Bankruptcies due to employees "resigning" will reach a record 87 in 2024, a significant increase from the previous record.

 

  The shakeout of small and medium-sized enterprises that cannot "raise wages" is likely to accelerate by 2025.

  Of the 342 cases of labor shortage bankruptcies identified in 2024, 87 cases were found to be "employee retirement-type" bankruptcies, which were caused directly or indirectly by the resignation of employees or senior management. That's an increase of 20 cases, or nearly 30 percent, from the previous year (67 cases), significantly higher than 2019 (71 cases), when labor shortages peaked in many industries, and the highest number since 2013, when the data was compiled.

  By industry, the largest number of "employee retirement-type" bankruptcies in 2024 was in the service industry (31 cases), accounting for 35.6% of the total. It was the first time in five years since 2019 that the service industry accounted for the largest number of bankruptcies among all industries. Software development and other IT industries, as well as temp agencies, beauty salons, and nursing homes, all of which tend to have lower retention rates than other industries and experience labor shortages, are particularly common.

  The next largest number of cases was in the "construction industry" (18 cases), where the retirement of employees with qualifications essential for business operations, such as designers and construction supervisors, made it difficult for companies to operate their businesses. The "Manufacturing" and "Transportation/Telecommunications" sectors had more than 10 cases per year for the first time, with a string of cases in which businesses were unable to operate due to the retirement of factory workers and drivers.

  Recently, employees who are struggling with prolonged price hikes are increasingly calling for wage increases. In response to this trend, consideration of continuous wage increases has spread from large companies to small and midsize firms. On the other hand, there are many small and medium-sized firms that want to raise wages but are unable to do so due to a lack of profitability, and the response to wage hikes is becoming increasingly polarized.

  However, as the mobility of human resources increases against the backdrop of a severe shortage of workers, the "risk of not improving compensation" is increasing, especially among small and medium-sized companies, as executives and employees who are fed up with unsatisfactory wage increases and management that is reluctant to improve compensation are resigning. As the trend of attracting good talent with high salaries through wage increases spreads through the labor market, there is a growing possibility that the number of "wage hardship bankruptcies," in which employees quit due to unsatisfactory wage increases, will increase in 2025.

Improvement of digital literacy, an essential measure to combat labor shortages

Many companies are taking various measures to address the growing labor shortage problem. According to a survey by the Japan Institute for Labor Policy and Training (JILPT), approximately 60% of companies in the retail and service industries are experiencing a labor shortage of full-time employees and are struggling to cope with the situation.

◆Improvement of operational efficiency through the use of ICT

According to the survey results, the most frequently implemented measure to address labor shortages is "streamlining and automating operations through the use of ICT," with approximately 75% of companies implementing this measure. In other industries, the introduction of RPA and the implementation of AI-based business support systems are progressing. In the future, it will be necessary to utilize AI and other technologies for simple and routine tasks, and have people focus on high-value-added operations.

◆Human resource development and digital literacy

Improving the skills of existing employees is essential to the success of manpower management. With the increasing digitization of business operations, improving employees' ICT literacy, and more broadly, their "digital literacy" will directly lead to strengthening the competitiveness of the company.

Digital literacy refers to a wide range of skills and abilities to understand and effectively use digital technologies in general. It includes ICT skills as well as knowledge and skills in information retrieval and evaluation, and privacy and security management.

The company must first clarify the objective of improving digital literacy and share it with all employees to unify awareness within the company. Then, it is necessary to set up a system to share knowledge and expertise on digital skills and to provide education.

◆Creating an environment in which diverse human resources can play an active role

On the other hand, the survey results also indicate that raising wages and diversifying recruitment methods at the time of job offerings and actively promoting the elderly, women, and foreign human resources are also important measures to address labor shortages. The establishment of these systems will be necessary for companies to survive.

Points to note when posting information regarding recruitment on social networking sites, etc.

◆Recruitment advertisements must indicate the name of the recruiter, etc.

Under the Employment Security Law, when providing information, etc. on recruitment through advertisements, etc., including those on the Internet and SNS such as X, false or misleading representations must not be made (Article 5-4).

