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The future of contract work in Japan: First steps to change

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By Casey Wahl

This is the third and final article in a series exploring contract employment in Japan.

In the first two articles of this series, we looked at the benefits of contracting and made predictions about the future direction of contract employment in Japan. This article will consider some of the technical aspects of contracting and offer some suggestions on how modifications to the present regulatory framework could help make the system more effective and socially acceptable in Japan.

Under current regulations, prospective employers are technically not allowed to conduct interviews for "haken" positions since "haken" staff are defined as “dispatch workers.” Agencies are expected to dispatch an appropriately skilled worker to the role, sight-unseen and untested in response to a job description. Of course, very few companies are willing to take on an employee without some sort of interview. In practice, nearly every company holds interviews for "haken" roles, just not in name – instead they conduct “introductory meetings” with candidates. The necessity for this kind of subterfuge casts a shadow over the "haken" process and contributes to the stigma attached to contract employment. Easing the restrictions on interviews for "haken" employees would add more legitimacy to "haken" itself and go some way to eliminating the isolated image of "haken" in the labor market.

Another more substantial aspect of Japanese contracting law that many would like to see changed is the division between "haken" and "ukeoi" styles of contract employment. Simply put, "ukeoi" is a much freer style of contract employment where the individual operates as an independent contractor. Under "ukeoi," the independent contractor is not required to pay into the Japanese National Health Care and Pension systems, which is mandatory under "haken" contracts. There are also tax advantages to being an independent contractor. If the individual were to take the further step of establishing their own company (as is frequently done in more mature contract markets, such as the UK) and making a contract between their company and an agency, any business-related expenses, which may include transportation, meals, and even housing, can usually be written off for tax purposes.

In contrast, "haken" is considerably more restrictive and regulated. In addition to the higher cost burden to all parties because of the requirement to pay into the National Health and Pension systems, there are only a limited number of types of positions that can legally be employed on "haken" – 26 to be exact. By contrast, with "ukeoi," nearly any type of position can be employed, including construction, dock work and other security-risk jobs, which are clearly excluded under "haken."

Companies that hire contractors also tend to prefer "ukeoi" because it typically does not affect official head count, whereas "haken" does. Without head count considerations, the approval processes are easier and funds can be paid out of project budgets rather than through central payroll. This all adds up to "ukeoi" being advantageous to individual contractors and the contracting companies, as it offers more flexibility and potentially higher pay to the contractor.

Despite all of these advantages, "ukeoi" contracts are not as prevalent as they could be. The reason for this is a provision buried deep in contracting law which leads to a somewhat counter-intuitive and counterproductive chain of command between employers, agencies, and contractors. Under "ukeoi" contracts, the dispatching agency must manage the contractor, while maintaining proof that they are giving the contractor work instructions. The company where the contractor is actually working is not allowed to give any direction whatsoever. This is a problematic management issue, as companies do not want to lose their ability to give directions to onsite contractors.

Furthermore, agencies are not typically capable or qualified to manage IT, accounting, legal or other contract specialists. Penalties for violating this regulation include fines, court orders for the agency to halt all business activities, or a revocation of the agency’s contract license. The government has been taking violations of these provisions very seriously. In 2007, the government ordered Goodwill Inc, a Japanese temporary staffing agency, to suspend all business activities for 6 months for several related violations. Employers want a system that allows them to directly manage their workers. Realigning how employers are allowed to manage contractors could facilitate this. It might also help enhance the appeal of hiring contract employees and eventually lead to a corresponding increase in compensation for contractors.

At times, contract employment law in Japan can be complicated. There is no single government agency that is responsible for overseeing the implementation of "haken" laws in Japan. Regulatory responsibility is spread across several different government agencies and departments. This lack of centralization coupled with complicated and occasionally contradictory regulations make contracting problematic to implement in all its forms and to the detriment of all parties. If responsibility for all aspects of contract employment law and regulation were to be centralized in a single government body it could help make the system easier to understand, implement, and regulate.

We have discussed three aspects of contracting in Japan and offered suggestions on modifications to the present regulatory framework in Japan: Interviews for "haken" employees; division between "haken" and "ukeoi" styles of contract employment, and; chain of command between employers, agencies, and contractors. Taking these first few steps could help make the system more effective and would be a real step toward addressing the negative stigma that "haken," and contracting in general, hold in Japan.

The system will only evolve once enough stakeholders in contract employment - companies that employ contractors, contracting agencies, and contracting individuals - understand the issues facing contract employment in Japan, although it won’t happen overnight. That said, there are signs that things are moving in the right direction for contracting overall. The Diet is currently reviewing a bill that, if passed, would provide companies with one million yen in government compensation for every "haken" employee converted to permanent status. This should provide contractors with more stability and recognition and is a sign the government is taking the right steps toward improving the viability of contract employment in Japan.

Casey Wahl is director of the Contract Division at Robert Walters, Japan’s largest foreign-owned specialist recruiter.

