As part of their plan to reform the workplace, the Japanese Government introduced the Revised Labor Standards Act, including the compulsory 5-days Paid Holiday Rule in April 2019. This new legislation requires companies of all sizes and industries to ensure that employees who are given 10 or more days of paid annual leave take at least 5 of these days per year.
While the Revised Labor Standards Act will soon be having its second anniversary, many employers still seem to struggle to be fully compliant.
In this article we will revisit the details of the 5-days leave rule, have a look at the status quo of taking holidays in Japan, answer common questions and showcase best practices that you can easily implement in your organization.
Compulsory 5-days Annual Paid Leave Rule – An Overview
Revisiting Annual Leave
Before we dive into the details of the rule itself, let’s recap quickly what Paid Annual Leave means under Japanese law.
Paid Annual Leave refers to the right to “rest” that employers are obliged to provide to any individual that fulfills the criteria of an “employee” as defined under Japanese labor law. Since paid annual leave is an employee right, a company can, in principle, not decline the request for taking paid days off. However, companies do have the “right to change the period”, meaning that they can ask the employee to change the time period they want to take leave in order to avoid business disruptions.
The Labor Standards Act determines that companies must give their employees at least 10 to 20 days each year depending on the period the employee has served in the organization. It is important to note that the obligation of providing paid annual leave also applies to part time workers (employees who work less than either 20 hours or less than 4 days a week, or less than 216 days per year.)
Part time workers have the same right to receive paid annual leave as full-time employees!
Conditions to receive annual paid leave:
- The employee must have worked for more than 6 months at the organization
- The employee’s work attendance must have been at least 80%
Compulsory 5-days Annual Paid Leave Rule
With the introduction of the reformed Labor Standards Act in April 2019, employers are now obliged to ensure that individuals who are entitled to more than 10 days of annual paid leave take at least 5 of those days per year. In cases where the employee has not taken 5 days, the employer needs to instruct the employee to take the leave and make sure that the they definitively follow those instructions.
The goal of this rule is to make it easier for workers to take annual leave. In addition, it allows punishment to be meted out to companies who do not comply with the Act.
Quick summary of the law
- WHO: Employees (including manager level) who are entitled to 10 days of paid annual leave
- WHEN: Employees have to take at least 5 days of leave within 1 year after they were given the right to take annual leave. The time of absence can be discussed individually between the employer and the employee.
- PENALTIES: In case of non-compliance a maximum 300,000 JPY fine or a maximum 6 months of imprisonment can be imposed on the employer.
If all of your employees take at least 5 days of leave each year there’s no need to worry.
The penalty applies to each employee equally. So, if 10 of your employees haven’t taken the mandatory number of days you could be forced to pay 3M JPY. If it’s 100 employees, the fine would be 30M JPY.
Current Status of taking holidays in Japan
Employees in Japan take less days off than employees in any other country
According to the “Taking Paid Leave – An International Comparison”, a study conducted by Expedia, Japanese employees take only 10 days off per year, which equates to 50% of their annual paid leave, leaving Japan at the very bottom of the list of surveyed countries. Even compared with other Asian countries such as Korea where employees take at least 75% of their annual holidays, Japan comes in last.
Reasons for Japanese employees not taking paid leave
The same study by Expedia reveals why Japanese employees are hesitant to take holidays. The most often stated reason was “I am saving them for an emergency”, followed by “We’re understaffed” and “I don’t want others to think I am lazy”.
“If I take time off nothing gets done”, “I have nobody I can ask to take over” or “Everybody else looks so busy so I don’t dare to take time off” are a few more concerns just all too common in Japanese companies showing that most employees are afraid of the impact taking off from work would have on their job or colleagues –asking for days off can come with a huge amount of pressure. Unfortunately, this leads to many employees ending up not taking their annual paid leave, ultimately letting it expire.
Best practices for encouraging employees to take annual leave
We’ve seen companies following different approaches to making sure that their employees take the holidays they’re entitled to:
- Creating specific systems
- Linked with performance review cycle
- Professional communications from Managers and/or HR
1. Here are some examples of systems companies have successfully introduced:
- An IT company abandoned their company-wide summer holidays (employees had to take a certain number of days off in August) and replaced it with a system that encouraged employees to take at least 5 consecutive days off once a year at their convenience. By doing so, employees could freely decide when they would take their paid leave and combine them with national holidays so that their actual time off increased up to 9 days at a time – a shift that contributed to a company culture where employees felt less pressure when taking time off.
