Annual Income Barriers: Change System to Give Part-Timers Greater Incentives to Work More

Editorial

15:47 JST, September 28, 2023

It is undesirable for part-time workers to restrict their working hours because they are concerned about the social insurance system, even as labor shortages are becoming more serious. The system that dampens part-timers’ willingness to work must be changed.

The government has decided on measures to address the issue of so-called annual income barriers for part-time workers. The measures will be implemented starting next month.

When a part-time worker is a dependent of a full-time company employee or civil servant — usually meaning their spouse — there are negative consequences if the part-timer’s income exceeds a certain amount. Their take-home pay may be reduced due to the burden of social insurance premiums, or they may no longer be considered their spouse’s dependent. To avoid such outcomes, many of them limit their working hours to suppress their own income.

The measures this time come in response to requests from companies struggling with a shortage of part-time workers.

There are two main annual income barriers. One is the ¥1.06 million barrier, which requires workers to join employee pension plans and pay for health insurance. Another is the ¥1.3 million barrier, which disqualifies part-timers from being recognized as dependents of their spouses.

The government has established a subsidy for companies with regard to the ¥1.06 million barrier. If a company provides allowances or raises wages to compensate for the increased insurance premiums, the government will subsidize the cost by up to ¥500,000 per employee.

The government thus will essentially compensate employees for their new burden of insurance premiums. To secure a stable supply of human resources, it is hoped that companies will take advantage of this subsidy system and actively make efforts to raise wages.

For part-time workers, the benefits of the subsidy system will be significant. By enrolling in employee pension plans and health insurance, they will receive more generous pension benefits in their old age, as well as enhanced benefits in the event of injury or childbirth.

Also, regarding the ¥1.3 million barrier, part-time workers will be allowed to remain as dependents of their spouses for up to two consecutive years at the discretion of insurers, even if their annual income increases beyond ¥1.3 million. It is likely that this flexibility was approved in consideration of the fact that part-time workers’ annual incomes tend to fluctuate.

Whether it is the ¥1.06 million barrier or the ¥1.3 million barrier, the government’s new measures do not fundamentally solve the problem of annual income barriers’ existence.

In the first place, the problem of annual income barriers stems from a system for so-called Category III insured persons, which allows them to receive basic pension benefits even if they do not pay insurance premiums.

This system was introduced in 1986 to allow homemakers and others to have a basic pension plan in their own name, but it has long been argued that it is unfair that they can receive pension benefits without having to pay any contributions.

Ahead of pension system reform in 2025, the government has also begun discussions on what the Category III insured person system should be like. It is necessary to comprehensively consider the labor shortage and the social advancement of women, and put in place a system that suits the times.

(From The Yomiuri Shimbun, Sept. 28, 2023)