How Bonuses Are calculated in Japan: Will You Receive One?
Lio
In Japan, bonuses are a key part of many employees' compensation packages, in addition to their regular monthly salary. Typically referred to as "bonuses" or "summer/winter bonuses," they are usually paid twice a year—in June and December.
Bonuses in Japan are not legally mandated, meaning there is no obligation for employers to pay them under minimum wage laws. Instead, they are generally provided at the employer's discretion.
According to the Ministry of Health, Labour and Welfare, a "bonus" is defined as:
“Payments made on a regular or occasional basis depending on factors such as the employee’s performance or the company’s financial condition. The amount is not predetermined.”
「賞与」
定期又は臨時に労働者の勤務成績、経営状態等に応じて支給され、その額があらかじめ確定されていないものをいう。
「Bonus」
This refers to payments that are made regularly or temporarily according to the worker's work performance, business conditions, etc., and the amount of which is not fixed in advance.
Ministry of Health, Labour and Welfare,
How company decide amount of "Bonus"?
The amount of a bonus in Japan is influenced by several factors, including the company’s performance, the employee’s job performance, and their length of service. Bonuses are typically calculated as a percentage of the employee's base salary, often ranging from the equivalent of one to several months' salary, and in some cases, even exceeding a year’s worth.
How bonuses are determined varies depending on the size of the company:
For small businesses and start-ups, the decision is often left to management. Bonuses in these companies tend to fluctuate based on profitability. If the company performs well, bonuses may be generous; otherwise, they might be more modest, typically around one to two months' worth of salary. In some start-ups, employees may receive stock options or equity instead of traditional cash bonuses.
In large corporations with in-house labor unions, bonus decisions are typically negotiated between management and employees during annual discussions held in the spring, around March. These negotiations determine whether bonuses will be equivalent to, for example, three or four months’ salary.
Below is an example of how bonuses are agreed upon through such discussions.
Mitsubishi Electric responds to full lump sum payment 5.7 months a year, baseup 1000 yen
For large Japanese companies, it's usually between 3 and 6 months` worth range.
The amount of the bonus in Japan
From the worker's point of view, Japanese people take it for granted that they can get bonuses. Many people take it for granted as part of their living expenses. Although the payment is not legally guaranteed, many Japanese recognize it as a long-standing practice. So if management sets the bonus payment to zero for some reason, there will be a big discord.
Also, in Japanese companies, trade unions often play a major role in bonus negotiations, so workers' bonuses are rarely reduced significantly. On the other hand, for managers, there are no restrictions, so if management becomes difficult, the bonus will be cut off immediately.
It’s important to understand that bonuses in Japan are not distributed equally among employees. The total bonus amount is determined as a pool to be distributed among union members, but individual payouts are often adjusted based on performance evaluations. This means that even if the union and management agree on a bonus equivalent to four months’ salary, it doesn’t guarantee that every employee will receive exactly that amount.
For employees at large Japanese companies, bonuses are typically paid in two installments, usually in June and December. The payment level agreed upon by the union and management is divided into these two payments. Of course, bonuses are subject to deductions for taxes and social insurance premiums, so the actual amount received will be less than the gross figure.
From a worker’s perspective, bonuses are often considered a given and are integrated into household budgeting. While not legally mandated, bonuses are viewed as a long-standing practice in Japan. If, for any reason, management decides to reduce or eliminate bonuses, it can lead to significant discord and dissatisfaction among employees.
In many Japanese companies, labor unions play a crucial role in bonus negotiations, which helps to ensure that bonuses for regular employees are not drastically reduced. However, managers are usually not protected by union agreements, and their bonuses may be the first to be cut if the company faces financial difficulties.
Other unique aspects
A distinctive feature of bonuses in Japan is that they are often treated as a regular part of an employee’s income rather than a one-off payment. Because of this, bonuses are included in various financial assessments, such as taxes and loan applications. For instance, when applying for a mortgage, an employee’s bonus income is typically considered when evaluating their eligibility and determining the loan amount they can receive.
Conclusion
As of 2024, the tradition of paying bonuses twice a year, particularly among large corporations, remains unchanged. The amounts, typically equivalent to three to six months of salary, are determined through labor-management negotiations. Bonuses are generally paid unless the company is experiencing severe financial difficulties. (Notable exceptions include cases like certain struggling major electronics manufacturers, which once issued bonuses in the form of products instead of cash.) This long-standing custom of bonuses is expected to continue in Japan for the foreseeable future.
Writer and Editor: Lio, Japanese career consultant
Lio is a nationally licensed career consultant in Japan. He holds the Level 1 SEO Certification and is a certified web analyst. Born in Japan, he has lived in four countries, gaining an understanding of various cultures while being well-versed in Japan's unique work culture and language. With 25 years of experience in HR at both Japanese and multinational companies, he leverages his expertise to support individuals seeking to work in Japan
