Clearly with a cap on overtime hours, managing the time of employees becomes imperative. It's recommended managers keep a close eye on time employees spend working, perhaps introducing time tracking software if it's not already used.

Anyone employing irregular workers will also need to look closely at the packages offered to employees. It's important to note the "equal pay for equal work" pillar includes payment in terms of, benefits, not just regular salary.

Our experts in Japan are ready and able to discuss the specifics of your business in Japan; please get in touch for more information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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