Japan, which is renowned worldwide for its pressurised work environment and unspoken requirement for staff to do long hours, has taken action in a bid to change its reputation.
To this end, the Diet enacted a Bill on 29 June 2018 to introduce regulations that limit overtime hours, while at the same time increase the income of temporary and part-time workers.
Eight labour-related laws have been revised despite some resistance from Diet members. Opposition parties maintained that the legislation could lead to increased suffering among some employee populations, potentially leading to more instances of “karoshi”, or death by overwork. “Karoshi” involves employees committing suicide or suffering from heart failure or stroke due to long working hours.
But the Japanese government pushed the reform through as a result of the country’s increasingly elderly population, which has led to the workforce shrinking. In fact, by 2065, the labour force participation rate is expected to fall to about 50%.
Munetomo Ando, a professor of economics at Nihon University, told Nikkei’s Asian Review that the government aim was to encourage more people to join the workforce, but to do so, it needed to ensure companies’ practices were 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”.
In fact, he viewed the new law as the most important item on the agenda during the current Diet session and believes the move will increase productivity and make Japanese businesses more competitive globally.
The legislation consists of three key pillars in that it:
- Sets a legal cap on overtime work;
- Ensures “equal pay for equal work” for regular and non-regular workers;
- Exempts skilled professional workers on high wages from the regulations.
The legal overtime cap
Current labour laws allow employers to remove the upper limit on overtime if they and the trade unions concerned (or employee representative) agree on a special clause. But it is worth bearing in mind that under the new law, even if the company and union (or employee representative) agree on an upper overtime limit, it must be no more than 720 hours per year. This amounts to a monthly average of 60 hours and a maximum of 100 hours.
This cap will come into force for most companies in April 2019, with smaller firms being required to follow suit a year later. Violation of the mandatory caps will also be subject to penalties for the first time since the Labour Standards Act came into effect in 1947.
Equal pay for equal work
The difference between how contractors, part-time and “non-regular” workers are treated in Japan has long been controversial. A 2013 amendment to labour contract law stipulated that 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 believed to be paid roughly 60% of the hourly wage of full-timers compared with 80% in Europe. Given that such workers account for nearly 40% of the Japanese workforce, closing the gap was deemed an important task.
The principle rules of “equal pay for equal work” include the requirement that:
- Regular and irregular workers should be paid the same basic salary as long as their length of services, capabilities and output are same;
- They should also be paid the same travel expenses;
- The overtime payment ratio should be the same for anyone who works late at night or during a holiday period.
Exempting skilled workers
While the so-called “white collar overtime exemption” has been a major bone of contention for some time, it failed to stop the Bill from passing. The exemption applies to workers with annual incomes of more than 10.75 million yen (US$97,500) and covers roles such as product developers, financial traders, consultants and researchers.
Opposition parties and labour unions have criticised it as a “zero overtime pay” scheme and some business lobby groups have even been encouraging employers to give professionals concerned up to 104 days off work per year. Therefore, as a way to ease Opposition fears, a provision was added to the Bill allowing white-collar workers to give up their exemption status if desired.
What does all this mean for employers in Japan?
As a legally-binding Act of government, employers ignore the legislation at their peril. Therefore, due to the cap on overtime hours, it is imperative to ensure that employees’ time is managed correctly. This means that managers are recommended to keep a close eye on how much time staff spend working – and should possibly even introduce time-tracking software if it is not already in use.
Anyone employing ‘irregular’ workers will also need to look closely at the packages they are being offered. It is likewise important to note here that the “equal pay for equal work” rule includes benefits and not just regular salaries.
Junichi Kato is managing director of TMF’s operations in Japan. Junichi has worked for almost 30 years in various branches of business, including marketing, sales, supply chain management, strategic management and outsourcing across Europe and Asia. He holds a Doctor of Business Administration in Strategic Management from Cranfield University and an MBA from Ashridge Business School.
