Principles of Working Hours and Holidays in Japanese Labor Law and Overtime & Holiday Work

In the management of human resources, which forms the foundation of corporate activities, the regulation of working hours and holidays is one of the most fundamental and crucial elements. Japanese labor law, particularly the Japanese Labor Standards Act, establishes strict principles regarding working hours and holidays to protect the health and welfare of workers. These regulations are not merely internal rules or contractual agreements between parties; they are mandated by law to follow prescribed limits and procedures for all companies. As a rule, working beyond the statutory labor hours or on statutory holidays is prohibited by law, and violations may result in penalties. To lawfully authorize overtime and holiday work as an exception to this prohibition, a specific labor-management agreement known as a “36 Agreement” must be concluded and reported to the administrative authorities through a stringent procedure. This article first clarifies the definition of “working hours” under Japanese law through case law, then explains the basic principles of working hours and holidays. Furthermore, it details the framework for overtime and holiday work based on the 36 Agreement, along with the obligation to pay increased wages. Finally, we will examine the position of “managers and supervisors,” a significant exception to these principles, along with its strict requirements through judicial precedents. Accurate understanding and compliance with these regulations are essential for ensuring compliance and building healthy labor-management relationships.  

Defining ‘Working Hours’ Under Japanese Law

Understanding the legal definition of ‘working hours’ is crucial when navigating Japanese labor law. This is because whether a period is considered working time or not forms the basis for the obligation to pay wages, especially for calculating overtime pay. The Supreme Court of Japan has consistently held that ‘working hours’ are not determined by employment contracts or work rules, but are objectively judged as the time ‘when the worker is under the direction and orders of the employer’. This includes not only explicit instructions but also implicit ones, and situations where certain actions are compelled, which means that the scope of what is considered working hours may be broader than what companies anticipate.

There are two significant court cases that illustrate this criterion. The first is the Mitsubishi Heavy Industries Nagasaki Shipyard case (Supreme Court of Japan, March 9, 2000), which dealt with whether the time shipyard workers spent putting on designated work clothes and protective gear in the changing room before the start of work, and moving to the workplace, constituted working hours. The Supreme Court ruled that since the company mandated the wearing of work clothes for safety and health reasons and instructed that this be done at designated places within the premises, these acts were under the direction and orders of the employer. In other words, even if not part of the work itself, the time spatially and temporally constrained by the company’s instructions for essential preparatory actions is legally considered working hours.

The second case concerns standby time (idle time) in the Daihoshi Building Management case (Supreme Court of Japan, February 28, 2002). The issue was whether the nap time provided during a 24-hour shift for building facility management workers counted as working hours. The employees were ordered to be on standby in the nap room and were required to respond immediately if an alarm sounded or in case of an emergency. The Supreme Court determined that under such circumstances, even if the employees were actually sleeping and nothing happened, they were not ‘completely released from work’ and thus were under the direction and orders of the employer. Therefore, the time spent on standby, ready to engage in work at any moment, is legally regarded as working hours, even if it is called ‘break’ or ‘nap time’.

As these cases demonstrate, the recognition of working hours is objectively judged not by formal names or contract contents, but by whether the worker is actually under the management of the employer and their freedom of action is restricted. This suggests that companies may inadvertently create ‘hidden working hours’, leading to the risk of claims for unpaid wages.

Principles of Working Hours and Holidays Under Japanese Law

The Japanese Labor Standards Act sets forth two fundamental principles as the minimum standards for working hours and holidays. These principles apply to all workplaces in principle, regardless of the size of the company or the industry.

Firstly, there is a cap on working hours. Article 32 of the Japanese Labor Standards Act stipulates that employers must not make employees work more than 40 hours per week, excluding rest periods, and not more than 8 hours per day. This is known as the “statutory working hours,” and working beyond this limit is generally illegal. The dual cap of “8 hours per day and 40 hours per week” is strict, and exceeding either limit is not permitted.

Secondly, there is an obligation to provide holidays. Article 35 of the Japanese Labor Standards Act mandates that employers must give workers at least one holiday per week. This is the principle of the weekly holiday system. As an exception, paragraph 2 of the same article allows for “at least four holidays in any four-week period,” but this is intended to accommodate irregular work schedules, and the principle is to provide one holiday per week. The term “holiday” here refers to a calendar day (24 hours from midnight to midnight) on which the employee is completely exempt from the obligation to work under the employment contract.

These principles of statutory working hours and statutory holidays have significant practical consequences. For example, if a company sets the prescribed working hours at 8 hours per day, working 5 days a week will result in a total of 40 hours per week (8 hours x 5 days), reaching the limit of statutory working hours. If work is scheduled on a sixth day, it would violate the 40-hour weekly regulation. Therefore, companies that adopt an 8-hour workday system must, in practice, provide two days off per week to comply with both the principle of the weekly holiday and the 40-hour week.

