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Potential Impacts of New Overtime Laws Remain to be Seen

New labor laws in Japan

by Suzanne Leigh


In April 2019, the new labor laws went into effect for large companies. Small companies will follow suit in April 2020. The lead-up to the eventual passing of these laws was rife with controversy. And rightly so.

Potential Impacts of New Overtime Laws Remain to be Seen

On the face of it, anything that sounds like reducing overtime limits to protect workers’ health sounds like a good thing. Prime Minister Shinzo Abe, known for labor law deregulation, was finally going to place a legally binding upper limit on overtime hours. Or so it seemed.

But many accused the government of simply candy coating a move to raise the bar on overtime past death-by-overwork (karōshi) levels, expand the existing discretionary labor system, and further strip the families of employees who die from overworking of their ability to prove it in court.

What Were the Previous Laws on Overtime?

It may come as a surprise, but forcing employees to work more than 40 hours per week was illegal unless there was a written agreement between management and the workforce. Of course, how this agreement was made was left open to interpretation.

Overtime hours had to be paid at a premium rate, and there was a somewhat soft guideline that suggested overtime hours be limited to 45 per month. But not for workers in the discretionary labor system, which is a key point.

What is the Discretionary Labor System?

The discretionary labor system allows employers to pay certain job types predetermined hours rather than the hours they actually work. The number of hours is “agreed on” beforehand by the employer and employee. That agreement is signed and then registered with the Labor Standards Inspection Office.

Many people are unaware of how many industries are already tied into the discretionary labor system. There are 19 of them which cover a swath of industries from media and copywriting to academic research and law. An additional category handles management and corporate planning. The new labor laws will have no effect on this discretionary labor system.

What Are the New Limits on Overtime?

The Basic Limit is that overtime cannot exceed 45 hours per month and 360 hours per year. However, there is a bit of a loophole. If a company gets busy, as in a change of product specifications or an increase in customer complaints, employers can invoke the Extended Limit rule. This rule limits overtime to 100 hours per month. But it can’t go one for more than 6 months per year per employee, and it can’t exceed 720 hours per year.

Possible Impact on Employees’ Health

What this means is employees are now legally allowed to work 100 hours of overtime per month for 6 consecutive months. The irony is that the Minister of Health, Labor and Welfare had already pointed out anything over 80 hours per month of overtime exceeds the “karōshi line,” after which an employee’s life’s in danger. Yet this new rule assures that companies can do it—legally.

In the past, when a worker died from karōshi, that worker’s family had a case in court if they could prove levels of overtime exceeding 45 hours per month. This new law means that an employee could die by working 99 overtime hours per month for 6 consecutive months, and the family would have no legal claim.

Possible Impact on Wages and Small Companies

Even if the Basic Limit is upheld, employees may have wages stagnated or benefits slashed while companies struggle to fill in the gaps without affecting their bottom line. Perhaps they’ll use contract workers, or outsource work to smaller companies who are yet to be affected by the law.

Smaller companies are considered those with 50 or less employees, and their overtime premium is less than employees of large companies. It could be a tough year for employees of smaller companies.

Abe’s “New” Discretionary System

In his push to expand the discretionary labor system, Abe used a survey from 2013 that he claimed proved discretionary workers actually worked less overtime hours than normal workers.

But the data on the survey was later found to be riddled with errors. Although he apologized profusely, he refused to give up his push to expand the discretionary system, effectively creating a back door.

Enter the new Highly Skilled Professional System, or kō-puro (top pro), which not only exempts certain white collar workers from the new overtime limits, but exempts them from being paid for overtime at all.

Who are Highly Skilled Professionals?

Listed as product developers, financial traders, bankers, analysts, researchers, consultants, and R&D—this leaves a lot of room for interpretation. They have to have a high degree of expertise, must consent to the job description, and their annual salary must be more than triple the average employee’s salary in Japan. (Currently JYP 10,750,000 which is roughly USD 98,000)

Possible Impact on Highly Skilled Professionals

Abe implied that this will give professionals more flexibility to work their own hours as they see fit, and offer the opportunity for work-life balance. That would be great unless they end up working 16 hour days.

It’s also been suggested that this may now put highly skilled professionals in a position to negotiate higher salaries. However, keeping in mind traditional Japanese work culture, it’s hard to imagine Japanese employees pushing back against their companies and negotiating a higher salary.

While the new law clearly states that exempt employees must agree to their status, does anyone think they would refuse?

Abuse of the Discretionary System

It’s no secret that the discretionary labor system has been abused. The most oft-cited case is when Nomura Real Estate illegally applied it to 600 employees involved in sales activities that did not qualify for the discretionary work system. If an employee hadn’t committed suicide after working more than 180 hours in one month, no one would have been the wiser.

Fears Going Forward

Hifumi Okunuki, President of the Tozen Union and Professor at Sagami Women’s University, is concerned that corporations will suddenly discover “special months” during which they must have their regular employees work 100 extra hours. She’s also worried that there could be a push in the future for a decrease in the Highly Skilled Professional qualification salary from, say, three times to twice the average annual salary.

So Who Is Going to Govern This?

Well, the employers themselves. As of April 2019, all employers are required to track all working hours for exempt employees, and set up labor management committees if they don’t already have them.  The committees must pass a resolution for the exemption and register it at the Labor Standards Inspection Office.

If a company gets caught for not complying with the new overtime rule, or misclassifying employees as exempt, the Labor Standards Inspection Office can impose fines and penalties against both the company and whomever is tracking the employees’ working hours, such as the company manager or HR Manager,

Labor Standards Inspections Office Feeling Pressure

But inspectors at the Labor Standards Inspection Office are concerned. Labor inspectors are advising workers to monitor their own hours closely, and protect themselves by avoiding signing contracts that put them at a disadvantage.

At the same time, labor inspectors can currently only monitor 3% of all businesses in Japan. One inspector mentioned that they were struggling already, and that it was contradictory to create loopholes in Labor Standards that should be designed to protect workers.

Opportunities for Tech Companies

Where there is need, there is opportunity. Companies are going to feel the initial crunch of decreased overtime along with the added demands for tracking hours while the country watches closely. Many are already seeking IT solutions for the burden the new laws are placing on HR departments.

This added focus on time tracking is opening up opportunities for companies that sell time management systems. For example, Amano, which provides human resource systems that track real-time hours, is already planning to provide its products to small and medium-sized companies. It predicts that its operating profit will increase by 11% in fiscal year 2019.

Potential for Opportunities in Other Markets

The new labor laws have only just been rolled out. And there are presumably layers and layers of details to be sorted out over the coming years. The combination of an overall labor shortage, new requirements for time reporting, and large companies outsourcing to try and maintain bottom lines may open up a variety of opportunities in various markets.

Perhaps the Labor Standards Inspection Office can take a cue from the companies they are concerned about monitoring, and consider incorporating a bit of AI of their own to track things while the results gets ironed out in the workforce over the coming years.

As one of four Japanese societal macro trends monitored regularly by CarterJMRN (i.e., along with Women Power, Generational Dynamics, and Internationalization), the Changing World of Work impacts consumer behavior across many age groups as attitudes toward work continue to evolve in relation to lifestyle, including availability and use of personal and leisure time.


Sources

Japan Times

Japan Lawyer

Mainichi

Asahi

Nikkei

Japan Press

Littler Law