Employees to retire at the age of 65

On 1 April 2013, an amendment to the Act for Stabilisation of Employment of Elderly Persons took effect that will require Japanese employers to permit employees to work until the age of 65. By 2015, this amendment will gradually replace an exemption under the Act that permitted employers to compulsorily retire employees at 60 and then re-hire only those employees that met certain conditions.

On 30 October 2013, the Ministry of Health, Labour and Welfare issued its 2013 report on the employment status for elderly employees. Reflecting statistics as of 1 June 2013, the report indicates that, notwithstanding the gradual phase out of the exemption under the Act, 48.9% of large companies (i.e. those companies with 300+ employees) and 68.5% of small-to-medium-size companies have already introduced internal policy changes permitting employees to work until the age of 65.

Significant labour costs for employers three years on from amendment to working hours

Many Japanese companies have been bearing significant labour costs as a result of amendments to the Japanese Labour Standards Law, which took effect in April 2010, and most companies have been forced to manage the working hours of employees more carefully than before.

The key changes to the Japanese Labour Standards Law included:

  • an increase to the minimum premium rate for overtime work exceeding 60 hours in one calendar month to at least 150% of an employee’s base hourly wage. Companies are now obliged to allow employees to exchange a portion of this overtime pay for paid leave. This requirement does not apply to small and medium-size companies; and
  • giving employees the option to take paid leave in hour units or day units, subject to the amendment of labour management agreements with trade unions or employee representatives or conclusion of a labour agreement.
  • In light of the above changes, Japanese companies have had to reconsider how they manage the working hours of employees. Anti-avoidance measures include using an irregular working hour system to minimise the need for a single employee to perform overtime work exceeding 60 hours in one calendar month.