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5 Common Myths About Japan’s Discretionary Labor System (2024 Update)

Nov 16, 2025UP!

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• Sairyo Rodo Sei
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5 Common Myths About Japan’s Discretionary Labor System (2024 Update)

The discretionary labor system (裁量労働制, Sairyō Rōdō Sei) is a Japanese labor regulation that deems an employee to have worked a pre-determined “deemed” number of hours, regardless of actual time worked. This applies only to specific roles where the methods and time allocation must be left largely to the worker’s discretion.

However, significant misunderstandings about the discretionary labor system persist among both employers and employees—such as “no overtime pay” or “no need to track hours.” Following the April 2024 legal revisions, requirements for tracking work hours and obtaining individual consent have become much stricter. This article debunks five common myths and explains the correct procedures under the revised law.

The 5 Common Myths vs. The Correct Understanding

❌ Myth 1: “You don’t have to pay overtime.”

Fact: Premium pay is required for late-night/holiday work and for any “deemed hours” set beyond the legal limit.

Even under the discretionary system, employers are not exempt from the following premium pay obligations:

1. Premium Pay for Late-Night and Holiday Work
   The provisions of the Labor Standards Act, Article 35 (Holiday Work) and Article 37 (Late-Night Work: 10 PM to 5 AM), still apply. If an eligible employee works on a holiday or late at night, premium pay must be calculated based on the actual hours worked, not the deemed hours.
2. Premium Pay for Statutory Overtime
   If the deemed working time is set longer than the statutory 8-hour workday (e.g., 9 hours per day), the excess portion (1 hour in this example) is subject to overtime premium pay. A separate “Article 36 Agreement” (36協定) covering overtime may also be required.
3. Ensuring Appropriate Compensation
   When setting the deemed hours, employers must ensure the level is appropriate for the duties involved and provide “suitable compensation,” such as by paying a special allowance or increasing the base salary.

❌ Myth 2: “You don’t need to manage working hours.”

Fact: As of April 2024, monitoring the status of working hours and taking health-securing measures are legal obligations.

The Industrial Safety and Health Act now explicitly mandates the following:

1. The Duty to Monitor Working Hours and Methods
   Employers are obligated under Article 66-8-3 of the Industrial Safety and Health Act to grasp the status of their employees’ working hours. This is to understand when and for how long the employee was able to provide labor.
   • Monitoring Method: Objective methods such as time cards or PC usage logs are required in principle.
   • Restrictions on Self-Reporting: Self-reported hours are generally not permitted. It is only allowed if objective tracking is difficult; however, if data (like time cards) exists, relying solely on self-reporting is illegal.
2. Mandatory Implementation of Health and Welfare Measures
   The labor-management agreement (for professional-type) or labor-management committee resolution (for planning-type) must specify and implement concrete health and welfare measures based on the monitored working hours.
   • Examples of Measures: Ensuring “work-life interval” (rest time between shifts) or canceling the system’s application if an employee’s hours exceed a certain threshold.
3. Duty to Create and Retain Records
   Records of working hours, health/welfare measures taken, grievance processing, and employee consent/withdrawal must be kept for the duration of the agreement plus three years after its expiration.

❌ Myth 3: “It can be applied to any type of job.”

Fact: Eligible duties are strictly limited by law.

It must be objectively necessary to leave the work to the employee’s discretion due to the nature of the job.

1. Strict Limits for the Professional-Type System (LSA Article 38-3)
   This system is limited to only 20 designated occupations specified by ordinance.
   • Common Error: “All engineers are eligible” is false. “Analysis or design” of information systems is eligible, but “programmers” or “assistants” are not. General sales or planning roles are not eligible for this type.
2. The 4 Requirements for the Planning-Type System (LSA Article 38-4)
   The planning-type system must meet all four of the following requirements:
   1. The work relates to matters concerning the operation of the business.
   2. The work is for planning, drafting, research, and analysis.
   3. The nature of the work objectively requires that the execution methods be largely left to the worker’s discretion.
   4. The employer does not give concrete instructions regarding the means of performing the work or the allocation of time (including start/end times).
   • Common Error: “Everyone in the planning department is eligible” is false. If the employer gives instructions on either the start or end time, the role is ineligible. It is also inapplicable if the workload is so excessive that the employee has no actual discretion.
3. Individual Employee Consent is Now Mandatory (from April 1, 2024)
   Furthermore, for both types, obtaining the individual consent of the employee is now mandatory to apply the system. Adverse treatment of employees who do not consent is prohibited.

