In Japan, employers are generally required to pay overtime wages at a premium rate when employees work beyond the statutory working hours. However, not all hours worked beyond a company’s regular working hours are subject to the same premium rate. The applicable rates depend on whether the work is classified as statutory overtime, late-night work, or work on a statutory holiday.
Statutory Working Hours in Japan
Under Japan’s Labor Standards Act, statutory working hours are generally 8 hours per day and 40 hours per week.
When an employee works beyond these statutory limits, the employer is generally required to pay overtime wages at a premium rate.
One point that can be confusing for overseas HR and Payroll teams is that a company’s prescribed working hours are not necessarily the same as the statutory working hours under Japanese law.
For example, if a company’s prescribed working hours are 7 hours per day and an employee works 8 hours, the additional hour does not automatically qualify as statutory overtime.
Although the employee has worked beyond the company’s prescribed working hours, the total working time is still within the statutory limit of 8 hours per day.
Therefore, the employer must generally pay wages for the additional hour, but the statutory overtime premium of 25% is not necessarily required.
Overtime Premium Rates
For work exceeding the statutory working hours, employers are generally required to pay an overtime premium of at least 25%.
For example, if an employee’s hourly wage for overtime calculation purposes is JPY 2,000 and the employee works one hour of statutory overtime, the payment for that hour is calculated as follows:
JPY 2,000 × 1.25 = JPY 2,500
However, when statutory overtime exceeds 60 hours in a calendar month, a premium rate of at least 50% applies to the hours exceeding that threshold.
As a result, employees working a substantial amount of overtime may be subject to different premium rates within the same month.
It is also important to distinguish statutory overtime from work performed beyond the company’s prescribed working hours but within the statutory limit.
As explained in Section 1, if a company’s prescribed working hours are 7 hours per day, the additional hour worked between the seventh and eighth hours is generally not considered statutory overtime.
Using the same hourly rate of JPY 2,000, the payment for that additional hour would normally be JPY 2,000, without the 25% statutory overtime premium.
However, if the company’s work rules or employment contracts provide for a higher rate, those provisions must be followed.
Different Premium Rates Apply to Late-Night Work and Holiday Work
In Japan, premium rates also vary depending on the time of day and the type of holiday on which an employee works.
Late-night work, generally performed between 10:00 p.m. and 5:00 a.m., is subject to a premium of at least 25%.
Work performed on a statutory holiday is subject to a premium of at least 35%.
An important point is that working on a company holiday does not necessarily mean that the 35% statutory holiday premium applies.
Under Japan’s Labor Standards Act, employers must generally provide employees with at least one day off per week or four days off within a four-week period. A holiday provided to satisfy this requirement is referred to as a statutory holiday.
For example, where a company designates both Saturday and Sunday as days off, it is common for one of these days to be treated as the statutory holiday and the other as a non-statutory holiday.
If an employee works on a non-statutory holiday, the 35% statutory holiday premium does not automatically apply.
However, if that work causes the employee’s weekly working hours to exceed the statutory limit of 40 hours, the hours exceeding that limit are generally subject to an overtime premium of at least 25%.
Premium rates may also be combined when different conditions apply.
For example, if statutory overtime is performed during late-night hours, the applicable premiums are added together:
Statutory overtime premium: 25% + Late-night premium: 25% = Total premium: 50%
This means that the employee must be paid at least 150% of the normal hourly wage for those hours.
Therefore, information such as “worked on a holiday” or “worked late at night” may not be sufficient to determine the correct premium rate without understanding the employee’s actual working schedule.
Calculating the Hourly Wage Used for Overtime Pay
Before calculating overtime pay, it is necessary to determine the hourly wage that forms the basis of the premium wage calculation.
An important point is that the calculation must generally include not only base salary but also various allowances paid by the company, except for those that may legally be excluded.
In other words, employers cannot automatically exclude all allowances from the overtime calculation simply because they are paid separately from base salary.
Therefore, when introducing a new allowance or changing the salary structure, it is important to confirm whether the allowance must be included in the calculation basis for overtime pay.
Overtime Hours Alone May Not Be Sufficient to Calculate Overtime Pay
When taking over Japanese payroll operations from an overseas HR, Finance, or Payroll team, we sometimes receive information such as “Overtime: 10 hours”, without further details.
However, the total number of overtime hours alone may not be sufficient to calculate overtime pay correctly under Japanese law.
For example, it may be necessary to confirm:
- Whether the hours fall within the statutory working hours or qualify as statutory overtime
- Whether any of the hours were worked during late-night hours
- Whether any work was performed on a statutory holiday
- Whether statutory overtime exceeded 60 hours in the month
- Which salary components must be included in the hourly wage used for overtime calculations
Therefore, accurate Japanese payroll processing requires an understanding not only of the total overtime hours, but also of when and under what circumstances the work was performed.
Accurate Overtime Pay Requires an Understanding of Both Working Hours and Payroll
Overtime pay in Japan cannot always be calculated simply by applying the formula:
Monthly Salary ÷ Prescribed Monthly Working Hours × 1.25 × Overtime Hours
The calculation may vary depending on the distinction between prescribed and statutory working hours, the time of day when work was performed, the type of holiday, the total statutory overtime hours in the month, and the salary components included in the calculation basis.
For overseas HR, Finance, and Payroll teams reviewing Japanese payroll results, it is therefore important to understand not only how many overtime hours were worked, but also which premium rates apply and which salary components are used in the calculation.
In addition, Japanese employers are required to appropriately record and manage employees’ working hours, separately from the calculation of overtime pay.
This is important not only for accurate payroll processing but also for preventing health problems associated with excessive working hours. Employers are therefore expected to establish appropriate time and attendance management procedures.
It is also important to note that, in principle, employers must conclude a Labor-Management Agreement on Overtime and Holiday Work, commonly known as a “36 Agreement” (Saburoku Agreement), and file it with the relevant Labor Standards Inspection Office before requiring employees to work beyond statutory working hours or on statutory holidays.
Simply paying the required overtime premiums does not automatically authorize an employer to require overtime work without complying with these requirements.
We have supported foreign companies with payroll operations in Japan for more than 15 years. Rather than simply entering overtime hours into a payroll system, we place great importance on calculating overtime pay in accordance with Japanese working-hour and premium wage rules and, when necessary, clearly explaining the calculation methods to overseas HR, Finance, and Payroll teams.
