Many companies have introduced teleworking system over the past few years because of the coronavirus pandemic. Some companies have abolished teleworking, requiring employees to work in the offices after the COVID19 was downgraded to Class 5, same as the seasonal flu, but utilizing teleworking system is essential in supporting workers to raise children or care for elderly parents without leaving their jobs. This article covers key points about the treatment of “telework allowances” and related matters.
[1] Social insurance
The Japan Pension Service’s “Case examples of administrative procedures of regular and non-regular determination of standard monthly remunerations,” provides criteria for judging whether telework allowances are considered as a wage or bonus under the social insurance program (hereinafter, “remunerations”). Companies are required to examine each case individually by considering requirements of the allowance or the status of payment.
- If a company does not require employees to return the allowance even if it has not been used, the allowance should be included in remunerations; e.g., monthly payment of 5,000 yen to teleworking employees.
- If a company pays for a PC or the internet necessary for work and the amounts correspond to actual expenses, the payment should not be included in remunerations.
[2] Treatment of extra wages
There are seven items that must be excluded from the base salary for the calculation of extra wages (hereinafter, “the base salary”), e.g., family allowance, commutation allowance and family separation allowance. This means other items must be included in the base salary.
Telework allowance was not listed in the items to be excluded, but according to the Labor Ministry’s notification on the treatment of telework allowance in the calculation of extra wages, dated April 5, 2024, if an allowance is provided to reimburse necessary expenses for company operations, it is not considered as a wage under the Labor Standards Act and therefore shall be excluded from the base salary.
[3] Income tax
The National Tax Agency provides “FAQ regarding the treatment of teleworking expenses (relating to withholding tax)” It indicates the money paid by a company to employees as reimbursement for expenses necessary for teleworking are not taxable as part of a salary.
If telework allowance is excluded from the base salary, extra wages are likely to decrease, constituting a “disadvantageous change in working conditions.” Companies should have a thorough labor-management discussion before changing wage rules.
[Reference]
Japan Pension Service, “Case examples of administrative treatment regarding regular and non-regular determination of standard monthly remuneration”
https://www.nenkin.go.jp/service/kounen/hokenryo/hoshu/20121017.files/jireisyu.pdf