❌ Myth 4: “The company can introduce it unilaterally.”

Fact: A labor-management agreement AND “individual employee consent” are mandatory.

The “individual employee consent” requirement added on April 1, 2024, is particularly important.

1. Duty of Individual Consent and Full Explanation
   Employers must obtain individual consent from the target employee in writing or via electronic record. When obtaining consent, the employer must clearly explain:
   • An overview of the system (including deemed hours).
   • Details of the wage and evaluation system that will apply if they consent.
   • The employee’s placement and treatment if they do not consent.

   If consent is obtained without a full explanation or is not based on the employee’s free will, the “deemed hours” effect of the system will not be legally valid.

2. Prohibition of Adverse Treatment (Consent/Withdrawal)
   The labor-management agreement or committee resolution must prohibit the following types of adverse treatment:
   • Prohibition of adverse treatment (dismissal, wage cuts, demotion, etc.) against workers who do not consent to the system’s application.
   • Prohibition of adverse treatment against workers who withdraw their consent after the system has been applied.

❌ Myth 5: “If we use an annual salary system, the discretionary system applies automatically.”

Fact: The annual salary system and the discretionary labor system are completely different.

An annual salary system (Nenpōsei) is a “method of paying wages,” while the discretionary labor system is a “method of calculating working hours.” They are independent of each other.

1. Separate Purposes and Procedures
   Applying the discretionary labor system requires a labor-management agreement (Professional) or a labor-management committee resolution (Planning), plus notification to the Labor Standards Inspection Office. An annual salary system does not require these procedures.
2. Linking Wage Systems to Discretionary Labor
   When introducing the discretionary system, employers must provide “suitable compensation” (e.g., allowances, base pay increase). Therefore, the wage/evaluation system (including an annual salary system) is closely related to the introduction of discretionary labor.
3. Time Management is Still Required Under an Annual Salary System
   Even with an annual salary system, if the discretionary system is not applied (or even if it is), actual hour tracking and premium pay are still required for late-night and holiday work.

The Two Types of Discretionary Labor and Their Legal Basis

The discretionary labor system is divided into two types, “Professional-Type” and “Planning-Type,” each with different requirements under the Labor Standards Act (LSA).

Professional-Type Discretionary Labor (LSA Article 38-3)

The Professional-Type system is limited to 20 specified occupations where, due to the nature of the work, it is difficult for employers to give concrete instructions on execution and time allocation.

Mandatory Requirements for Implementation

To apply the Professional-Type system, the labor-management agreement must define the following, and they must be adhered to in practice (Bold items are mandatory from April 1, 2024).

1. Clearly specify the deemed working hours as a number of hours per day.
2. Must obtain the individual employee’s consent.
3. Must not treat employees adversely for not consenting or for withdrawing consent.
4. Specify concrete health and welfare measures to be taken based on the status of working hours (monitored objectively).
5. Specify concrete measures for processing grievances.
6. Keep records for each worker (working hours status, health/welfare measures taken, consent, and withdrawal) for the duration of the agreement plus three years after its expiration.

Planning-Type Discretionary Labor (LSA Article 38-4)

The Planning-Type system covers work related to planning, drafting, research, and analysis concerning business operations, where the execution method must be largely left to the worker’s discretion.

The 4 Strict Requirements for Planning-Type Roles

The work must meet all four of the following requirements to be eligible:

1. It must be work concerning the operation of the business (Req. A).
   This must be work that affects business plans or sales plans for the entire company or a specific establishment. Individual sales activities or manufacturing tasks do not qualify.
2. It must be work of planning, drafting, research, and analysis (Req. B).
   This refers to work that combines these tasks. Judgment is based on the actual duties, not the department name.
3. The nature of the work must objectively require discretion (Req. C).
   This is not based on the employer’s subjective opinion; the necessity must exist objectively based on the nature of the work.
4. The employer does not give concrete instructions on means or time allocation (Req. D).
   “Time allocation” includes deciding start and end times. Therefore, any job where the employer instructs either the start or end time is ineligible.

