With the expiration of the right to claim wages extended to three years in April 2020, cases where companies are ordered to pay unpaid wages for up to past three years are increasing. This article explains how companies should calculate premium wages correctly.
Premium wages are calculated as follows:
[1. Base wage for the calculation of premium wage] / [2. Standard monthly work hours] x [3. Premium wage rate] x [4. Applicable hours]
Companies should be particularly careful about [1. Base wage for the calculation of premium wage,] and [2. Standard monthly work hours.]
As a basic rule, [1. Base wage for the calculation of premium wage] means the total wage for normal work hours or days, which is paid to an employee who has worked standard work hours. While a monthly salary includes various allowances, companies may exclude the following seven items from the base wage for the calculation of premium wage: family allowance, commutation allowance, separate living allowance, child education allowance, housing allowance, temporary renumeration, wages paid at regular intervals of a period exceeding one month.
[2. Standard monthly work hours] normally means a monthly average of standard work hours calculated based on annual work hours. Specifically, annual standard work days is multiplied by the number of daily standard work hours and divided by 12. For example, in the case an employee had 240 annual working days and the employee’s standard daily work hours is 8 hours, monthly work hours can be calculated as follows;
[Monthly standard work hours] 240 days×8 hours÷12 = 160 hours
In some cases, hourly wages become unfairly low when the figure is calculated without considering changes in work hours, for example, when the number of standard work days has fallen as a result of an increase in holidays.
As explained above, seven items can be excluded from the base wage used for the calculation of premium wages. However, regarding family allowance, commutation allowance, separate living allowance, child education allowance and housing allowance, companies have to examine their contents, rather than their names, and determine whether they should be excluded.
Especially, companies often face difficulty in determining whether family allowance, commutation allowance and housing allowance should be excluded. The Labour Ministry shows a guideline and examples of the allowances
Family allowance
Allowances calculated based on the number of dependent family members
[Cases that can be excluded]
Allowances paid to workers based on the number of dependent family members, e.g., 10,000 yen for a spouse and 5,000 yen per other family member.
[Cases that cannot be excluded]
Allowances paid regardless of the number of dependent or other family members, e.g., 15,000 yen to all employees, regardless of whether they have dependent family or not.
Commutation allowance
Allowances paid according to the distance or actual expense can be excluded.
[Cases that can be excluded]
Allowances paid for actual expenses, e.g., an amount of six-month train pass.
[Cases that cannot be excluded]
Allowances paid regardless of commutation distance or expense, e.g., payment of 300 yen per day to all workers, regardless of their actual commuting distances.
Housing allowance
Allowances calculated based on actual housing expenses may be excluded.
[Cases that can be excluded]
Allowances calculated by multiplying a housing expense by a designated rate, e.g., payment of a certain percentage of a rent or monthly mortgage.
[Cases that cannot be excluded]
Fixed amounts according to the housing types, e.g., 20,000 yen for employees who rent homes and 10,000 yen to employees who own homes.
Many companies provide fixed housing allowances, regardless of the actual expense as in the case that cannot be excluded. Please check if bases wages and prime wages are calculated correctly.
From April 2023, small- and medium-sized firms have become required to pay 50% premium wages for overtime in excess of 60 hours per month. Please be sure to calculate work hours and wages correctly.
[Reference]
Labour Ministry, “What is the base wage for the calculation of premium wages?”
https://www.mhlw.go.jp/new-info/kobetu/roudou/gyousei/kantoku/dl/040324-5a.pdf
https://jsite.mhlw.go.jp/tottori-roudoukyoku/library/tottori-roudoukyoku/pdf/26kajyu_4.pdf
The content is valid as of the date of the article.
