Is “Overtime Included In Salary” Legal?

Dec 12, 2017

In 2016, the Research Institute for the Advancement of Living Standards (RENGO-RIALS) found that some 38.2% of employees who worked overtime (in September of that year) were not actually paid for that work, averaging a total of 40.3 hours of unpaid overtime per person.

On a similar note, a former Bank of Japan official estimated that employees in Japan work an average of 200 hours of unpaid overtime per year, totaling around ¥440,000 of lost income per person (source).

Multiply that estimate by an entire company, and you can easily understand how Dentsu Inc. ended up owing ¥2,400,000,000 worth of “unregistered time” to its employees in the wake of the media attention following the high-profile suicide (aka “karōshi”) of Takahashi Matsuri in 2015.

With so much focus on this issue, how have companies been able to keep the “unpaid overtime” fires burning, though?

Well, the trick is to just call it something else.


You may have already noticed that, instead of admitting that their employees had been putting in hours of illegal unpaid overtime, Dentsu Inc. referred to the problem as “unregistered time”, putting the responsibility for that unpaid overtime upon the employees instead of admitting that the illegal activity was a result of corporate culture.

This brings us to the topic of this article: “Overtime Included In Salary”.

Overtime that is “included in salary” is a system of remuneration in which any pay for overtime work is said to already be “built-into” the monthly salary that an employee can expect to receive from an employer.

I am a Master’s Degree graduate from a university in Japan, and will be getting my first job in Japan in a small IT/Application firm, working as a translator and, later, doing customer support for the Southeast Asia region (I am from Malaysia).

My salary is set at 208,000 yen per month which includes 40 hours of overtime (so overtime is not paid).

I felt this salary is a little low, but I am unsure about the market price. Can anyone advise me about it?

via forums

In such an arrangement, an employer may offer a salary of ¥400,000 per month at 40 hours per week with “overtime included in salary”, meaning that the “true” working hours may actually be 40 hours per week plus 10 hours of overtime.

While such a stipulation may manifest in a number of ways, it usually falls into one of two following case examples:

Case A
The arrangement is pitched as being advantageous to the employee, with the employer stating that 40 hours of work equals 100% of the employee’s monthly salary, even if the employee does not perform any additional overtime work.

However, in this situation, any overtime work that is required will not be compensated, even if it goes beyond the additional (example) 10 hours of overtime.

Case B
In this situation, the stated salary of “¥400,000 per month” is the maximum potential salary that an employee may be able to earn if they also do all of the additional overtime work.

“40 hours work” without overtime would result in only 80% of the stated monthly salary actually being paid.


Regardless of how beneficial (or otherwise) “overtime included in salary” arrangements are pitched, the end result is always something like this:

 Salary includes overtime, whereas the job offer that has been agreed upon and signed by the CEO and the candidate don’t mention that. You start your first day at work by discovering that the company lied.

via review

Even in cases where “overtime included in salary” is overtly mentioned, it may take a while before an employee actually realizes – only too late – that they’ve been scammed by their employer into working for free when the employer requires it.

Experts say such companies resort to exploiting staff in their 20s and 30s, rather than part-timers, by forcing them to work excessively long hours without overtime pay in the name of global competition.

The young workers are often told their base salaries already include overtime pay and that they can increase it if they perform well. These claims are used to lure hungry recruits.

In many cases, workers are verbally abused and subjected to power harassment because disobedience is not an option.

Ayako Mie (Japan Times)

Suffice to say, “overtime included in salary” stipulations are illegal.

In Japan, all work must be paid for.

Even if a given amount of overtime pay is already included in an annual salary, unless the breakdown of that salary is stated (e.g. annual salary of X yen; extra pay of X yen, etc.), an employer is obliged to remunerate overtime work separately.

Also, if an employee has worked more hours than pre-designated, the employer must compensate the difference.

HR Business Management SR Corporation (HRBM)

Phrasing such as “overtime included in salary package”, “time off in lieu of overtime pay”, “homework”, “unregistered time”, and / or “other arrangements”, all mean one thing: “unpaid work”.

However, if you happen to already be in a position in which you are doing unpaid “overtime included in salary” work for an employer, the best thing that you can do (short of jumping ship) is to keep a detailed diary of what days and what hours your employer is telling you to work.

With enough evidence, there is chance that you will be able to claim the unpaid hours from the employer via a labor standards office in the future (depending on what route you wish to take).

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