- A major chemical player introduced a system that added one additional day off to every 2 consecutive holidays taken (applicable to all employees that have worked for the company for at least one year). As an outcome, employees started to take more than one day off at a time reducing the number of days of unclaimed leave.
- A retail company allowed workers who had to take care of children or elderly to take up to six days of leave in 1-hour increments. The introduction of this so called “Family Support” system put employees at ease, reducing the need to save holidays for family related emergencies.
2. Examples of companies who paired their holiday policies with performance assessments and goal setting
- A big IT company made the number of holidays taken by their reports a KPI for their managers. This led to managers proactively discussing and scheduling holiday plans with their subordinates.
- Another company made discussions about holiday plans a mandatory part of their assessment and goal setting sessions. Managers were required to not only speak about the subordinate’s holiday schedule but also discuss how the employee could prepare for their leave and arrange potential handovers. As a result, employees found it easier to ask for holidays and showed less concerns about their work during their time of absence.
3. Examples of companies that implemented a successful communication system
- A major IT company encouraged managers to ask employees if they wanted to take days off every time a project had finished. By doing so, employees who couldn’t take time off during busy seasons felt comfortable to rest after projects were done and their managers had proactively addressed the topic.
- Another big IT company introduced a system empowering the HR department to check the number of holidays taken every quarter. If they found that the number of days was low, they would let each department head know and set a timeframe in which employees had to take additional days. By doing so, the HR department could drastically decrease the stress they had faced at the end of each year having to respond to a large number of employees who hadn’t taken enough holidays.
- A manufacturer implemented management training once a year for manager level and above. During that training managers learned why work-life-balance is critical and how they could encourage direct reports to take enough time off.
The recent labor law reform has forcefully put issues around taking paid leave on the agenda of Japanese companies. However, it seems that many employers still struggle to actually implement the legal requirements. To encourage Japanese employees to rest it needs more than just a change in law.
Unfortunately, some employers tend to put the responsibility on the individual, but research and experience suggest that the issues lie mostly with the environment employees are embedded in. That’s why companies have to do some soul searching and need to ask themselves how they can create an environment in which employees feel safe to ask for days off. In addition, comments such as “We can’t get anything done when you’re not here” should be avoided at all cost since they discourage individuals from taking leave. In any case, it is crucial to acknowledge that helping workers prepare for their absence is also part of the company’s responsibility. Last but not least, this kind of big cultural change needs strong leadership and messaging from the very top.
While this might sound like a lot of work, the risks that come with a workplace where employees can’t rest is far greater than the cost and effort needed to prevent them from happening. High levels of stress and errors as well as decreased productivity and creativity are only a few of the negative impacts of such an environment.
Unfortunately, there’s no one-size-fits-all approach. Implementing a system to comply with the labor law is only the first step. Thoughtful communication throughout the company is crucial to shift people’s mindsets. This kind of communication must especially come from HR and top leadership – the ultimate ambassadors for any kind cultural change.
Do you have more questions or concerns regarding the compulsory 5-day Leave Rule? Here are some answers to questions we’ve been hearing frequently.
Q: Is there an expiration date for paid annual leave?
A: Yes, there is. Paid annual leave needs to be taken within 2 years of the date they were granted otherwise it will expire (Article 115, Labor Standards Act). This means that employees are allowed to carry their annual leave over to the next year if they haven’t used it in the year they received it.
Q: Taking days off will put me at a disadvantage at work.
A: Employers are obliged to ensure that no employee will be disadvantaged due to taking paid annual leave (Article 136, Labor Standards Act). This includes becoming the target of negative interventions such as reducing compensation or preventing employees to take leave.
Q: I was told that my company is too small to provide annual leave.
A: Regardless of company size, industry or other circumstances, employers are obliged to provide all employees who are eligible under labor law with paid annual leave.
Q: I was told that my company will pay me out for my holidays and that’s why I can’t take them.
A: Preventing employees from taking paid leave by paying them out for their paid leave is illegal.
Here’s why: The goal of providing annual leave is to allow workers who have been with the company for a certain period of time to rest and take care of their physical and mental wellbeing. If a company keeps their employees from taking their paid leave by buying those days from them, they put their workers wellbeing and health at risk. This defeats the original purpose of annual leave and is therefore illegal.
However, there are three exceptions where companies are allowed to pay out annual leave. Companies may pay out holidays if:
- it applies to days that are beyond the legally required number of paid annual leave
- if these are days that have expired (over 2 years)
- if the employee has resigned and there are days of unused annual leave left