Mandatory Requirements for Implementation

To introduce the Planning-Type system, a Labor-Management Committee must be established, and a 4/5 majority must pass a resolution on the following items:

1. Clearly specify the deemed working hours as a number of hours per day.
2. Must obtain the individual employee’s consent.
3. Must not treat employees adversely for not consenting or for withdrawing consent.
4. Must explain any changes to the wage/evaluation system for target employees to the Labor-Management Committee.
5. Regular Reporting Duty: Must report the status of working hours, etc., to the head of the local Labor Standards Inspection Office. The first report is due within 6 months, and subsequent reports are required once every year.

The legal obligation to objectively record and manage working hours

Industrial Safety and Health Act, Article 66-8-3 Employers must ascertain the status of workers’ working hours by methods specified by Ordinance of the Ministry of Health, Labour and Welfare in order to implement interview guidance pursuant to Article 66-8, Paragraph 1 or the preceding Article, Paragraph 1.

Ordinance on Industrial Safety and Health, Article 52-7-3 Paragraph 1: The methods specified by Ordinance of the Ministry of Health, Labour and Welfare under Article 66-8-3 of the Act shall be objective methods such as records by time cards, records of usage time of electronic computers such as personal computers, and other appropriate methods.

Paragraph 2: Employers must create records of the status of working hours ascertained by the methods prescribed in the preceding paragraph and take necessary measures to preserve them for three years.

Related Administrative Guidance Notification No. 1228-16 dated December 28, 2018 (amended by Notification No. 0329-2 dated March 29, 2019) “Interpretation of the Industrial Safety and Health Act and Pneumoconiosis-Related Matters after Amendment by the Act for Arrangement of Related Acts to Promote Work Style Reform” (Interpretation Circular)

Summary of Interpretation Circular

Q1: What should employers ascertain as the “status of working hours”? A1: From the perspective of appropriately implementing health security measures for workers, it is necessary to ascertain during what time periods and to what extent workers were in a state of being able to provide labor.

As a method for employers to ascertain the status of working hours, in principle, they must ascertain records such as workers’ daily arrival and departure times and entry and exit times through objective records such as time cards, records of usage time of electronic computers such as personal computers (time from login to logout), or direct observation by the employer (including those delegated authority to manage the status of working hours by the employer).

Q2: Do workers subject to ascertainment of working hours include those under discretionary work systems and managerial/supervisory employees? A2: All workers are subject, excluding workers under the highly professional system.

Q3: What constitutes “other appropriate methods” as prescribed in Article 52-7-3, Paragraph 1 of the new Industrial Safety and Health Ordinance? A3: “Other appropriate methods” may include ascertainment through workers’ self-reporting in cases where it is unavoidably difficult to ascertain by objective methods. However, in such cases, employers must take all measures in accordance with the “Guidelines on Measures to be Taken by Employers for Appropriate Ascertainment of Working Hours” (thorough explanation to target workers and managers, fact-finding investigations and appropriate corrections as necessary, prevention of measures that hinder proper reporting, etc.).

Q4: What constitutes cases where “it is unavoidably difficult to ascertain by objective methods”? A4: “Cases where it is unavoidably difficult to ascertain by objective methods” refers to cases where there are no means to objectively ascertain the status of working hours, including direct observation by the employer, such as when workers go directly to or return directly from work performed outside the workplace. However, even in cases where workers go directly to or return directly from work performed outside the workplace, there may be cases where it is possible to ascertain the status of working hours by objective methods, for example, if it is possible to access the company system from outside the workplace. Therefore, ascertaining the status of working hours solely through self-reporting based only on the fact of going directly to or returning directly from work is not permitted.

Additionally, ascertaining the status of working hours solely through self-reporting is not permitted when data such as records of arrival/departure times or entry/exit times by time cards, records of personal computer usage time, etc., are available, or when the employer can ascertain the worker’s working hours through direct observation.

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