Redundancy - Anyone gone through the process in Japan?

[TokyoSurvivor]

Hello All

I'm about to find myself on the redundancy path and was wondering what experiences people have had as a foreigner in Japan?

My situation is:
- Been working as an employee in Japan for more than 10 years
- Spouse visa (was employee but could see redundancy possibility a couple of years back and changed)

I want to make a list of what I need to prepare for and hear about what people who have been through it would have done differently.

Things to start of with such as:

- Negotiating severance package
- Unemployment Benefit
- Health Insurance

Cheers

[Moneymatters]

Sorry to hear. It’s happened to me and many of my close friends. Some of them multiple times.

I’m sure you know this but just in case.

You can record conversations here without informing the other party.
To make someone redundant the company MUST satisfy ALL these requirements.

The employee is not deemed “necessary” for business operations
The company demonstrates making an effort to avoid termination
The company’s selection of personnel is deemed “appropriate”
The company has given sufficient explanation to the employee

That second point covers such things as reducing executive compensation!

Without knowing your industry it’s hard to offer advice other than sign nothing.
10 months salary might be reasonable if you are working for a decent sized company.

You can negotiate from a position of some strength but at a point the company can just make a unilateral decision. Even if you then ask the labor board to intervene they will invite the company to join a mediation but the company can just refuse and you’ll need to engage a lawyer to represent you.

As they try to push things you could offer to assume a different role in the company. This could make them realise you are quite well informed.

Unemployment insurance is paid for a duration linked to your age and how long you’ve contributed into the unemployment insurance scheme. First table at this link.
And capped at a daily amount based on age. Second table on same link.
https://ten-navi.com/hacks/article-546-45454

To start receiving the payments immediately you’ll need severance documentation from your employer showing the parting was at their convenience “会社都合”. They can do this even though you’ll actually be signing to show you are leaving by choice.

There are other things you can request to sweeten the deal as it were. Ask them to pay for outplacement services, gardening leave, partially accrued bonuses.
Remember, any severance will be treated as a retirement allowance and taxed favorably but share the allowance with any retirement payment already stipulated in your employee handbook.

Oh. Be sure to demonstrate a willingness to work at all times. Eg if they verbally tell you not to come in from tomorrow ask for that in writing. If they refuse then tell them you’ll see them tomorrow and turn up to the office. If they refuse entry take a selfie. Do that each day.
It’s likely they’ll show you an offer but won’t let you take it away unless you’ve signed it.
Remember, they can’t coerce you to sign with threats but they might say things like. “We might not be able to make such a generous offer in the future”..

Good luck.

[TokyoSurvivor]

Thank you Moneymatters for the useful information.

So, it’s underway. You are right about being shown a draft offer and not being allowed to take it away. To be honest I was caught by surprise in the first meeting and did not record it.

The company were not confrontational about it, and explained their situation (I get on well with my manager anyway). I am also not the only one in this position, and this is in fact happening globally.

The offer is basically the following:
- Annual salary x 1.6
- Compensation for each day unused annual leave

Followed by gardening leave for a few months.

Compared to what I’ve heard from other's experiences in Japan, this offer sounds reasonable (although yet to have it in writing).
Nothing signed yet of course.

As this is their first offer, some say negotiate. Opinions on that?

Also, I want to leave on good terms and don't want to burn bridges with the company because you never know in the future.

After that, the next step such as unemployment benefit, health care etc.

The link for "Unemployment Insurance" looks very useful and is something I had not looked into at all. From first glance I fall into the 270 days bracket which if I'm correct is a very nice surprise.

A lot to think about!

[Moneymatters]

The offer is basically the following:

You might want to edit and remove some specifics of the offer. It could be identifying.

The offer on face value looks reasonable. But if you don’t have a taishokukin on top of this they are likely trying to compensate for that if challenged. If it’s a bunch of people then it should be a well funded exercise with a lot of visibility so increased need for it to go smoothly. (As against a dept just trying to address a local matter).