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Japan, which is renowned worldwide for its pressurised work environment and unspoken requirement for staff to do long hours, has taken action in a bid to change its reputation.
To this end, the Diet enacted a Bill on 29 June 2018 to introduce regulations that limit overtime hours, while at the same time increase the income of temporary and part-time workers.
Eight labour-related laws have been revised despite some resistance from Diet members. Opposition parties maintained that the legislation could lead to increased suffering among some employee populations, potentially leading to more instances of “karoshi”, or death by overwork. “Karoshi” involves employees committing suicide or suffering from heart failure or stroke due to long working hours.
But the Japanese government pushed the reform through as a result of the country’s increasingly elderly population, which has led to the workforce shrinking. In fact, by 2065, the labour force participation rate is expected to fall to about 50%.
Munetomo Ando, a professor of economics at Nihon University, told Nikkei’s Asian Review that the government aim was to encourage more people to join the workforce, but to do so, it needed to ensure companies’ practices were 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”.
In fact, he viewed the new law as the most important item on the agenda during the current Diet session and believes the move will increase productivity and make Japanese businesses more competitive globally.
The legislation consists of three key pillars in that it:
- Sets a legal cap on overtime work;
- Ensures “equal pay for equal work” for regular and non-regular workers;
- Exempts skilled professional workers on high wages from the regulations.
The legal overtime cap
Current labour laws allow employers to remove the upper limit on overtime if they and the trade unions concerned (or employee representative) agree on a special clause. But it is worth bearing in mind that under the new law, even if the company and union (or employee representative) agree on an upper overtime limit, it must be no more than 720 hours per year. This amounts to a monthly average of 60 hours and a maximum of 100 hours.
This cap will come into force for most companies in April 2019, with smaller firms being required to follow suit a year later. Violation of the mandatory caps will also be subject to penalties for the first time since the Labour Standards Act came into effect in 1947.
Equal pay for equal work
The difference between how contractors, part-time and “non-regular” workers are treated in Japan has long been controversial. A 2013 amendment to labour contract law stipulated that 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 believed to be paid roughly 60% of the hourly wage of full-timers compared with 80% in Europe. Given that such workers account for nearly 40% of the Japanese workforce, closing the gap was deemed an important task.
The principle rules of “equal pay for equal work” include the requirement that:
- Regular and irregular workers should be paid the same basic salary as long as their length of services, capabilities and output are same;
- They should also be paid the same travel expenses;
- The overtime payment ratio should be the same for anyone who works late at night or during a holiday period.
Exempting skilled workers
While the so-called “white collar overtime exemption” has been a major bone of contention for some time, it failed to stop the Bill from passing. The exemption applies to workers with annual incomes of more than 10.75 million yen (US$97,500) and covers roles such as product developers, financial traders, consultants and researchers.
Opposition parties and labour unions have criticised it as a “zero overtime pay” scheme and some business lobby groups have even been encouraging employers to give professionals concerned up to 104 days off work per year. Therefore, as a way to ease Opposition fears, a provision was added to the Bill allowing white-collar workers to give up their exemption status if desired.
What does all this mean for employers in Japan?
As a legally-binding Act of government, employers ignore the legislation at their peril. Therefore, due to the cap on overtime hours, it is imperative to ensure that employees’ time is managed correctly. This means that managers are recommended to keep a close eye on how much time staff spend working – and should possibly even introduce time-tracking software if it is not already in use.
Anyone employing ‘irregular’ workers will also need to look closely at the packages they are being offered. It is likewise important to note here that the “equal pay for equal work” rule includes benefits and not just regular salaries.
Junichi Kato is managing director of TMF’s operations in Japan. Junichi has worked for almost 30 years in various branches of business, including marketing, sales, supply chain management, strategic management and outsourcing across Europe and Asia. He holds a Doctor of Business Administration in Strategic Management from Cranfield University and an MBA from Ashridge Business School.
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