These two days off have different legal personalityistics. One day is the “statutory holiday” mandated by Article 35 of the Japanese Labor Standards Act, and the other is the “prescribed holiday” (non-statutory holiday) determined at the company’s discretion. This distinction is extremely important for the calculation of overtime pay. If an employee works on a statutory holiday, it is treated as “holiday work,” and a premium pay of at least 35% is required. On the other hand, if an employee works on a prescribed holiday, any portion of that work that exceeds the statutory 40-hour workweek is treated as “overtime work,” requiring a premium pay of at least 25%. Therefore, it is essential from the standpoint of labor and cost management to clearly define in the work rules or similar regulations which day of the week is designated as the statutory holiday.

Exceeding Labor Time Limits: Overtime and Holiday Work Under the Japanese 36 Agreement

In Japan, the statutory working hours set by the Japanese Labor Standards Act (eight hours per day and 40 hours per week) and the principle of statutory holidays are not absolute. By following specific legal procedures, it is possible to exceptionally allow labor beyond these limits. The fundamental basis for overtime and holiday work is the labor-management agreement stipulated in Article 36 of the Labor Standards Act, commonly known as the “36 Agreement (Saburoku Kyoutei).” However, in the event of disasters or other temporary necessities (Article 33 of the Labor Standards Act), it is exceptionally permissible through approval or post-event notification.

Having employees work beyond the statutory working hours or on statutory holidays without concluding a 36 Agreement is illegal, even if the workers agree, and is subject to penalties. To effectively establish a 36 Agreement, it is first necessary to conclude a written agreement with a labor union representing the majority of the workers at the workplace, or, if there is no such union, with a representative of the majority of the workers. The most crucial procedure is to file the concluded agreement with the director of the competent Labor Standards Inspection Office. This filing is a requirement for the 36 Agreement to have legal effect, and only after concluding the agreement and notifying the competent Labor Standards Inspection Office can overtime and holiday work be permitted.

Even if a 36 Agreement is concluded, overtime work is not allowed without limits. The law sets strict upper limits on overtime work. In principle, the maximum amount of overtime work is 45 hours per month and 360 hours per year.  

However, in the case of unforeseen and sudden increases in workload or other temporary special circumstances, it is possible to conclude a “36 Agreement with Special Provisions” that allows exceeding these limits. These “temporary special circumstances” cannot be based on abstract reasons such as “when necessary for business operations,” but must be specific and temporary, such as sudden specification changes or responses to large-scale complaints.  

Even when applying special provisions, the law sets the following absolute limits that cannot be exceeded (with penalties for violation):

1. Overtime work must be within 720 hours per year.  
2. The total of overtime and holiday work must be less than 100 hours per month.  
3. For the total of overtime and holiday work, the average for any period of two, three, four, five, or six months must be within 80 hours per month.  
4. Overtime work can exceed 45 hours per month only for up to six months per year.  

Particularly, the third regulation, “an average of within 80 hours over several months,” functions as a powerful mechanism to restrain companies from continuous long working hours. For example, if the total of overtime and holiday work reaches 99 hours in one month (just below the limit of less than 100 hours per month), the total for the following month cannot exceed 61 hours ((99 hours + 61 hours) ÷ 2 months = 80 hours). Thus, if there is a month with a temporary increase in working hours, the subsequent months must significantly reduce working hours. Companies are required not only to record working hours but also to manage future working hours in a planned manner.

Monetary Costs: Overtime Pay

Companies are obligated to pay premium wages, which are higher than the regular wage rate as mandated by law, for work exceeding statutory working hours, work on statutory holidays, or work during late-night hours. This obligation is stipulated in Article 37 of the Japanese Labor Standards Act, and it has a direct impact on the financials of businesses.

The rate of premium wages to be paid varies depending on the type of work:

• Overtime Work: For work exceeding the statutory working hours (8 hours per day or 40 hours per week), a premium wage calculated at a rate of at least 25% above the regular wage must be paid.
• Overtime Work Exceeding 60 Hours per Month: For overtime work exceeding 60 hours in a month, the premium rate is raised to at least 50%. This regulation has been applied to all businesses, including small and medium-sized enterprises, from April 1, 2023 (2023).
• Holiday Work: For work on statutory holidays as defined in Article 35 of the Japanese Labor Standards Act, a premium wage of at least 35% is required. This is distinct from work on non-statutory holidays mentioned earlier.
• Late-Night Work: For work between 10 PM and 5 AM, a premium wage (late-night allowance) of at least 25% must be paid.

These premium rates are cumulative. For example, if an employee works overtime during late-night hours, the 25% overtime premium and the 25% late-night premium are combined, resulting in a total premium wage of at least 50%. Similarly, if an employee works on a statutory holiday during late-night hours, the premium rate will be at least 60%, combining the 35% holiday work premium and the 25% late-night premium.

