Labor & Employment
When employees or former employees claim unpaid overtime pay
A lawyer acting for a former employee sends a document claiming several years of overtime pay. A current employee points out that the fixed overtime allowance cannot be covering the amount actually due. An inspection by the Labor Standards Inspection Office — the local administrative body that supervises compliance with labor standards legislation in Japan — brings the question to the surface as one affecting every employee to whom the same pay arrangements apply. Claims for overtime pay begin in these ways.
What is needed first is not a calculation of the amount of overtime pay, but securing the records that still exist. Attendance data and building entry and exit records are sometimes set to be overwritten automatically after a set period.
Whether a claim for overtime pay is well founded turns on a number of separate questions: which hours count as working hours, what base wage the premium is calculated on, whether arrangements such as a fixed overtime allowance or treatment as a person in a position of supervision or management apply, and whether the claim is time-barred. What the company can realistically do also changes according to how much material it is able to check on its side. This page sets out the order in which these questions may be approached.
What to check first
The following are matters we ask you to share with us, so far as they are known, when you contact us. You can contact us even at a stage where it has not been settled whether the claim for overtime pay is well founded.
- What is being claimed, and the deadline for responding — the company preserves the written claim for overtime pay, the calculation attached to it, and the record of communications from the other party's lawyer, and checks who is making the claim, the period covered, the amount, and the deadline by which a response is requested. If an application for labor tribunal proceedings or a complaint filed with a court has arrived, the company checks the deadline for filing a written answer and the date of the first hearing.
- Whether attendance, building access and PC records are in a state where they will not be lost — for the attendance system, the building entry and exit records, PC login and logout records, and operating records for work devices, the company stops any automatic deletion or overwriting and secures the original data.
- Material showing what wages were paid — the company secures the wage ledger, pay slips, transfer records and the history of allowances paid. Retention periods are prescribed by law for the roster of workers, the wage ledger and other important documents concerning labor relations.
- The pay arrangements, and the material explaining any fixed overtime allowance — the company checks the employment contract, the wage rules and, where a fixed overtime allowance is provided for, its content and the material showing how it was explained to the employee on hiring and when the arrangements were revised.
- How the work was actually done — the company checks the instructions given for the work, shift arrangements, preparation before the start of work and clearing up afterwards, time spent on standby, and whether work was taken home.
- Whether particular working-hours arrangements apply, and on what basis — where a system of variable working hours, a discretionary work system, or treatment as a person in a position of supervision or management is in place, the company checks the labor-management agreement, the resolution of the labor-management committee or the rules of employment on which it is based, together with how it has actually been operated.
- How similar matters were handled in the past, and the effect on other employees — the company checks whether there has been a comparable settlement or agreement in the past, whether it has received administrative guidance, and which employees are covered by the same pay arrangements and the same attendance management.
On the basis of the records available, we consider how the claim can be examined and how a response may be put together.
How we can helpChecking the content and the basis of the claim / organizing the records relating to working hours / considering which hours are treated as working hours / checking the calculation of premium wages / preparing a written reply and negotiating / considering resolution by settlement / responding in labor tribunal proceedings and litigation
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1. Comparing the claim with the working hours
A claim for overtime pay needs to be broken down into the period covered, the working hours asserted, the base wage, and the amounts already paid; each of these elements is then compared against the material the company holds.
First, put the records in a state where they will not be lost
Attendance data, building entry and exit records and PC operating records are sometimes set to be overwritten automatically after a set period. When a claim is received, the company checks these settings first and preserves the records for the period covered.
The retention period for the roster of workers, the wage ledger and other important documents concerning labor relations is five years as a general rule, but is three years for the time being.
Discrepancies between clock records and objective records
Whether time counts as working hours is understood to be determined objectively, by reference to whether the worker can be regarded as having been under the employer's direction and orders.
It is not unusual for clocked times to differ from building access or PC records. Whether there was time spent working after clocking out, or conversely time spent on the premises but away from work, is in each case a question of fact-finding.
Preparation, standby and work taken home, and how direction and orders were in fact exercised
Time spent, on the employer's instructions, on preparation or clearing up necessary for the work and carried out at the workplace, and time on standby where the worker is required to start work immediately and is not assured of being free from the employer's direction and orders, count as working hours. Questions arise in practice over whether time spent changing into a uniform, cleaning before opening, or staying available to answer the telephone counts as working hours.
For work taken home, the company checks facts such as how it related to the company's instructions, whether a work product was submitted, and whether the volume of work was such that it could have been completed within the prescribed hours.
2. Calculating premium wages and checking which arrangements apply
The base wage, and overtime, holiday and late-night work
Premium wages at the rates prescribed by law must be paid for statutory overtime work, work on statutory days off, and late-night work. A higher rate is prescribed for overtime work exceeding 60 hours in a month. The late-night premium arises for work between 10 p.m. and 5 a.m.