If it were a Japanese company and they have people over age 50 then this is basically an early retirement discussion in Japan and a traditional company might be offering 35+ months..
Although Tax wise that 1.6 years could feel closer to 2 years net salary..
If it’s a huge listed company I don’t see that offer being reduced just because you haggle for more. But also I don’t trust the things I say to myself in the mirror. “You’re a stable genius MM..”

Domestic or foreign, they likely won’t have much room to wiggle on the calc for severance. Obviously you can protract the discussion. Even visit a doctor get signed off for 6 months of mental health leave. Or maybe you could request for more gardening leave. You could even request some unpaid gardening leave if “looking employed” is important to you.

Oh, I’m sure you know you’ll be stuck with a resident tax bill for about 18 months.
All of 2023 which they’ll start deducting from June. You can ask them how they’ll handle that in July.
And you are accruing some resident tax liability since January of this year.

[captainspoke]

If it's a modestly larger company, wouldn't severance be on a chart in the company rulebook? Altho it may be unusual, my smallish uni did have such a chart--years of service in successive rows down the left, then maybe 4-5 columns, the heading of each for a different type of separation.

One column for if the employee quit on their own, one for reaching official retirement age, another if you happened to die before that, and IIRC, one for if they were asking you to leave. Each cell for the years worked and type of separation, row x column, had a different number in it, which was a multiple of a worker's monthly salary.

A personal POV, but if they're offering a premium over what severance would be if it happened to be normal retirement age, I'd think that deal (the severance aspect) would at least be in positive territory.

[Tkydon]

Some of the Money Stuff, you need to know:

1. As Moneymatters said, if they make you redundant due to the company's situation, you are immediately entitled to apply for Unemployment Benefit, 7 days after your last day, and the duration will depend on how long you were employed and paying Unemployment Insurance Premiums, up to a maximum of about 300 calendar days (including weekends and public holidays (I forget the exact number), and up to a maximum of about Y230k per 28 day period...
If it was by your own choice, you would have to wait 90 days before you could apply...

2. You will be on the hook for Residents' Taxes - You are currently still paying Residents' Taxes for 2022 income, and you still owe (as of April) a couple of months, for which City Hall will send you payment slips... and you will receive the bill for 2023 Residents' Taxes in June, at 10% of total 2023 Taxable Income, payable in one shot or 4 quarterly installments, unless you find a new job and start paying it monthly again from payroll.

10% of 2023 Income payable in June/July 2024,
or
10% of 2023 Income / 4 payable in July, Sept, Jan and April 2025.

If you leave after June, you will still owe the outstanding tax for 2023 that hasn't already been paid through Payroll, and you will see a bill for Residents' Taxes at 10% of 2024 Total Taxable Income in June 2025.

3. You currently pay half of your Household Health Insurance Premium and your Employer Pays Half, up to a maximum of about Y1M per year (about Y500k each), divided by 12 (or max about Y43,000 per month)... This is currently based again on 2022 Income, and will be reassessed in May on 2023 Income at about 12% of Household Income up to a maximum of about Y1M (or about Y86,000 per month)...
If your employer provides Private Health Insurance Union coverage, you may have a narrow window to take the opportunity (60 days) to apply to continue with that provider, or you can switch to the National Health Insurance Plan, until you find another job, when the new employer may offer another plan.
Both Premiums, Private or National, will be based for the next year (May to April) on 2023 Total Taxable Income. You will have to pay the total premium, so double what you are currently paying, as you will also have to pay the employer's half, up to the maximum of about Y1M (or about Y86,000 per month)...
If you are still with the Private Provider, the premiums are payable every month (12 months of the year) and will stay high for the maximum of 2 years' extended coverage.
If you go with the National Health Insurance, the premiums are payable every month (but only 10 months of the year - June to March) and will remain high until March 2025, but will then fall from June 2025 as they will then be based on 2024 Total Household Income, which will probably be lower...

You would need to do the calculations, but it may be cheaper to stick with your current provider for the first year, and then switch to NHI for the second year, when the NHI Premiums will drop, assuming you haven't found a new job and switched to the new employer's plan.
Remember, you are comparing 12 payments of Private against 10 payments of NHI for the same 1 Full Year of coverage.