Recently, there have been some cases of recruiting workers to commit crimes on the Internet (shady jobs), and some of these advertisements may be misleading as normal recruitment. 

The Ministry of Health, Labor and Welfare (MHLW) encourages employers to be sure to display the following six information when recruiting workers directly through SNS, etc.: (1) the name (or names) of the recruiter, (2) address, (3) contact information (telephone number, etc.), (4) job description, (5) work location, and (6) wages.

Q How far should "Address (Location)" be listed?

A Building name, floor number, and even room number must be listed.

Q What should be listed as "contact information"?

A You must provide either a phone number, email address, or a link to a dedicated contact form provided on your website.

Q Is it acceptable to include a link to the recruitment information on the company's website where the name and other information is listed, without including the name and other information itself?

A Since a link to a company's website may be misleading, including whether or not it is a job offer in the first place, it is necessary to include the above 6 information in the advertisement itself that provides the recruitment information.

Q Is it necessary to provide the same details regarding the nature of work, place of employment and wages as required by Article 5-3 of the Employment Security Law and Article 15 of the Labor Standards Law?

A Although the job descriptions do not necessarily have to be the same, the job description, work location, and wages should be described so that job seekers will not be misled. For example, the job location may be listed as "the place of employment immediately after hiring" without stating the "scope of change in the place of employment," or it may list multiple candidate sites and say "negotiable," or it may list the wages as "1,500 yen per hour or higher," but if these are listed, it is not considered an immediate violation of Article 5-4 of the Employment Security Law.

90% of companies in favor of revising the 1,030,000 yen barrier

◆What is the "1,030,000 yen barrier"?

In a corporate survey conducted by Teikoku Databank (1,691 validly responding companies) on raising the "1.03 million yen barrier," it was revealed that nearly 90% of the responding companies were in favor of revising the "1.03 million yen barrier.

The "1,030,000 yen barrier" refers to the fact that income tax is incurred when annual income exceeds 1,030,000 yen and is excluded from the spousal deduction. Some companies make it a requirement that this barrier not be exceeded in order to provide a spousal allowance. As a result, many part-time workers are conscious of this barrier and refrain from working, contributing to labor shortages for companies.

In this survey, 67.8% of companies agreed that the "¥1,030,000 barrier" should be raised, while 21.9% said it should be eliminated. This means that a total of 89.7% of companies are calling for a review of the current system.

◆Main opinions in the survey

Many companies have commented that raising the barriers will help to relieve the labor shortage by eliminating the need for part-time workers to work less. The recent increase in the minimum wage has also had the effect of shortening the working hours up to 1,030,000 yen. There is also an expectation that if the increase is realized, "consumption activity will be stimulated by the tax reduction effect. On the other hand, some are concerned about how to secure financial resources, saying, "Since there is also the 1.06 million yen and 1.3 million yen barrier for social insurance premiums, people will remain reluctant to work if only the income tax is reviewed.

◆Keep an eye on the latest trends and take action

There is a possibility of accelerated movement toward legal reform regarding the "barrier to annual income," including the 1.03 million yen barrier. It is important for companies to keep a close eye on the latest developments and take appropriate measures to ensure that employees can work with peace of mind.

Criteria for Determination of Managerial Supervisory Status

The applicability of a managerial supervisor as defined in Article 41 of the Labor Standards Law is determined by comprehensively considering the following points. 

1. duties, responsibilities and level of authority

2. working style - existence and extent of discretionary working hours and working time management

3. wages and other benefits

◆duties, authority and level of responsibility

Whether or not a person is considered a managerial supervisor is not determined solely by his/her position or title within the company. It is determined based on whether or not the employee is actually in a "position that is integral to management.

◆working style

The following provisions apply to the working style.

"The actual working conditions must also be such that they do not conform to the regulations on working hours, etc."

Managers and supervisors need to have discretion in their own work. This is because strict time management is not conducive to management decisions and responses.

◆wages and other benefits

"Wages and other benefits appropriate to the position."

