For some time, the majority of married women working part-time in Japan have brought home annual pay of less than 1 million yen (around USD 9,150 at today’s exchange rates). This is largely the result of tax and compensation policies:
- At an annual income of 1.03 million yen, a part-time employee becomes subject to income tax, and their spouse loses the benefit of a 380,000 yen “spouse deduction” from their own taxable income. (Spouses are always taxed separately in Japan.)
- A majority of private sector employers pay “spouse allowances” to their full-time employees, and a majority of these employers tie eligibility to the tax deduction criteria. So if a part-timer crosses the 1.03 million yen income barrier, their full-time spouse may face a pay cut in addition to a tax hike.
- At an annual income of 1.06 million yen, many part-time employees are required to enroll in employer-provided health and pension insurance. Employer-provided health insurance is often significantly more expensive than the alternatives of either relying upon national health insurance, or being a dependent under a spouse’s employer-provided health insurance. While participating in pension insurance entitles the employee to collect a pension at a later date, it results in immediate deductions from take-home pay.
Due to these factors, a person making more than 1 million yen, particularly if they have a higher-earning spouse, may take home significantly less than a person at or below the 1 million yen barrier. As a result, some in this group (mostly composed of women) actively avoid making more than 1 million yen per year, such as by reducing their working hours.
The current government has been vocally promoting increased participation by women in the workforce, and has been making gradual efforts to ease these constraints. Earlier this year, there was discussion of abolishing the spouse deduction and replacing it with a joint deduction for married couples (subject to a household income limit). However, it was reported in October that this change is unlikely to become effective in 2017, and that instead the eligibility cut-off for the spouse deduction is likely to be raised to 1.5 million yen.
Meanwhile, the government and some major domestic employers have revamped their spouse and family allowance systems to remove allowances tied to having low-income spouses. It was reported this week that Nippon Keidanren, the influential federation of major Japanese companies, will formally request that its members consider reducing or eliminating spouse allowances in order to encourage more active workforce participation by married women.
Companies with a workforce in Japan may wish to keep an eye on these developments, as they are likely to have significant effects on recruiting and compensation practices.