In japan, some companies have adopted a kotei zangyō dai seido (固定残業代制度− a fixed overtime pay system). This is a system in which your overtime pay is already included in your monthly salary, based on the premise of expected number of overtime hours. This may make employees feel guilty for leaving work on time, as they feel obligated to work beyond regular hours.

Let’s explore this salary system concept and its benefits. Understanding this will prevent you from being exploited while at the same time helping you get the most out of it.

Your Monthly Salary Includes Several Hours of “assumed” Overtime pay

Kotei zangyō-dai is also known as みなし残業(minashi zangyō-dai – presumptive/assumed overtime wage) or 見込み残業代 (mikomi zangyō-dai – expected overtime wage) or 定額残業制度 (teigaku zangyō seido – fixed overtime pay). 

This system is characterized by the fact that employer and employee agree on certain hours of “assumed” overtime to be included in the employee’s monthly payment.

Thus, companies that adopt this system have to inform their employees of their base monthly salary, and the agreed overtime hours and payment on both job postings and employment rules. 

For example, “Monthly salary: 300,000 JPY (20 hours of fixed overtime of 100,000 JPY included).” If the employee works less than the agreed hours (e.g. only 2 hours), the employer still has to pay the full 20 hours’ worth of overtime pay (i.e. 300,000 JPY).

Exceeding the “Assumed” Overtime? You’ll Get Paid Accordingly

Employees may misunderstand and think that receiving the fixed overtime pay means that they “have to” work overtime. And some employees think that they will not get paid if they exceed the expected overtime hours (the excess hours become unpaid overtime).

On the other hand, some managers may think that employees “must” work overtime. There are cases where employees are told, “you should work overtime because you are already paid for” and/or “If you don’t meet the expected overtime, you won’t get paid.” 

However, there is no regulation that can force employees to do overtime work without being paid. This is illegal and you might be working in a [[black company]].

The Labor Standards Act Article 36 ([[36協定]] – saburoku kyōtei or [[労働基準法]]36条 – rōdō kijun-hou sanju-roku jyō) states that employees have the right to claim additional pay if their overtime work exceeds the stipulated number of hours. On the other hand, employers cannot lower their employee’s salary even if one works less than the agreed overtime hours. Additionally, holiday（休日残業 – kyūjitsu zangyō) and late-night labor (深夜残業 – shinya zangyō) will results in a separate overtime allowance (手当 – teate).

What are the Benefits from the worker’s perspective?

1. Stabilizing employee’s income 

Under the traditional overtime pay system, one’s monthly income increases during busier months and decreases in quieter ones. This fluctuation is quite apparent.

However, in industries where busy and quiet periods fluctuate irregularly, accompanied by a significant variance in overtime hours, the predictability of one’s monthly salary can be greatly affected.

Under a fixed overtime pay system, you receive a consistent amount for overtime, regardless of the actual hours worked. This system minimizes income variability during fluctuating work periods and stabilizes your annual earnings, offering a significant benefit in terms of income stability and predictability.

2. Rewarding efficient worker

A fixed overtime pay system designed to motivate you to work efficiently. The fewer overtime hours you need to work, the higher your hourly wage becomes.

Thus, it is highly beneficial for you to work efficiently and minimize your overtime hours. By altering your work methods and embracing improved practices, this system can inspire you to enhance your management skills and foster a healthier work-life balance.

What are the disadvantages?

1. Base salary may be kept low

In many cases, companies use a fixed overtime system to make the job advertisement looks more appealing by advertising a higher monthly salary.

For example, rather than stating a “base salary of 200,000 yen”, it tends to give the impression that wages are higher if it is stated as “250,000 yen monthly salary (including fixed overtime pay of 50,000 yen)”. However, both offer a basic salary of 200,000 yen.

Because companies that employ fixed overtime pay spend higher expenditure on overtime than those who do not, they tend to keep their basic salary low.

