How Bonuses Are Calculated In Japan



It is totally plausible for foreigners to be confused when they work in Japan for the first time. The salary system, especially, can be a little bit complicated. Let’s say, after working for a couple of months, it's finally time to receive the highly-anticipated semi-annual bonus. However, it’s not as much as you expected. How can that happen?


Well, to answer that, you have to understand how a bonus is calculated in Japan.


Bonus system in Japanese companies

Japanese companies usually give semi-annual bonuses to their employees. There are summer bonuses paid in June or July and winter bonuses paid in December. The number of bonuses is based on the company’s profit, so it's not fixed. The summer bonus may be higher than the winter one because the company did well in that period, or vice versa.


Bonus is usually discretionary unless written otherwise in the contract. There is no particular scheme for determining bonuses that companies in Japan must follow. On top of the uncertain amount, the company also has the right to give it or not, depending on the company’s financial situation.


However, bonuses in Japan are more like deferred payments of subsistence wages. Almost all companies give bonuses due to common practice. That is why many Japanese employees take it for granted.


How are bonuses decided?

The employer determines the bonus by several factors. It may differ in each company, but there are some common factors. They are performance, industry, company size, job type, and working period.


Performance

Both company and individual performances are the main factors for calculating the bonus. The company's profit determines how many bonuses can be given to employees. In Japan, even companies at a loss still give bonuses. If that's the case, it is possible to get stock options instead of cash.


Individual performance also influences the amount of bonus. Even if some employees have the same wage, their bonuses may not. The differentials are obvious if you work in the sales or marketing division. The reason is that the sales contribution to the company’s revenue is clear and measurable.


Industry

The Japanese Ministry of Labor did a bonus survey in 2016. A total of 129 professions were surveyed. Here are the top 15 occupations with the highest bonuses in Japan.

As you can see, academics such as professors, assistant professors, and lecturers get huge bonuses. However, if the bonus is calculated with the basic wage, pilot and medical doctor are the highest paying jobs. So, a big bonus doesn’t always mean a high salary.


The Company Size

The amount of bonus can be directly set by the company or negotiated between the company and the workers. Small and start-up companies tend to determine the amount straight away. The bonus is usually equal to one to two monthly base salaries. In large companies, management and workers have a meeting to discuss the bonus amount. The bonus is usually equal to three to six monthly base salaries.


Job Type

Only a few companies gave bonuses to their contract or fixed-term workers. Even so, it’s usually smaller than full-time workers. However, this treatment has changed because of equal pay for equal work regulations in Japan. In October 2020, the Supreme Court decided that fixed-term employees are entitled to receive bonuses and retirement allowances, just like the full-time employees in their company.


Working Period

Bonuses in Japan are given two times a year. The summer bonus is based on financial evaluation from October to March of the previous year. The Winter bonus is based from April to September of the current year. So, if you are recruited in April, you won’t get the summer bonus for the first year. Also, if you resigned before the bonus giving date, you will not receive it.


What should you expect?

First things first, remember that a bonus is not guaranteed. From the employer’s point of view, giving a bonus is at their discretion. They can do it or not. The amount can be as much as four-month salaries worth or maybe just one month. However, there must be a logical calculation behind the bonus you received.


Next, rather than expecting a high bonus, it’s better to perform well to increase your basic wage. After all, the bonus is given as a percentage of your monthly salary. If your wage rises, the rest will follow.

 

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