One unfiled form made every hour of our crunch illegal — the 7 steps I now run on Japan overtime

The form was sitting in a folder, signed, complete and never filed. We found it during an unrelated audit, roughly eleven months after our first release crunch. Every overtime hour worked in that window had been unlawful — not because anyone was overworked in an egregious way, and not because we underpaid, but because the piece of paper that makes overtime legal in Japan had never reached the Labour Standards Inspection Office.

This is the most common compliance failure I see among foreign companies building engineering teams in Tokyo, and it is entirely avoidable. Here are the seven steps, in order.

Step 1 — Establish the statutory baseline

The Labour Standards Act sets working hours at 8 hours per day and 40 hours per week. That is the legal ceiling in its default state — not a target, not a guideline.

To lawfully require work beyond that limit, or work on statutory days off, an employer must conclude a labour-management agreement under Article 36 of the Act — the saburoku kyotei, named for the article number — and file it with the Labour Standards Inspection Office.

The point people miss: the agreement is not a document that legitimises overtime after the fact, and it is not satisfied by paying premium rates. Without it on file, a single minute past the statutory limit is a violation. Paying correctly and filing correctly are two separate obligations, and companies routinely do the first while neglecting the second.

Step 2 — Identify the correct worker representative

The agreement is concluded with a labour union representing a majority of employees at the workplace, or — where no such union exists, which is the usual case in a startup — with a person representing the majority of workers.

That representative must be properly selected. The selection has to be by a genuine method reflecting the will of the workers, such as a vote or a show of hands, and the person must not be in a supervisory or managerial position.

Where this goes wrong: the engineering manager signs, because they are the most senior person available and it seems administratively sensible. That invalidates the agreement. Appointing someone by management fiat rather than by a worker-led process has the same effect. Document how the selection happened and keep that record — it is the first thing an inspector asks about.

Step 3 — Set the ordinary limits at 45 and 360 hours

The standard ceiling is 45 hours of overtime per month and 360 hours per year. For a well-run engineering team, this is a comfortable envelope: 45 hours monthly is roughly two extra hours per working day.

My advice is to set your agreement at these ordinary limits unless you have a concrete, articulable reason not to. There is a temptation to add special provisions “just in case”, which brings obligations described in the next step and, more subtly, signals internally that sustained overtime is expected.

Step 4 — Decide whether you need special provisions

If your work genuinely involves temporary spikes — a regulated filing deadline, a major launch — you can include a special provision clause. It comes with a set of hard ceilings that operate together.

These limits became legally binding with penalties under the Work Style Reform legislation — applying to large companies from April 2019 and to small and medium enterprises from April 2020. Before that, the caps were administrative guidance without direct sanction, which is why older advice you may find online is misleading.

The one that catches engineering teams is the multi-month average. A single 95-hour month is within the monthly ceiling, but paired with an 80-hour month beside it the two-month average is 87.5 — over the limit. You can be compliant every individual month and non-compliant across the pair.

Step 5 — File it and diarise the renewal

The agreement takes effect through filing with the Labour Standards Inspection Office with jurisdiction over your workplace. Signed but unfiled is worth nothing — that was our mistake.

Agreements run for a defined period, typically one year, and must be renewed and refiled. Expiry is silent: nothing alerts you, the payroll system keeps running, and engineers keep working. The gap only becomes visible when someone goes looking.

What actually prevents this: a calendar reminder set for sixty days before expiry, owned by a named person, with a backup owner. Not a note in a compliance spreadsheet. If your team has multiple workplaces, each needs its own filing with its own jurisdiction — this trips up companies that open a second office and assume coverage extends.

Step 6 — Track the rolling multi-month average

Most payroll systems will tell you monthly overtime. Far fewer will tell you the rolling two-to-six month average, which is the limit most likely to be breached without anyone noticing.

Build a simple monthly view showing, per engineer: hours this month, the rolling 2, 3, 4, 5 and 6-month averages, cumulative annual total, and the count of months over 45 hours. A spreadsheet is fine. What matters is that it is reviewed monthly by someone with the authority to change staffing, not filed for an annual audit.

Set an internal threshold below the legal one. We alert at 60 hours in a month and at a 70-hour rolling average, which leaves room to act. Alerting at the legal limit means learning about the problem when it is already a breach.