It is important not to be swayed by job advertisements as you may end up in a situation where your hourly wage is smaller than you expected.

2. The overtime pay may not be paid

As mentioned above, Labor Standards Act Article 36 stated that if the fixed overtime hours are exceeded, additional overtime pay should be paid in addition to the fixed overtime pay.

However, there are cases of [[black companies]] that do not comply by using the fixed overtime pay system as an excuse and only paying a fixed amount of overtime even if you work during holiday or doing late-night work.

Also, be wary of companies or managers that give the illusion that you are obliged to work certain hours of overtime because your contract (and of course your salary) stated so.

Points to note when working on a fixed overtime pay system!

1. Is the base salary and the fixed overtime hours and calculation method are clearly stated?

As indicated in administrative guidelines, companies that adopt a fixed overtime pay need to specify the part of the wage that corresponds to the “base salary” and “overtime pay”, respectively.

• Good Example
  • Monthly wage of 350,000 yen (basic wage of 275,000 yen and fixed overtime pay of 75,000 yen) *
    ^＊Calculation of overtime pay for 30 hours of fixed overtime assuming a basic wage of ¥2,000 per hour and a premium wage rate of 25%.
• Bad Examples
  • ¥350,000 per month (basic wage of ¥275,000 and fixed overtime pay of ¥75,000)
  • ¥350,000 monthly salary (including fixed overtime pay), 30 fixed overtime hours

Above, the calculation method of basic salary and fixed overtime pay excluding fixed overtime pay is unclear.

Therefore, if you are currently looking for a job, it is highly recommended to check whether the required information is clearly stated or not. 

If your current company employs the fixed overtime pay system but the above information is unclear, it is advisable to contact HR immediately for reconfirmation.

2. Is the base salary below the minimum wage?

Employers are required to pay their employees an hourly “minimum wage” set by the prefecture and job categories.

Often, at the face value, hourly wage appears higher when fixed overtime is included. But, if only the base salary (monthly salary – fixed overtime pay) is focused on, the hourly minimum wage is lower than the “minimum wage”. 

As the calculation method for minimum wage differs depending on whether you are paid on a monthly, weekly or daily basis. It is important and recommended to check and/or consult with the “Labor Standard Inspection Office (労働基準監督署 – rōdō kijun kantoku-sho)” if you think the company may have violated the “minimum wage” policy.

If you then have a claim against the company for not meeting the minimum wage, unpaid overtime and any other violation of the Labor Standards Act, do not hesitate to contact and consult with a lawyer before taking further action.

3. If the overtime hours are exceeded, is the premium wages being paid?

If the fixed overtime has exceeded and/or other conditions under which you should receive additional pay (i.e., late-night work and/or work on holiday) but you received the same amount of salary; It is highly likely that unpaid overtime has occurred.

If you suspect that the fixed overtime system does not operate correctly, please consult a lawyer before considering a claim for unpaid overtime. Note that there is a statute of limitations (or time limit) for claiming the unpaid overtime, thus, if there is a large amount of excess overtime, you should consider claiming it as soon as possible.

4. Is overtime work being forced?

Again, a fixed overtime pay system does not mean that you are obliged to work overtime to claim the full amount of overtime pay. If the work for the day is completed on time, there is no problem to leave the office.

However, some companies (and managers) have been found to force workers to work excessive overtime by demanding that they “have to work for their wages”. This is a violation to the Labor Standard Acts and may constitute additional violation of [[power harassment]].

Again, please consult the “Labor Standard Inspection Office” and lawyer before taking further actions.

Summary

A fixed overtime pay system offers the advantage of stabilizing your income and motivating you to work efficiently that to leave on time. Moreover, over the long term, this system can improve work-life balance while preserving your earnings.

Conversely, there are numerous instances where the fixed overtime pay system is improperly implemented, leading to unpaid overtime. Should there be a chance that unpaid overtime compensation has accrued, it is advisable to seek legal counsel.