Japanese Prime Minister Fumio Kishida explaining measures to address the "annual income barrier" on September 25 at the Prime Minister's Office. (©Kyodo)
The Fumio Kishida administration has adopted measures to deal with the issue of the "annual income wall." They are part of a new economic stimulus package.
Currently, when the annual income of part-time employees who are supported by their spouses exceeds a certain amount, they are required to pay social insurance premiums. These include pension contributions. Therefore, the "annual income wall" reduces take-home pay.
The new policies are designed to prevent such loss of income. This will create an environment in which people will choose to work for longer.
A Major Disincentive
The shortage of workers is becoming increasingly acute as Japan's population contracts. But even if companies raise wages, as things now stand, employees tend to curb the number of hours they work to avoid the "wall." The proposed government measures are designed to break down this impediment.
The wage increase trend is already evident in large companies. But it needs to extend to small-, medium-, and micro-enterprises as well. This, in turn, will help secure sufficient labor for the nation, which is essential for quickly achieving a robust economy.
In order to attain these goals, the government must make companies and employees aware of the new system and encourage its smooth operation.
The Annual Income Wall
The "annual income wall" varies according to company size.
For companies with fewer than 100 employees, those who earn an annual income of over ¥1.3 million JPY (around $8,700 USD) are not considered dependents. Consequently, they are liable for social insurance premiums.
For this reason, the government proposes to continue to allow such employees to qualify as dependents for up to two consecutive years even after their income exceeds ¥1.3 million JPY.
Clearer Rules
Even under the current system, a temporary rise in income does not necessarily result in loss of dependent status. However, under what circumstances this applies remains vague. It is hoped that by clarifying the period of applicability as "up to two years," the system will work more smoothly.
Meanwhile, for companies with 101 or more employees, the social insurance premium burden is imposed on employees with an annual income exceeding ¥1.06 million JPY (around $7,100 USD).
The government is also planning to provide subsidies of up to ¥500,000 JPY (around $3,300 USD) per employee to companies that take measures to prevent a decrease in take-home pay. It hopes that this will encourage employees to increase their work hours.
A Late Start
The government expects to implement these measures sequentially starting in October. The timing for implementation is likely meant to coincide with the increase in the minimum wage in various regions. However, that leaves very little time to publicize the changes before implementation, which is a cause for concern.
Considering that the minimum wage is revised around October every year, the government's response this time comes very late. The government should therefore do everything in its power to ensure that there is no confusion among business enterprises.
This time, the primary goal is to alleviate the pressing issue of labor shortages. The government must make it clear that this is a temporary measure to achieve that goal. To do this, it must try to gain the understanding of the public as well as the business community.
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(Read the editorial in Japanese.)
Author: Editorial Board, The Sankei Shimbun