Step 7 — Plan releases against the six-month rule

This is the constraint that reshapes engineering planning, and it is usually discovered late.

The 45-hour monthly limit may be exceeded in at most six months of the year. For a team on a monthly release cadence where each release week runs hot, that budget is gone by July.

The practical implication is that crunch is a finite annual resource that must be allocated deliberately. Which releases genuinely warrant it? Where can scope be reduced instead? The teams that handle this well decide in January which months are permitted to run over, and treat that as a planning constraint alongside headcount and budget.

And the honest reframing: a team that needs more than six heavy months a year does not have a compliance problem. It has a capacity or scoping problem that the legislation is now forcing into the open. In my experience that is the most useful thing these caps do.

The exemptions that are not exemptions

Two arguments come up constantly, and both are riskier than they sound.

“Our engineers are on a discretionary labour system.” These systems exist but have narrow conditions on the type of work they cover. Applying one to an ordinary development role that receives day-to-day direction is a common finding in inspections.

“They are managers, so they are exempt.” The managerial exemption is assessed on substance, not job title: actual authority, autonomy over working time, and compensation commensurate with the role. Promoting a senior engineer to “Engineering Manager” without changing any of those three does not create an exemption, and this is a well-known area of dispute.

Treat any claimed exemption as something to verify with counsel, not to assume. The downside of being wrong is retroactive unpaid overtime across the whole affected group.

Why this matters for hiring, not just compliance

Engineers in Japan ask about working hours in interviews, directly and early. A company that can describe its overtime governance concretely — the caps in its agreement, the internal alert thresholds, which months are permitted to run over — signals something no benefits list conveys.

The pattern repeats across our other markets in different legal clothing. Colleagues at HireDeveloper.sg report the same dynamic around Singapore notice periods and start-date credibility, and the team at HireDeveloper.ae sees it in how ADGM wage structures are explained to candidates. Employers who can explain the mechanics win the ones who ask good questions.

If you are setting up the rest of the employment relationship, our guide to probation periods for engineers in Japan covers the checks to run before anyone starts.

Frequently asked questions

What is a 36 Agreement and why is it mandatory?

The Labour Standards Act sets statutory working hours at 8 hours per day and 40 hours per week. To lawfully require any work beyond that, or work on statutory days off, an employer must conclude a labour-management agreement under Article 36 — hence the name saburoku kyotei — and file it with the Labour Standards Inspection Office. The agreement is not a formality that legitimises overtime after the fact: without it on file, every hour worked beyond the statutory limit is a violation, no matter how willing the engineer was or how much premium pay was given.

What are the overtime caps in Japan?

The ordinary limit is 45 hours per month and 360 hours per year. Where a special provision clause is included and specific circumstances apply, the ceilings are 720 hours per year, less than 100 hours in any single month including work on days off, and an average of no more than 80 hours per month measured across any two to six consecutive months. In addition, the 45-hour monthly limit may be exceeded in at most six months of the year. These caps became legally binding with penalties attached under the Work Style Reform legislation, applying to large companies from April 2019 and to small and medium enterprises from April 2020.

Do these limits apply to engineers on discretionary or managerial arrangements?

Less often than employers assume, and this is where most of the risk sits. Discretionary labour systems and genuine managerial exemptions exist, but both have narrow conditions, and labelling an engineer a manager does not create an exemption if the substance of the role does not match — the test looks at actual authority, working-time autonomy and compensation, not the job title. Applying a discretionary system to an ordinary development role is one of the more common findings in inspections, so treat any claimed exemption as something to verify with counsel rather than assume.

What happens if we exceed the caps?

Since the reform, breaching the statutory caps carries criminal penalties — imprisonment of up to six months or a fine of up to 300,000 yen. In practice, most cases start with guidance from a labour standards inspector rather than prosecution, frequently triggered by an employee complaint or a routine inspection. The more immediate business consequences are usually the corrective action plan, the unpaid overtime liability that surfaces during review, and the reputational effect on hiring in a market where candidates ask about working hours directly.

This article is general guidance for hiring teams, not legal advice. Overtime rules derive from the Labour Standards Act and the Work Style Reform legislation. Confirm current requirements and take professional advice before acting on a specific case.