Starting April 1, 2023, the minimum rate of overtime wages (statutory overtime) exceeding 60 hours per month for small- and medium-sized companies will be raised from 25% to 50%. It is expected that many small businesses will be severely affected by the amendment. Employers should also reexamine their workhour management systems to make sure they comply with the new rule. This article explains about the change and what actions are required.
[1] Outline of the change
Companies are required to pay at least 25% extra wage for overtime. Starting April 1, 2023, they have to pay a minimum rate of 50% for overtime exceeding 60 hours per month. In the case of overtime work in late-night hours between 10 p.m. and 5 a.m., additional 25% must be paid, making the overtime rate 75%. The Labor Standards Act sets penalties for violation of this rule. If overtime rates are below the standard, the employer will face an imprisonment charge of no more than 6 months or a fine of no more than 300,000 yen.
[2] Key points to workhour management
To comply with the amendment, companies have to cover the following three points.
1. Understanding the impact of the amendment and establishing a system to prevent overtime exceeding 60 hours per month
Companies should understand how long their employees are working and run a simulation on the impact of overtime wage increase in April 2023 on labor costs to determine necessary actions. Examples of specific actions are identifying tasks that can be abolished or reduced and reexamining staff allocation or operational flows.
If the awareness of workhour management is low in the company, it is helpful to set an internal standard to encourage employees and managers to reduce overtime, for example, issuing an alert when overtime exceeded 20 hours during a month. It is also crucial that managers and supervisors are explained about the law amendment and the influence of excessive overtime on employees’ physical and psychological health to gain their understanding and cooperation.
2. Revising work rules
Overtime wage rates must be clarified in the work rules, since it is a matter concerning “the method of wage calculation and payment.” Companies who will change wage rates to comply with the law amendment should also check their work rules and revise them as needed.
3. Revising attendance management and payroll systems
Companies must also make sure their attendance management and payroll systems can calculate overtime exceeding 60 hours per month correctly. Please make preparations early since it might take time to confirm the calculations are correct when the settings are changed or the new rule is started.
If workers never work overtime more than 60 hours per month, employers do not have to take any particular action on this amendment. Excessive overtime could drive workers away and exacerbate staff shortages. Companies whose workers are chronically working long hours should consider measures to improve the situation.
Reference
Labour Ministry “Wage rate for overtime exceeding 60 hours per month will be increased” https://www.mhlw.go.jp/content/000930914.pdf
