The discretionary work system is one of the few ways to stop counting actual hours for staff who are not managers. If it applies, the employee is deemed to have worked a fixed number of hours a day, for example eight or nine, and pay is calculated on that basis. It does not remove the rules on late-night work, statutory days off or rest, and if the deemed hours exceed eight a day the excess is still overtime.
There are two types. The professional type covers a closed list of jobs in which the way the work is done is left to the employee: research and development, systems analysis, editing, design, certain consulting, and similar roles. Since April 2024 there are 20 categories, after M&A advisory work at banks and securities firms was added. It is introduced through a labour-management agreement filed with the Labour Standards Inspection Office. The planning type covers employees who plan and analyse business operations at head-office level, and requires a resolution of a labour-management committee.
The April 2024 changes tightened both types. The professional type now needs each employee's individual consent, a promise of no disadvantage for refusing, and a procedure to withdraw consent. Employers must also set health measures and keep records. Agreements had to be revised before the changes took effect.
What it means for a foreign employer
- It only fits specified jobs. A sales or account manager is not on the list. Applying it to the wrong role turns the deemed hours into a back-pay claim for real hours.
- Consent can be withdrawn. Plan for what happens to pay and hours if a professional-type employee opts out.
- It is not a substitute for management status. The supervisory exemption is a separate rule with its own strict test.
- Ask candidates which system they are on. A candidate on discretionary work may be paid a deemed-hours allowance that disappears if your role does not qualify.
Sources
- Labour Standards Act, Articles 38-3 and 38-4.
- Ordinance for Enforcement of the Labour Standards Act and Ministry of Health, Labour and Welfare notices, amendments in force 1 April 2024.