The basis for calculating these premium wages is the individual worker’s regular wage for their normal working hours or days. However, certain wages specified in Article 21 of the Enforcement Regulations of the Japanese Labor Standards Act are allowed to be excluded from this base wage. The wages that can be excluded are limited to those paid based on the individual circumstances of the worker, and specifically include the following:

• Family allowance
• Commuting allowance
• Separation allowance
• Child education allowance
• Housing allowance
• Wages paid on an ad hoc basis
• Wages paid for periods exceeding one month (such as bonuses)

However, whether these allowances can be excluded or not is determined by their substance, not their name. For example, even if it is called a “housing allowance,” if a uniform amount is paid to all employees, it is considered unrelated to individual circumstances and cannot be excluded from the base wage.

Below is a summary of the premium wage rates:

This premium wage, especially the high rate of 50% for work exceeding 60 hours a month, reflects a strong policy intent not just as a rule for wage calculation but to economically discourage companies from excessive overtime and to protect the health of workers.

Key Exception: “Managerial or Supervisory Employees” Under Japanese Labor Law

The strict regulations regarding working hours, breaks, and holidays that we have discussed so far have an important exemption under Article 41 of the Japanese Labor Standards Act. This provision states that for “employees in a managerial or supervisory position” (hereinafter referred to as “managerial or supervisory employees”), the provisions concerning working hours, breaks, and holidays do not apply. As a result, companies are not obligated to pay overtime or holiday pay to employees who fall under this category.

However, the determination of whether an employee qualifies as a “managerial or supervisory employee” is not based merely on the formal title given by the company (such as “department head” or “section chief”), but is strictly judged based on the actual nature of the employee’s job duties, responsibilities and authority, and working patterns. Japanese courts tend to interpret this exemption narrowly, not allowing its application to be taken lightly. Through administrative interpretations and numerous court precedents, it has been established that to be recognized as a managerial or supervisory employee, all three of the following criteria must be met:

1. Significant job duties, responsibilities, and authority in a position integral to management: The employee must have significant authority in labor management, such as hiring, firing, personnel evaluation, and determining labor conditions, and be deeply involved in the decision-making of the management. Merely having subordinates is insufficient; the employee must have enough authority to be considered integral to management, such as being able to determine departmental policies at their own discretion.
2. A working pattern not strictly managed in terms of working hours: The employee must have considerable discretion over their own work schedule and methods of performing tasks. If the company strictly controls the employee’s work hours, or if wages are reduced due to tardiness or leaving early, the employee will not be recognized as a managerial or supervisory employee. It is essential to be in a position where one can flexibly adjust work hours based on managerial needs.
3. Compensation appropriate for the position: The employee’s salary, including base pay and managerial allowances, must be preferential enough to reflect their significant job responsibilities compared to general employees. The compensation must be high enough to adequately offset the lack of overtime pay. If the hourly wage, when considering actual working hours, falls below that of general employees or part-time workers, it becomes a significant factor in denying the status of a managerial or supervisory employee.

This strict standard is exemplified by the case of Japan McDonald’s (Tokyo District Court, January 28, 2008). In this case, the court ruled that the store manager of a hamburger restaurant, while having certain authority over store operations, was not involved in the decision-making of the overall corporate management policy, had limited discretion over working hours, especially during staff shortages, and did not receive sufficient compensation to be considered a managerial or supervisory employee.

Thus, the exception for managerial or supervisory employees is one of the most contentious areas in Japanese labor law. The so-called “manager in name only,” where a managerial title is given merely to avoid paying overtime, is not legally recognized and poses a significant risk of being ordered to pay a substantial amount of unpaid wages later on.

Even if an employee is rightfully recognized as a legitimate managerial or supervisory employee, the obligation to pay additional wages for late-night work (from 10 p.m. to 5 a.m.) is not exempted. Furthermore, the right to take annual paid leave is guaranteed in the same way as it is for general workers.

Summary

As outlined in this article, the regulations on working hours and holidays under Japanese labor law form the backbone of corporate labor management, and their content is extremely strict. The legal definition of “working hours” is determined not by contract but by objective reality, and as a principle, there is an upper limit of “8 hours per day and 40 hours per week.” Overtime and holiday work exceeding this limit are only possible with a properly concluded and notified Article 36 Agreement (Saburoku Kyotei), and even then, it is not possible to exceed the absolute maximum hours stipulated by law. Furthermore, payment of wages at the legally prescribed increased rates for these labor hours is mandatory. While there is an exception for “managers and supervisors,” its scope of application is interpreted very narrowly in case law, and its casual application carries significant legal risks. Understanding and complying with these regulations accurately is a fundamental duty when conducting business in Japan and is indispensable from the perspective of compliance management.

Monolith Law Office has a wealth of experience in providing legal advice and dispute resolution related to working hours and holidays, as discussed in this article, to numerous clients within Japan. Our firm is staffed with professionals who are not only qualified as Japanese attorneys but also hold foreign legal qualifications and are English speakers, enabling us to address the unique challenges faced by companies expanding their business internationally. We offer precise and practical support for all inquiries related to the complex regulations of Japanese labor law, including the establishment of working hours management systems, proper operation of Article 36 Agreements, and determination of the applicability of the manager/supervisor exception.