© Japan Today

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12 Comments
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Contract work for individual workers stinks under any name as it is just exploitation. All individual contracts between companies and employees are an unequal arrangement that only benifit employees above middle management levels. Best name for them would be "Buy Temporary Slave Cheap" because in most cases this is what most companies are trying to do.

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Haken is bad enough - if a worker is getting paid 1500 yen an hour by the haken gaisha, the company is paying the haken gaisha 2000 yen+ for the privilege. Don't know why companies don't just contract directly, most of the time.

Ukeoi is even worse, sort of like a hired chain-gang who roll up and do some work, then leave again.

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Do you guys not know about the three year law that makes firing people almost impossible? Companies don't want to hire folks they won't need all the time. Why should they hire people full time when pretty much anyone can do the job and be cheaper than a FT worker? If you look at dispatch jobs they are generally prety easy to learn, do and forget. Not much training or skill is needed. If there was, it would be worth making those folks FT but many dispatch jobs are pretty easy - heck look at ALT dispatch companies for example. Little skills, little knowledge and anyone can do it. Heck, you don't even have to be a native speaker anymore! My old company used dispatch workers and they were all paid what they were worth and for the job they did. They would finish the contract and we'd get a new one in, have them trained in a week and so on and so on. No need to hire them FT, give them pay raises and benefits year after year when they aren't really worth it. If you ran a company I think you would feel differently.

That isn't to say I "agree" with the rules and while I think dispatch can certainly suck, the folks who generally work for such companies do so because they don't want the stress of a FT job or don't have the education or skill level needed for a FT job. OLs are famous for this - Tandai or easy degree that didn't require much to graduate. Clock in at 9. Clock out at 5 and head to the tea/cake shops with other OLs or head home and live with mommy and daddy until married. When married they quit work and have kids. When asked to become FT they say no because they like working a few months on, a month off (to travel of course) and don't want to work overtime. I know more than a few women who claim this and have seen it happen first hand. I certainly wouldn't pay benefits for a person who has no interest in staying with the company longterm. More so, I wouldn't pay for benefits for someone with such little motivation.

As for the men who are in dispatch... I don't think it is the same in terms of numbers who think like the OL but there are a lot who make bad choices when younger who are "stuck". However, there are ways of getting for FT jobs - or at least there were jobs out there before. Education and training up. Those with the skills, knowledge and motivation get out of dispatch work. Those without...

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Why is full-time work considered the end-all, be-all of employment in Japan? I am most definitely not on the management side, and often wonder how much more efficient things would be if everyone was truly responsible and empowered to take control of their own productivity. Of course, right now contract workers are sort of second-class citizens compared to the entitled workers huddled under the umbrella of labour unions and cushy laws. But perhaps the move towards more contract employment is not so much a sign of "corporate exploitation" but merely an admission that the full-time employment system isn't quite compatible with the realities of international competition.

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Why is full-time work considered the end-all, be-all of employment in Japan?"

Because as I mentioned it is next to impossible to fire someone who is FT. Doesn't matter how slack they are, how many problems they cause... the law is pretty much on their side. I think if Japan changed these laws/thinking there wouldn't be so many dispatch issues.

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There is something growing in popularity known as a "career portfolio" where one person works at 2 sometimes 3 companies at a time on a contract basis. As Japan follows the world into this depression, you will see more companies farming out sections of work in a "just in time" mindset for staffing. Don't think so? Look into the ideas of "work-sharing" that have started in the government here. Like I have written before, for 1,000`s here in Tokyo, haken will be the only choice for many in the tough years to come. Plan, earn, save and prepare.

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"Plan, earn, save and prepare."

I agree. Would also add in "study".

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Hello 'tmarie'

Do you guys not know about the three year law that makes firing people almost impossible?

I'm not aware of this one, could you provide some more info please, since it could be to the benefit of many here, given the current times...

Thanks

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Genral info http://info.pref.fukui.jp/kokusai/tagengo/html_e/konnatoki/3sigoto/e_hourei/roudou.html If you ask around the Japanese will tell you about this - I can't find anything online that states" You can't be fired" but it is pretty much the way it is. Add in unions and well...

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In Australia if you are highly talented and skilled you earn 3 times more money as a contractor, completely control your own holiday periods, bypassing all the crappy full time politics of working FT. FT work is for chumps.

Get a global skill. Contract global.

Even better, become an entrepreneur and create a virtual business that requires less than 4 hours or even 0 hours a week to run....like me. Live anywhere and do anything you like.

Don't be a chump.

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The 3 year law is the maximum you can have a haken staff onsite for one job. That is why there is a lot talk of the "2009 mondai" which is the 3 year milestone after the limit of 1 year maximum haken was bumped up to 3 years back in 06. April 1st 2009 will be the day 1,000's more contractually finish their agreements and can't complain even if they wanted to. And yes, you can fire people and you can be fired. SPACE MONKEY- Spot on mate, could not have said it better myself!

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MMWK2008, if you have a question contact me via my website: www.smartpartners.co.jp happy to offer what advice I can, cheers.

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