Information

New policy about Annual Paid Leave

 

Effective from April 2019,

  • Employers should encourage their employees to take their annual paid leave of at least 5(five) days per year.
  • If employees do not take the days of their leave voluntarily, the company needs to mandate for employees to take time off.
  • Preparation and maintenance of the ledger for paid leave become mandatory for the company.

 

Employees are granted 10 or more days of annual paid leave per year. But the timing of the first provision could be six months from the start of employment.
In case an employee joins the company from April 1, 2019, he/she is granted 10 days of leave as of October 1, 2019. In this case, if he/she takes 2(two) days of leave by September 30, 2020, the company needs to set an additional 3(three) days-off for this employee.
 

<Special Case>

  1. Even if an employee is granted annual paid leave simultaneously at the start of the employment, 5(five) days of leave should be taken by this employee OR set by the company within one year from the start date.
  2. In case an employee who joins the company in April is granted 10(ten) days of annual paid leave in October and newly granted in next April (the same timing with the other existing employees); 7.5(seven and half) days of leave should be taken by this employee OR set by company by the end of the upcoming month of March.
    The formula is; 2days * 12months / 18months (from October through March) = 7.5.

Details could be shown in the leaflet from the Ministry of Health(Japanese), Labor and welfare.
Breach of this obligation subject to a fine of up to JPY300,000.
This change is part of the Work-Style Reform Legislation. The related law will be enforced one after another.

 

From an Accounting Perspective

Although the provision of annual paid leave is not mandatory according to JGAAP, this rule change might impact on the company’s accounting policy.

The formula for accruing annual paid leave is as follows:
1) Number of days of leave (days carried forward from the previous year plus days granted this year) × 2) Usage ratio ×3) Employee’s daily wage

The rule change might impact on point 2 as the ratio will increase as employees take more time off, resulting in a larger accrual. Some possible impacts are:

  • For a company adopting IFRS, supporting evidence and documents may become necessary because the larger accrual may have to be recognized, whereas in the past it may not have been required due to the small balance.
  • For a company adopting USGAAP, the impact may be lower.

Generally speaking, a temporary increase in headcount or overtime work might be required to cover for employees can take days off as leave.

From the point of labour law compliance as well as the total impact on the company’s financial position, we recommend you take steps to prepare for this change in advance.
Please speak to your Grant Thornton contact or one of the professionals listed below if you have any questions on the measures included in this release.

 

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