New Rules Require Japanese Companies to Disclose Their Gender Wage Gap

​In June, the Japanese government announced its framework policy plan called the "Framework Policies." The policies require Japanese companies to increase the transparency of their gender wage gap in two ways: (a) disclosing the wage gap on companies' websites or in other relevant methods, and (b) disclosing the wage gap in annual securities reports.

Japan was ranked 120th out of 156 in the 2021 edition of the Gender Gap Index, the lowest level among developed countries. The Organization for Economic Cooperation and Development (OECD) survey shows that the wage gap between men and women in Japan is 22.1 percent in 2021. The gap is much larger compared to 11.7 percent, which is the average of OECD countries in 2020. The new disclosure requirements are expected to encourage companies to increase the gender equality at workplace.

Wage Gap Disclosure Rules for Companies with More Than 301 Employees

From 2023, Japanese companies with more than 301 employees on a regular basis that fall within the categories of "large company" under the Act on Promotion of Women's Participation and Advancement in the Workplace (the "Act") will be required to disclose the wage gap between men and women on their websites or by other relevant methods. The Ministry of Health, Labor and Welfare expeditiously drafted the relevant revisions to the Ministerial Ordinance of the Act after the announcement of the policies in June.

According to the draft revisions to the Ministerial Ordinance of the Act, a large company shall disclose the wage gap calculated by dividing the average annual wage of women employees by the average annual wage of male employees. A large company shall disclose the wage gap in separate categories of (a) all workers, (b) regular employees who have full protections under labor law, and (c) irregular employees who have limited protections under labor law. The company needs to disclose its wage gap on a nonconsolidated basis.

According to media report, the new rules took effect in July. Therefore, a large company must disclose the wage gap from the first fiscal year on or after July. In Japan, most companies' fiscal year ends at the end of March. For those companies, they need to begin disclosing the wage gap of the current fiscal year from April 2022 to March 2023 after the fiscal year ends in 2023.

The Wage Gap Disclosure in the Annual Reports

The policies also require listed Japanese companies to disclose the wage gap between men and women in their annual securities reports in addition to the requirements under the Act. The policies identify that a wage gap has significance in companies' mid-term and long-term growth. The details of the new rules are under discussion at the Disclosure Working Group at the Financial Services Agency's Financial System Council (the "DWG"). A report by DWG points out that companies should disclose the gender wage gap at the "Status of Employees" section of the annual securities reports. According to media report, the new rules may be implemented from the fiscal year 2023, beginning April 2023 at the earliest.

With the new disclosure rules, Japanese companies need to improve their gender equality to attract favorable candidates in the job market as well as more investors in the securities market.

Yoshie Midorikawa is an attorney with Miura & Partners in Tokyo. © Miura & Partners. All rights reserved. Reposted with permission of Lexology.