ALERT NO.2 - LEAVES AND SALARY ADJUSTMENT

6 April 2020
SPECIFIC MEASURES IN JAPAN RELATED TO LEAVES AND SALARY ADJUSTMENTS

This Mazars Japan Newsletter gives you an insight of specific measures in Japan related to leaves and salary adjustments as a result of business impact from COVID-19. 

EXECUTIVE SUMMARY

If the Company decides to reduce working hours and/ or to adjust wages, the Company first needs to prepare a written consent to be signed by the Labour Union or the representative of employees.

If the Company would like to apply for the Employment Adjustment Subsidies, it needs to complete the following steps:

  • Prepare a Business Suspension Plan
  • Submit the above Plan to the Labour Authorities (no later than 30th June 2020)
  • Put the plan into action (in the current situation of the COVID-19, the plan can be put into action before the submission and acceptance by the Authorities)
  • At the end of the suspension period, and no later than 2 months after the last day of this period, prepare and send the forms to the Labour Authorities to claim the subsidy for the suspension period.

It is to be noted that during the suspension period, Companies still have to pay a “holiday allowance” equivalent to at least 60% of the regular salary and that there is no guarantee that the Company will be eligible to receive the subsidies from the Government.

Q1. Is it possible to ask employees to temporarily stop working and reduce their salaries?

A1. In cases where the Company is forced to temporarily suspend its business due to the effects of COVID-19, it is important for the Company to prevent financial disadvantages for their employees as much as possible.​

Under Article 26 of the Japanese Labour Standards Act, if business is suspended or employees are asked to take time off as a result of the Company’s decision, the Company is required to pay a “holiday allowance” which needs to be at least 60% of the regular salary ​rate.​

However, if the business suspension occurs due to unavoidable factors such as bankruptcy, then this requirement does not apply.​

An official Agreement between the Company and its employees needs to be documented outlining clearly when, why and how the business suspension, leaves and change of salaries will take place. The Agreement should be signed by the Company’s Labour Union (労働組合), but in cases where a Labour Union does not exist, instead, a representative of employees should be elected to sign the Agreement after consultation with other employees.​

Q2. In cases where the Company is unable to continue business and is forced to ask their employees to take time off, are there any subsidies provided by the Japanese Government to cover for this period?

A2. If the inability to continue business is not the fault of the Company, they may be able to apply for the Government Employment Adjustment Subsidies.​

In order to apply for Employment Adjustment Subsidies, the reason for business suspension must fulfil both of the below conditions:​

  1. the cause of business suspension is due to accidents related to external factors​
  2. the cause was an unavoidable accident even despite the Company’s greatest effort to continue the business.​

For example, if the implementation of remote working (teleworking) was possible for a particular business, but was not arranged effectively, it would probably be considered that the Company was not making its best efforts to avoid the business suspension. In this case,​ the Company would not be eligible to apply for the subsidies.

Q3. Are Representative Directors eligible to apply for Employment Adjustment Subsidies?

A3. The Employment Adjustment Subsidies are paid out from the Employment Insurance.​

Unfortunately, as Representative Directors are not covered by Employment Insurance, the Company will not be eligible to apply for the subsidies to cover part of the remuneration paid to Representative Directors. However, the subsidies may apply to the remuneration paid to some Director-employees (兼務役員) who are covered by the Employment Insurance. This will need to be checked with the Labour Authorities case by case.​

Q4. Can Part-timers be included in the application for Employment Adjustment Subsidies?

A4. Part-timers may be included in the calculation of the Employment Adjustment Subsidies as they will be deemed as general workers even if they are not currently covered by Employment Insurance.

Q5. If a Company is eligible to apply for Employment Adjustment Subsidies, how much of the salary can we expect the Authorities to cover?

A5. The Japanese Government has announced that as of 1st April 2020, in the case where the productivity of a business falls by more than 5% (*) due to the effects of COVID-19, the subsidies will cover up to 4/5 of the “holiday allowance” for small to medium-sized enterprises and up to 2/3 of the “holiday allowance” for large enterprises. In addition, as a measure to prevent unemployment, for enterprises who have zero employee contract terminations in the same period, the Government will bring the subsidy rate up to 90% of the “holiday allowance” for small to medium-sized, and up to 75% for large enterprises.​

These special measures will be in effect from 1st April to 30th June 2020.​

(*) Please note that there are several other conditions to be met to be eligible and the requirements are still being defined and clarified by the Government. Please contact us for further information and assistance; in particular, to confirm the current requirements at the time of application.​

Q6. How can we determine if our Company’s productivity has fallen by more than 5%?​

A6. The fall of 5% should be determined by comparing the average of either the productivity​ (in the case where there is a production line) or sales revenue of the past 3 months to that of the same period in the previous year.

Q7. What happens it is still less than a year since our Company has been set up?