Managers and supervisors must be treated appropriately for their position. Due to the importance of their duties, they need to be treated appropriately in terms of salary, bonuses, position benefits, etc., compared to regular workers. Even if the annual salary is 6 or 7 million yen, it may be argued that the employee is not a managerial supervisor.

Thus, the requirements for "supervisors" under the Labor Standards Law are quite strict for companies, and it is extremely rare for a manager of a small or medium-sized company to fall under this category if the case goes to court.

◆Scrutiny from the Labor Standards Inspection Office

The Labor Standards Inspection Office will take immediate action in cases of ordinary unpaid overtime. However, as the issue of managers and supervisors is considered to be a matter of the company's personnel rights, the officer may urge the matter to be resolved in court or to implement improvements in the form of guidance. 

It is therefore important for a company to provide clarity on how it positions its managers and supervisors within the organization and to set out its stance on overtime payment to employees other than managers and supervisors.

Points to be noted in the Certificate of Employment for April 2025 Daycare Center Admission Applications

◆Address the issue of "the selection failure on purpose"

　The new format for employment certificates was established on September 30, and applications are being accepted on a rolling basis from October 1.

　The problem of "the selection failure on purpose" who apply to highly competitive daycare centers in order to extend their childcare leave has been raised, and action has been called for.

◆Changes in Forms

　The new form has the following five additional columns:

(1) Should childcare leave be shortened at the time of an offer of admission

(2) Should childcare extend

(3) Duration of single assignment (including planned)

(4) Remarks

(5) Parent's entry column (child's name, date of birth, facility name, check box regarding use/application status)

　In addition, some municipalities require companies to submit a separate sheet of paper with the status regarding night shifts, similar to a certificate of employment.

◆Requirements and procedures for extending the payment period of childcare leave benefits were also reviewed

　As a countermeasure against the above-mentioned "the selection failure on purpose," effective April 1, 2025, the procedure for extending the period of childcare leave benefits will be revised, and a copy of the employee's declaration and application for use of a daycare center, etc. will also be submitted to Hello Work (the Public Employment Security Office).

　In addition, as a condition for receiving the allowance, the director of Hello Work must recognize that the applicant's application to the municipality is a request to use childcare services at a daycare center in order to return to work as soon as possible.

　The provisions will apply to cases where the child involved in the childcare leave reaches 1 year or 1 year and 6 months of age on or after April 1, 2025, so it is advisable to inform those taking childcare leave who fall under this category.

Ministry of Health, Labor, and Welfare provides guidance to "spot work" application providers

The Ministry of Health, Labor, and Welfare (MHLW) has issued a directive to an app provider that connects companies and workers to "spot work," a one-time, short-time job, after the company indefinitely suspended the use of the app by workers. The application is designed to prevent the use of the application indefinitely in the event that an individual fails to report to work without notice, or so-called "AWOL," and is in violation of the Employment Security Law.

Spot work, also called skim work, matches workers with employers via a smartphone app.

The number of users is growing rapidly, and according to the Spot Work Association, as of October of this year, the total number of workers registered with the four main services reached 20 million. The number has doubled in the past year.

In some cases, these applications have a policy that if an applicant fails to contact the company and is unable to commence work, they will then be unable to apply through the application process indefinitely.

On the other hand, the main application operators are licensed as "fee-charging employment agencies" by the Minister of Health, Labor and Welfare. Based on the Employment Security Law, they must accept all job applications except those with illegal content.

Therefore, the Ministry of Health, Labor and Welfare (MHLW) has instructed some app operators on the grounds that indefinite suspension of use for workers is in violation of the Employment Security Law.

Shigeru Wakita, professor emeritus at Ryukoku University made the following observation:  "It is only the companies that seek workers who enter into employment contracts that are able to impose sanctions on the worker. There is no legal basis for penalties such as suspending the use of the app by job seekers imposed by employment agencies that have no employment responsibilities.  Restricting the use of the app for late arrivals and cancellations is an attempt to secure convenient workers for the companies, which misunderstands the purpose of the employment agency system."

October 14, Asahi Newspaper