Distinctions are needed here between hours exceeding the prescribed working hours and hours exceeding the statutory working hours, and between days off set by the company and statutory days off. Work on what the rules of employment call a "holiday" is not necessarily work on a statutory day off. In addition, family allowances, commuting allowances and the other wages prescribed by law are not included in the wage on which premium wages are calculated.
The content of a fixed overtime allowance, and any shortfall
For a fixed overtime allowance, the company checks whether the part constituting ordinary wages and the part constituting premium wages can be distinguished, and whether the allowance can be said to have been paid as consideration for premium wages. Under this framework of distinguishability and consideration, the assessment takes account of what the contract and other documents state, the employer's explanation, the working hours actually worked and the other circumstances, and considers not only the name of the allowance and how it is calculated but also its place within the pay structure as a whole.
Even where a fixed overtime allowance is recognized as payment of premium wages, if it falls short of the amount of premium wages prescribed by law, the employer must pay the difference.
Treatment as a person in a position of supervision or management
The provisions on working hours, breaks and days off do not apply to a person in a position of supervision or management within the meaning of the Labor Standards Act. The late-night premium, however, is not covered by that exclusion. For an employee who has been treated as a manager, any hours worked late at night therefore remain a separate question.
Whether a person is in a position of supervision or management is determined not by job title but by the substance of the position: the content of the duties, the responsibility and authority held, how the work is performed, and the treatment received. For the company, the starting point is to assemble the material on these points.
Systems of variable working hours and discretionary work systems
A system of variable working hours over a period of one month may be introduced by a labor-management agreement prescribed by law or by the rules of employment or an equivalent instrument, and a system of variable working hours over a period of one year by a labor-management agreement prescribed by law. Where the requirements concerning average working hours and the other statutory requirements are met, the employer may have workers work in excess of the statutory working hours on specified days or in specified weeks. For the monthly system, a labor-management agreement and the rules of employment or an equivalent instrument are alternative requirements, but the one-year system cannot be introduced by the rules of employment alone.
The discretionary work system for professional work applies to the work specified by ministerial ordinance. Where a labor-management agreement provides for the statutory matters, including that no specific instructions will be given as to the means of carrying out the work or the allocation of time, and measures to secure workers' health and welfare, and a worker is assigned to that work, the worker is deemed to have worked the hours set by the agreement. Under the discretionary work system for planning work, where a labor-management committee adopts a resolution on the statutory matters by a majority of at least four-fifths of its members, the employer files the resolution with the competent administrative authority and the other requirements are met, the worker is deemed to have worked the hours set by the resolution.
Neither system dispenses across the board with premium wages for statutory overtime work, work on statutory days off and late-night work. Because overtime hours are calculated differently under each system, the company needs to check which arrangements apply and whether premium wages are due.
3. Putting together a response to the claim
Where material is missing
Because the employer is under a duty to ascertain and manage working hours appropriately, even where no material directly evidencing the attendance records remains, the company needs to assemble material such as daily work reports, records of emails and chat messages sent and received, and attendance books, and to preserve that evidence.
Extinctive prescription, and its postponement and renewal
The period of extinctive prescription for claims to wages other than retirement allowances is five years from the time the right may be exercised as a general rule, but is three years for the time being. Each month's wages are checked against their own payment date.
For claims to wages whose payment date fell before April 1, 2020, the two-year prescription period in force before the amendment applies. What matters is the payment date, not the day on which the work was performed.
Where a demand is made, the completion of prescription is postponed until six months have elapsed from that time; a further demand made within that period, however, does not give rise to a further postponement. A demand does not renew prescription, and its effect differs from that of a claim made through court proceedings or an acknowledgment of the right.
Separating what is in dispute from what is not
In putting together a response, the company needs to consider where among the working hours, the base wage and the amounts already paid the dispute actually lies.
Separately, where the company is considering a claim for damages against the employee, that needs to be kept apart from the obligation to pay wages. As a general rule, the company cannot escape its obligation to pay wages by unilaterally setting off a claim for damages against the wages owed. An agreement to set off based on the employee's consent also requires reasonable grounds to exist objectively for finding that the consent was given of the employee's own free will; a signature on a set-off agreement is not sufficient on its own.
Interest for late payment
Where the wages of a worker who has left employment (other than retirement allowances) are not paid by the day of separation, or, for wages whose payment date falls after that day, by that payment date, interest for late payment at the rate prescribed by Cabinet Order — 14.6 percent per annum — may be payable for the period from the day after separation until the day of payment.
4. Resolving the claim, and correcting arrangements that remain in place
The scope of a release in a settlement agreement
Where a settlement containing a release clause is under consideration, the company checks whether the claim for overtime pay falls within its scope, by reference to the wording of the clause and how the settlement came about. A standard form of wording such as "the parties mutually confirm that no claims or obligations remain between them" does not allow it to be asserted as a matter of course that claims neither party was aware of are thereby extinguished; the scope of what was settled, and the effect of any waiver of wage claims, need to be considered.
