Japan addresses wage gap by requiring gender pay gap disclosure

This summer, many Japanese companies took their first legally required steps toward joining the growing global movement to address gender inequality and promote equal opportunities in the workforce. The Act on Promotion of Women’s Participation and Advancement in the Workforce (Act), which took effect in 2022, mandates the public reporting of gender wage gaps within three months of the end of a company’s fiscal year.

As many Japanese companies end their fiscal year in March, most employers had until the end of June 2023 to disclose the gender gaps revealed in their 2022 wage data. This was the first year when such annual public disclosure was required by the Act.   

According to the Organization for Economic Cooperation and Development’s (OECD) gender wage gap data for 2022, Japan ranks as the 4th lowest out of 38 OECD countries with a gender wage gap calculated at 22.1 per cent. This gap can be attributed to the low rate of female managers in Japan (15 per cent) and the high percentage (50 per cent) of female employees who are either part-time or fixed-term employees. Because of this, and as one of the world's largest economies, Japan has taken significant steps to narrow the gender pay gap and enhance women's participation in the labor market.

One crucial initiative in this regard involved revisions to the Act imposing wage transparency obligations on Japanese companies.

Annual disclosure of pay gap

The Act, which took effect on July 8, 2022, requires that Japanese companies confront their gender wage gaps (the difference in pay between men and women) by public disclosure. For companies with more than 300 employees, the gender pay gap must be disclosed annually and within three months following the end of the fiscal year. The report needs to analyze the gender pay gap for the overall employee population as well as a separate analysis for specific employee groups, including regular employees (those on full-time indefinite contracts) and irregular employees (part-time and fixed-term employees).

These calculations include base wages, bonuses and allowances but can exclude severance pay and commuting allowances. The gender pay gap data can be disclosed on either the company’s own website or the government website to promote and advance women’s participation in the labor market). Beginning in January 2023, the gender pay gap data was also required to be included in annual securities reports for listed companies. Smaller companies are currently exempt from this portion of the law, but it may be extended to smaller companies in the future.

‘Action plans’ required

Companies with more 100 employees have been required to submit public annual gender-based “general employer action plans.” For employers with more than 300 employees, these plans must now include the gender pay gap analysis. According to the Act, action plans are to include defined goals, measures, and analyses of female employees’ activities and workplace challenges. In addition to being made available to the general public, action plans must also be submitted to prefectural labor bureaus for review.

Now more than ever, Japanese employers should take steps to review their compensation structures and policies to ensure they are fair and balanced, considering factors like performance evaluation criteria, promotion processes, and salary negotiation practices.

Employers should take the opportunity to identify any potential areas where gender biases may exist and take steps to address them to comply with the requirements now in place and in anticipation that more wage equity efforts may be on the horizon.

Aki Tanaka is a Shareholder on the APAC team at Littler Mendelson in Boston. Thelma Akpan is Of Counsel in the Pay Equity Core and Assessment Groups at Littler Mendolson in New York and Singapore. © Littler Mendelson. All rights reserved. Littler Mendelson® is a registered trademark of Littler Mendelson, P.C.