A7. Special measures have been implemented for the COVID-19 crisis and Companies that have been established between January 2019 and 24th January 2020 are also eligible to apply for the subsidies for business suspensions that take place after 24th January 2020.​

In these special circumstances, the productivity comparison should be made between the month before the business suspension month and December 2019 (if available).

Q8. What sort of documents do we need to prepare in order to apply for the Employment Adjustment Subsidies?

A8. The Company will be required to firstly create an agreement with either the Labour Union or the representative of employees, then prepare and submit a Business Suspension Plan to the Labour authorities specifying the dates the suspension will take place. After the plan is accepted by the Labour Authorities, the Company will be required to put the plan into action.​

The Business Suspension Plan should be submitted at least 2 weeks before the planned start of the suspension. However, regarding applications for business suspensions implemented after 24th January 2020 (i.e. linked to the situation of COVID-19), late submissions of the Plan will be accepted until 30th June 2020.​

After the business suspension has been completed, the Company should send the required forms to claim the subsidies for the suspension period within 2 months after the last day of the period claimed. For example, if the period claimed is from 16th April to 15th May, the submission deadline will be 15th July.​

In addition to the Application Forms, the Company will be required to provide the following:​

  1. Copy of the most recent Annual Labour Insurance Filing (can be provided by Mazars if providing Payroll services)
  2. Documents for checking workday and holiday attendances such as timecards, timesheets, shift schedules etc.
  3. Copy of 4 months’ payroll ledger including the period for which the “holiday allowance” for the business suspension was paid, and the wages of the period before the suspension leaves were taken (can be provided by Mazars if providing Payroll services).​​

List of the application forms:​

Source:​

https://www.meti.go.jp/covid-19/pdf/faq4.pdf  ​

https://www.mhlw.go.jp/content/000611773.pdf  ​

https://www.mhlw.go.jp/content/11600000/000606541.pdf  ​

Q9. If the Company asks an employee to take time off as they have a fever or is suspected to have been infected with COVID-19 (as a workplace safety precaution, regardless of whether the employee is actually diagnosed with COVID-19 or not), is the Company required to pay for such leave?

A9. If the employee is experiencing symptoms of sickness, please check whether they comply with the below COVID-19 symptoms guidelines provided by the Japanese authorities:​

  1. If symptoms of sickness and/or fever over 37.5 degrees Celsius is experienced over four consecutive days (including cases where they are required to continuously take antipyretics)​
  2. They have a strong feeling of weariness (fatigue) or shortness of breath (experience difficulties breathing)​

If symptoms do not comply with the ones listed above, and the employee is deemed capable of working after some time of recovery, the Company will be responsible for paying 60% of the employee’s salary during the leave.​

Q10. What should we do if an employee is diagnosed with COVID-19?

A10. In order to prevent the spread of the virus in the workplace, Companies need to ask their employees to take leave until fully recovered. If the leave is unpaid, the employee will​ be eligible to apply for the Health Insurance Subsidy from the 4th day of leave, and the Company Health Insurance will compensate 2/3 of the employee’s average salary for the period of unpaid leave. It should be noted that this subsidy, which is claimed by and paid directly to the employee, is different from the Employment Adjustment Subsidies mentioned in Q2 above, which is applied for and paid to the Company.​

Sources:​

https://www.mhlw.go.jp/stf/seisakunitsuite/bunya/kenkou_iryo u/dengue_fever_qa_00007.html#Q4-5  ​

https://www.mhlw.go.jp/content/000615395.pdf  ​

Q11. Is it possible to reduce employee salaries temporarily to overcome the financial difficulties the business is facing under the influence of COVID-19?

A11. In general, the Japanese Labour Law does not allow changes to salary if deemed as a disadvantage to the employee. However, in inevitable cases, if the Company can provide enough explanation on why the salary reduction needs to be placed, how long the reduction will take place etc. and can obtain an official agreement with the employees, it may be put into action.​

Q12. In the case where the employees agree with the salary reduction, is there any rule on up to how much the salary can be reduced?

A12As long as the reduction is “reasonable” (enough for the employee to cover for their current living expenses) and exceeds the minimum wage set by the government, there is no particular limit stated by the authorities. The current minimum wage for Tokyo is JPY 1,013 per hour.​

However, apart from the Government’s standards, if the Company already has specific standards in their Company Rules in setting employee salaries, the reduction should not fall below these original standards.​

Source:​

https://www.mhlw.go.jp/stf/seisakunitsuite/bunya/koyo u_roudou/roudoukijun/keiyaku/index.html  ​

Disclaimer: This document has been produced by Mazars in Japan for its Clients. It may not be reproduced (in whole or in part) or transmitted to any other person without the prior consent of Mazars in Japan. Whilst we endeavor to share information up to date and correct, Mazars is not responsible for any errors or omissions, or for the results obtained from the use of this information. ​

The information is as of 1 April 2020.

This newsletter is downloadable from the link below. 

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