The effect on employees covered by the same arrangements
Where the cause lies not in circumstances particular to the employee bringing the claim but in the design of the pay arrangements or of attendance management, similar legal disputes may have arisen in relation to other employees covered by the same arrangements. Responding to past claims for overtime pay and correcting how matters are handled going forward need to be taken forward separately.
Additional payments, and labor tribunal proceedings and litigation
The court may, on the worker's application, order the employer to pay, in addition to an unpaid amount that was not paid in breach of the provisions on premium wages, an additional payment of the same amount, so the company needs to consider its response with the possibility of such an order in mind.
Where an application for labor tribunal proceedings concerning a claim for overtime pay, or a summons, has arrived, the company checks the deadline set by the court for filing a written answer and the date of the first hearing, and sets out what has to be prepared by that deadline on the basis of the application and the documents attached to it. On objections after a labor tribunal decision has been issued, see the guide on when a dismissal or a requested resignation is challenged.
Our ongoing legal advisory services are available where a company wishes to review its pay arrangements and its management of working hours on a continuing basis, and our in-house training services are available where a company wishes to communicate these matters to its managers. For matters involving an inspection by the Labor Standards Inspection Office, see the guide on handling labor and employment disputes (employer side).
Key legislation and official sources
English translations of legislation are provided for reference. The Japanese texts are authoritative.
| Where it appears | Legislation | Source type |
|---|---|---|
| Retention of the roster of workers, the wage ledger and other important documents | Labor Standards Act（労働基準法） | Japanese legislation |
| Premium wages for overtime, work on days off and late-night work; the higher rate above 60 hours in a month | Labor Standards Act（労働基準法） | Japanese legislation |
| Wages excluded from the basis for calculating premium wages | Labor Standards Act（労働基準法） | Japanese legislation |
| Exclusion of persons in a position of supervision or management from the provisions on working hours, breaks and days off | Labor Standards Act（労働基準法） | Japanese legislation |
| Systems of variable working hours over one month and over one year | Labor Standards Act（労働基準法） | Japanese legislation |
| Discretionary work systems for professional work and for planning work | Labor Standards Act（労働基準法） | Japanese legislation |
| Extinctive prescription of wage claims, and the transitional period | Labor Standards Act（労働基準法） | Japanese legislation |
| Additional payment ordered by the court | Labor Standards Act（労働基準法） | Japanese legislation |
| Prohibition of set-off against wages | Labor Standards Act（労働基準法） | Japanese legislation |
| Interest for late payment on the wages of a worker who has left employment | Act on Ensuring Wage Payment（賃金の支払の確保等に関する法律） | Japanese legislation |
| Postponement of the completion of prescription by a demand | Civil Code（民法） | Japanese legislation |
| Labor tribunal proceedings | Labor Tribunal Act（労働審判法） | Japanese legislation |
Legal information reviewed: 2026-09-18
Frequently asked questions
Does all the time recorded on a time card count as working hours?
The time recorded is not thereby established as working hours. Whether time counts as working hours is understood to be determined by reference to whether the worker can be regarded as having been under the employer's direction and orders.
Is the company obliged to pay for overtime it has not approved?
The company's internal treatment of the overtime as "not approved" does not by itself determine the answer. The company checks facts such as whether work was in fact being done, whether it was done on the company's instructions or with its tacit acceptance, and whether the volume of work was such that it could have been completed within the prescribed hours. Conversely, where a procedure for applying for and approving overtime was in fact operated and the case in question ran contrary to it, that is a point for the company to assert and prove.
Even where a fixed overtime allowance is paid, may further payment be required?
Even where a fixed overtime allowance is recognized as premium wages, if it falls short of the amount of premium wages prescribed by law, the difference must be paid. In practice, the issues that arise most often are the prior ones: whether the part constituting ordinary wages and the part constituting premium wages can be distinguished, and whether the allowance can be said to have been paid as consideration for premium wages.
Is overtime pay unnecessary for managers?
The provisions on working hours, breaks and days off do not apply to a person in a position of supervision or management within the meaning of the Labor Standards Act. The late-night premium, however, is not covered by that exclusion. Whether a person is in a position of supervision or management is also determined not by job title but by the substance of the position: the content of the duties, the responsibility and authority held, how the work is performed, and the treatment received. Designating someone a "manager" internally does not by itself remove the obligation to pay overtime.
How many years of overtime pay can be claimed?
The period of extinctive prescription for claims to wages other than retirement allowances is five years as a general rule, but is three years for the time being. For amounts whose payment date fell before April 1, 2020, however, the two-year period in force before the amendment applies. What matters is the payment date, not the day on which the work was performed.
How are working hours checked for periods where no attendance records remain?
The company assembles material such as daily work reports, records of emails and chat messages sent and received, and attendance books, and checks so far as possible what can be accounted for and for which periods.
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Contact FormThis article is provided for general informational purposes only and does not constitute legal advice on any specific matter. Please consult us regarding your specific situation. The content is based on the laws and regulations in effect as of the date of the last update.