The Labour Standards Act as revised took effect on April 1, 2010 and three months have already passed since then. But there seems to be a misunderstanding among many people that this latest revision (hereinafter called "the revision") applies only to large companies". In effect, however, the only mandatory provision contained in the revision applicable only to large companies is the following.
"In the event a company works its employees more than 60 hours of overtime per month, an extra wage of no less than 50% above the regular rate shall be paid". In other words, there are certain items contained in the revision that are applicable to small companies (including representative offices run by sole proprietors) as well and the most important points of them are introduced below.
1. The items in the revision that are also applicable to small companies:
The latest revision of the Labour Standards Act (hereinafter called "Labour Act") is intended to improve employee working environments, including the restriction on extended working hours, in order to enable them to attain a good work-life balance while maintaining their good health. Therefore, "the length of working hours" is closely related to the points of revision. For some of the various revised items, there is a grace period of a few years given to small companies. However, one of the items that must be mandatorily observed beginning April 1, 2010 without any grace period is a provision to the effect that "when concluding an Agreement 36, a company must use its best efforts to shorten overtime in excess of the ceiling to the extent possible and establish the relevant rates of extra pay."
2. "Agreement 36"
When a company works its employees overtime (working hours in excess of 8 hours a day, 40 hours a week), it must conclude a labor agreement called "Agreement 36" and file the contents thereof with the Labour Standard Supervision Office concerned. Unless this procedure is duly followed, overtime work itself will be deemed illegal (with penalties).
(Since this requirement is stipulated in Article 36 of the Labour Act, "a labor agreement governing overtime and work on a day-off" is commonly called "Agreement 36".)
As is already known, as far as company rules are concerned, only the companies having no less than ten permanent employees are required to file such rules with the Labour Standard Supervision Offices covering their areas. However, every company - regardless of the number of employees - must file its Agreement 36 with the Supervision Office. There are some foreign-owned companies that are not familiar with this agreement but it should be noted that if a company works its employees overtime or on a day-off without concluding this agreement, such company may be subjected to government advice for corrective action. Companies that still do not have an Agreement 36 in place should take note of this point. Moreover, an Agreement 36 is to be reviewed annually but there are companies that fail to do so. This, also, is illegal in the strict sense of the word.
3. "The ceiling of overtime"
An Agreement 36 must have the number of hours a company may work its employees over and above the established working hours (hereinafter called "extra working hours"). A notification from the Ministry of Health, Labour and Welfare covering "the standard for the ceiling of overtime" specifies such extra working hours or "ceiling", and except under the circumstances described in the following section 4, no agreement can be concluded with longer hours than the said ceiling. As an example, "the ceiling" permitted in a month is, in principle, 45 hours.
4. "Agreement 36 with special provisions"
As stated above, a company can work its employees overtime within an extent specified in its Agreement 36. However, there may be circumstances wherein a company needs to work its employees longer than "the ceiling" when the company is extremely busy, depending on its line of business or its mode of operation. In order to respond to such circumstances, it is stipulated that under certain special circumstances, a company may work its employees longer than the ceiling, provided that the company specifies details of these circumstances in its Agreement 36. Such Agreement 36 is called "an Agreement 36 with special provisions". The conditions that permit the conclusion of an Agreement 36 with special provisions are as follows.
- Such special circumstances as stated in the agreement should be limited to those of a "temporary nature". (For example, much larger quantities of orders than normal are received in bunches and require quick deliveries.)
- Since "temporary nature" means the necessity to have employees work overtime temporarily or unexpectedly, the duration of such circumstances collectively should not exceed half a year ( For example: within six months a year).
- An Agreement 36 should specify the number of times wherein working hours may be extended with the application of special provisions.
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5. Relation between the revised Labour Standard Act and Agreement 36
As stated at the onset, one of the major points of the revised Labour Act applicable to small companies as well as large companies is that "when concluding an Agreement 36, a company should use its efforts to shorten overtime in excess of the ceiling to the extent possible and establish the relevant rates of extra pay."
Namely, this relates to companies that have an Agreement 36 with special provisions in place as described in the preceding 4.
A company having "an Agreement 36 with special provisions" in place must establish "the rate of extra wage" for hours worked beyond the ceiling due to special circumstances when it enters into a new Agreement 36 after April 1, 2010 and file the instrument with the Labour Standard Supervision Offices. Such rate incidentally is expected to be "in excess of 25% above the regular rate", which is another point of the revision. However, this is not an absolute obligation but "a target to be pursued on a best-effort basis". Establishing a rate in excess of 25% above the regular rate could lead to slashing overtime beyond the ceiling and improving work efficiency. If 25% above the regular rate is the best that a company can offer after making an effort, not much can be done about it, but such company should be well prepared to provide an adequate explanation when it files its Agreement 36 with the Labour Standards Supervision Office.
To recap the above;
1. If a company works its employees over 8 hours a day or over 40 hours a week, the company must conclude an Agreement 36 and file the instrument at the Labour Standards Supervision Office. (an obligation that pre-existed the revision.)
2. If a company works its employees longer hours than the ceiling, the company must conclude an Agreement 36 with special provisions and file the instrument at the Labour Standards Supervision Office. (an obligation that pre-existed the revision.)
3. When a company concludes an Agreement 36 with special provisions in accordance with the last revision of the Labour Standards Act, the company must establish the rate of extra wage (an obligation created with the latest revision). In addition, such rate of extra wage should be no less than 25% above the regular rate. (a target to be pursued on a best-effort basis)
It is very dangerous for a company to have an easy notion that "one way to escape the application of the Labour Standards Act would be to do away with special provisions when concluding an Agreement 36". If such company works its employees overtime in excess of the ceiling, the practice is, in itself, a violation of the Act.
Since the writer could not cover all the major items of the revision due to the limitation on space, it is suggested that you visit the website of MHLW for further details regarding the revision of the Labour Act: