Business / Corporate

First overtime caps for big Japanese firms and mandatory use of paid leave to come into force April 1


Most of the work style reform measures included in legislation enacted into law last year are set to take effect on Monday, effectively introducing the nation’s first compulsory caps on overtime hours at major companies.

The reform, which will come into force with the start of the new fiscal year, will also oblige all companies to have their employees take at least five paid holidays a year in a bid to redress long work hours.

Overtime will be limited to less than 100 hours a month per employee, and a total of 720 hours a year. Companies will face penalties if they fail to abide by the regulation.

The overtime caps are scheduled to take effect for small and midsize companies in April 2020.

According to the Japan Chamber of Commerce and Industry, more than half of companies are concerned that labor shortages could hamper their ability to follow the overtime regulations.

The ratio of job openings to job seekers in 2018 stood at 1.61 across the country on average, according to the labor ministry. As a result, many companies are facing difficulty in securing enough workers, industry sources said.

The mandatory use of paid leave of at least five days annually will apply to workers who are given 10 or more paid holidays per year.

According to the labor ministry, workers took an average of 51.1 percent of all paid holidays given to them in 2017.

Although the government has set a target of increasing the rate to 70 percent by 2020, the goal is seen as being difficult to achieve, with many workers finding it tough to take paid holidays due to labor shortages.

Monday will also mark the adoption of what is known as a white-collar exemption system, which will spare those described as “specialist” personnel with an annual income of more than ¥10.75 million — such as financial dealers and analysts — from work-hour regulations.

It will allow employees to be paid based on their performance rather than the hours they work, paving the way for more flexible working styles and boosting overall productivity, the government claims. Consent from such workers is necessary for companies to adopt the system.

Noting that the system effectively dispenses with the concept of overtime pay, however, the opposition argued in the Diet that it instead risks endorsing unpaid overwork.