The Japanese bonus is a fixture of pay rather than a reward for an outstanding year. Most large employers pay it in June or July and again in December, and describe it in months: "two months in summer, two and a half in winter". The total is often negotiated alongside base pay in the annual wage talks, and at many companies it moves with company results more than individual performance.
No law requires a bonus. Whether an employee is entitled to one, and how it is calculated, depends on the work rules or the contract. Many work rules require the employee to be on the payroll on the payment date, and the Supreme Court has accepted that condition (Daiwa Bank case, 1982), which is why people tend to resign just after bonus day.
Social insurance applies to bonuses. Health insurance is charged on bonuses up to a cumulative 5.73 million yen a fiscal year, and pension up to 1.5 million yen per payment. The employer must file a bonus payment report within five days of paying. A bonus paid four or more times a year is treated as ordinary monthly remuneration instead. Income tax is withheld using a separate bonus table.
What it means for a foreign employer
- Know how the candidate sees it. Someone used to four or five months a year will count it as fixed pay. A discretionary target bonus at your company can feel like a pay cut.
- Mind the timing. Offers made in May or November compete with an imminent bonus. Expect requests to start after bonus day, or for a sign-on payment to cover it.
- Spell out the rules. State in the offer whether the bonus is guaranteed, how it is calculated and whether it is pro-rated in the first year.
- Budget the social insurance. Bonuses carry employer contributions too, within the caps.
- Discretionary on paper, expected in practice. At Japanese companies a seasonal bonus is technically discretionary, but a cut is treated as a breach of the social contract. Candidates carry that expectation with them.
Sources
- Health Insurance Act, Article 45; Employees' Pension Insurance Act, Article 24-4 (standard bonus amounts).
- Supreme Court, Daiwa Bank case, 7 October 1982.
- Japan Pension Service, guidance on bonus payment reports.