Japan Legislates Social Welfare Overhaul

Japan's labour shortage has prompted lawmakers to rethink outdated social welfare rules that disincent married women from working longer hours.

HR Policy Global perspective: The reforms aim to address workforce shortages by scaling back pension and health-insurance exemptions for part-time workers, which traditionally discourage career advancement for women.  Businesses argue that the current system limits the supply of female labour and suppresses wage growth.  The changes will be introduced in a phased approach over the next 4 years.  

The Key Issue has been the “¥1.03 Million Wall”.  Under the Employees’ Pension Insurance (EPI) and Employees’ Health Insurance (EHI) systems, spouses (usually wives) who earn less than approximately ¥1.03 million (~USD 8,000–9,000) annually could be classified as dependents.  This allowed them to receive free health insurance and pension coverage via their husband’s employment benefits, without paying premiums themselves.

The social security structure has had a behavioural impact.  Many women reduce or cap their working hours or income to stay under this threshold.  This discouraged full-time work, advancement, or skill development, and perpetuated reliance on precarious, low-paid part-time or “non-regular” jobs.

The latest legislation will require part-timers working over 20 hours weekly to contribute to corporate pension and insurance schemes.   This move could affect around 900,000 women, shrinking the pool of dependent spouses.  However, the bill maintains the system for dependent spouses, calling for further national debate.  The Japan Association of Corporate Executives is pushing for complete abolition of the system, citing its impact on women's careers and gender wage gaps.

There are some concerns that women working part-time may intentionally reduce their hours to retain dependent status and avoid premiums and pension contributions, even if it compromises their future retirement security.

Outlook for Employers

• Employers will be required to enrol more part-time workers in Employees’ Pension Insurance (EPI) and Employees’ Health Insurance (EHI).
• Employment costs for part-time workers are likely to increase as employers have an obligation to pay 50% of the premiums for the EPI and EHI.
• While the change brings opportunity to expand the labour pool, employers should be vigilant to requests from part-timers to reduce working hours to retain dependent status.