4. You will be responsible for your own Pension Payments - Your Employer currently pays Half of your 18.3% of Gross Income National Employee Pension Insurance - Kosei Nenkin, and you pay half (9.15% each). While you are unemployed, you will switch to the National Basic Pension - Kiso Nenkin, and the monthly contribution is currently Y16,520 per month. You can opt for the addition cover - Fuka Nenkin at an additional Y400 per month if you wish. There is a slight discount if you pay in bulk.

5. Negotiation - It depends on the employer, the situation, and what they offer you in the first place. You should consult a lawyer, and probably go to the Labour Relations Office, and you shouldn't sign anything until you are certain of your rights.

6. If you receive a package, there is a special taxation system on this Taishokukin - Retirement Lump Sum, completely separate than any other Income Tax calculations for any tax year...
As you have been there for 10+ Years = 11 Years for calculation,
You are entitled to the Special Tax Deduction of Y400,000 per year x 11 years = Y4.4M, so anything up to Y4.4M would be completely Tax Free.
Anything over Y4.4M, you would then divide by 2, and apply standard Marginal Tax Rates, so the taxation is very low compared to normal salary income tax rates.

Income Tax Rates 総所得金額の合計、復興特別所得税、住民税の税率
Band (Taxable Income) = Marginal Tax rate (％) National + Reconstruction + Residents' Taxes = Total
Under 1,950,000 = 5% + 0.105% + 10% = 15.105%
1,950,000 to 3,300,000 = 10% + 0.21% + 10% = 20.21%
3,300,000 to 6,950,000 = 20% + 0.42% + 10% = 30.42%
6,950,000 to 9,000,000 = 23% + 0.483% + 10% = 33.483%
9,000,000 to 18,000,000 = 33% + 0.693% + 10% = 43.693%
18,000,000 to 40,000,000 = 40% + 0.84% + 10% = 50.84%
Over 40,000,000 = 45% + 0.945% + 10% = 55.945%

So on the amount over Y4.4M, that is actually double the Band Width, and Half the Band Tax Rate, due to dividing it by 2.
So, actually 0% on first Y4.4M, 7.5% on next Y3.9M, 10.1% on next Y2.7M, 15.21% on next Y7.3m, etc..

This tax will be fully handled and withheld by the employer, and you will be given a Certificate of Withholding - Gensen Choshu Hyo, and so you will probably not need to file a tax return for this. You may still need to file a tax return for any other income in 2024.

[TokyoSurvivor]

Thanks Tkydon.

A lot of useful stuff to go through there! Will get a spreadsheet set up to work out where I land with all the figures.

Interestingly I am hearing some colleagues plan to not accept the offer as it is now. Will be interesting how that plays out.

Cheers

[Tkydon]

Thanks Tkydon.

A lot of useful stuff to go through there! Will get a spreadsheet set up to work out where I land with all the figures.

Interestingly I am hearing some colleagues plan to not accept the offer as it is now. Will be interesting how that plays out.

Cheers

You should speak with a lawyer, and with the Labour Relations Office, and do not sign anything until you know your rights, etc..

If you engage a lawyer, it will become an individual negotiation.

[TokyoSurvivor]

Thanks for all the good advice.

The full payoff works out at about two years salary, and at the special retirement tax rate, sounds pretty fair.

So as things stand now I'll very likely take it.

[Tkydon]

More Money Stuff

If your company has a Corporate Defined Contribution Plan - Japan 401k - You will not be able to withdraw it at this time, but you will have to leave it to ride until 60 or later retirement, but you can transfer the whole amount of a Japan 401k Corporate DeCo to an iDeCo. You have I think 6 months to do the transfer, or they will put it in some crappy default option...
Do it soon, so that you regain control over those assets, and you can continue to fund the iDeCo at Y68,000 per month.
It will then be Tax Free Transfer - Tax Free Switching - Entirely Tax Free until retirement... Taxable only on Disbursements in Retirement.