Vistra Insights

Japan tightens regulations on working hours and more

Japan is known throughout the world for its dedicated workforce. The nation earned its current reputation in the 1960s, when Prime Minister Shigeru Yoshida took steps to revitalize Japan’s post-war economy. Yoshida successfully enlisted major corporations to offer employees lifelong job security in exchange for loyalty. Employees were grateful and expressed their allegiance in part by working longer hours.

This unspoken arrangement between Japanese companies and their workers eventually became known as Yoshida’s lifelong employment system, and it continues to shape Japan’s working culture. Today, Japanese workers put in some of the world’s longest shifts, clocking an average of nearly 400 more hours a year than their western counterparts.

While Japan is the world’s third largest economy, its extreme work habits have had detrimental effects on the physical and mental well-being of Japanese citizens. Karoshi — a Japanese term meaning ‘death by overwork’ — is the most extreme example of these effects. Karoshi has been blamed for thousands of deaths since the introduction of lifelong employment, but recently a few high-profile cases have thrust the issue back to the forefront of political discussion. This, combined with other concerns like the nation’s rapidly aging workforce, pose a great risk to the future of Japan’s economy, and the government has been under increasing pressure to take action.  

In response, current Prime Minister Shinzo Abe has made labour reform one of his top priorities. Passed by parliament in June 2018, Abe’s Work Style Reform bill aims to modernise Japan’s labour practices by tightening regulations on long working hours and addressing workplace inequalities. The comprehensive bill set certain provisions to take effect in April 2019, with others to come in years to follow.

Overtime work limits

The new law contains among other measures two rules that set maximum limits on overtime hours. These are:

  • The Basic Limit Rule, which says that overtime hours cannot exceed 45 hours per month or 360 hours per year.
  • The Extended Limit Rule, which allows employers to extend the basic limit under special circumstances. These may include an exceptionally busy period, an unexpected volume of customer complaints or a sudden change in product expectations. The extended limit cannot exceed 100 hours per month and 720 hours per year. And employees may not work, on average, more than 80 hours of overtime per month. Finally, the number of months in which the employee works over the Basic Limit cannot exceed six months in a year.

The penalties for non-compliance with the new overtime rules include a fine of up to 300,000 yen and possible criminal sanctions, which can apply not only to the employer but to the person responsible for the business, such as the HR manager.

The overtime rules took effect in April 2019 for large companies. Small to mid-sized companies must comply beginning in April 2020.

Workers exempt from overtime rules

Highly skilled professional workers may be exempt from the new overtime provisions. An exempt employee in this case must engage in services that require expert knowledge and skills, such as financial services, research and development, or management consulting. An exempt employee must also earn a minimum salary of 10.75 million yen a year.

Because labour shortage in Japan is more severe in certain sectors than in others, the following occupations will be exempt from this law for five years: car drivers, construction workers, doctors, and employees engaged in the research and development of new technology. 

Employers that misclassify non-exempt employees as exempt will be considered in violation of the new law.

Increased overtime rate for small employers

Previously, small employers were exempt from an overtime premium of 1.5 times the regular rate of pay. The new law abolishes this exemption and requires all employers to pay this premium if an employee’s overtime exceeds 60 hours in a month. This change will take effect in April 2023.

Requirement to take annual leave

Full-time employees in Japan are typically entitled to 10 to 20 days of paid annual leave, but most workers choose not to use them. Under the new law, workers who are entitled to at least 10 days of annual leave are required to take at least five of these days each year. If an employee does not voluntarily choose to use these days, it becomes the employer’s responsibility to designate the timing in which the leave must be taken.

Tracking working hours 

The new law requires employers to track all employees’ working hours, including those who hold managerial or supervisory positions. Working-hour records must be reviewed on a monthly basis to assess whether or not an employee’s working time has exceeded the new limits.

The new law also encourages employers to adopt a work-interval system to protect the health and welfare of employees. This system should set a minimum limit on the interval of time between the end of one work day and the beginning of the next.

Equal pay for equal work  

In Japan, equal pay for equal work refers to the differences between regular employees and non-regular employees. Regular employees have open-ended, full-time employment contracts, whereas non-regular employees work part-time or on fixed-term contracts. Typically, non-regular employees don’t enjoy the same pay, learning opportunities or job security as regular employees. The new law aims to reduce these disparities and calls for fair treatment of all workers, regardless of employment status.

Further administrative guidelines to this provision are expected. Until then, employers should prepare to provide increased compensation and benefits for non-regular employees. Employers should also begin reviewing compensation differences between regular and non-regular employees to identify any disparities.

These provisions will take effect in April 2020 for large employers and April 2021 for small to mid-sized employers.

Enhancing health management 

Currently, employers with 50 or more employees are required to appoint an industrial physician. The new legislation enforces stricter reporting requirements between an employer and its designated physician.  

To comply with the new law, employers must:

  • Provide the physician with the necessary information to manage the health of those employees who work long hours
  • Report on the content of recommendations received by the industrial physician, including the specific measures taken to implement recommended changes
  • Post information about the industrial physician’s role so that it is visible in the workplace
Action items for employers

Employers with operations in Japan should consider taking the following actions:

  • Determine when the new overtime work limits apply to your organisation — April 2019 for large companies and April 2020 for small to mid-sized companies
  • Implement a time-tracking system that tracks the working hours of all employees, including those who are exempt
  • Regularly monitor the annual leave of all employees who are entitled to 10 or more days of leave each year
  • Review current work rules and employment contracts to ensure they comply with the new law and update them if necessary

 

Bethan Arora, Senior HR Consultant, contributed to this article. 

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