New regulation on discretionary working system
Effective from April 1, 2024, companies that have adopted discretionary working systems are required to amend their labor-management agreements and secure employees’ consent to apply these systems. Under the new regulation, discretionary workers may opt in to the system or opt out and decline the system, and they may withdraw from it at any time at their discretion.
What are discretionary working systems?
Under discretionary working systems, companies are exempt from paying overtime wages to employees subject to these conditions. These employees must be either qualified professionals or engaged in strategic planning and corporate management, whose nature of work is so flexible that companies should not micromanage their approaches to finishing the work and their working hours. Generally, this requires certain seniority and experience.
Two types of discretionary workers: qualified professionals and corporate management
Relevant regulation provides the category of qualified professionals. Examples are:
Workers in the research and development of new products or technology
Workers analyzing or designing information processing systems
Producers or directors of audiovisual works
Copywriters
System consultants
Videogame creators
Securities analysts
Lawyers
Certified public accountants
In the recent amendment, M&A advisors are added to the list. The list is exclusive; specifically, not all professionals are discretionary workers. Assistants and supporting roles for these professionals are not considered to be discretionary workers.
To introduce the discretionary working system for these workers, the company must enter into a labor-management agreement with an employee representative who represents a simple majority of employees, or a labor union if organized in the office, and submit it to the labor standards office. The agreement must provide, among other things, the scope of the work subject to the discretionary working system, the number of hours deemed spent for work per day, measures to maintain health and welfare for applicable employees, and employee grievance protocols.
In addition, white-collar workers engaged in strategic planning and corporate management are also eligible for discretionary working systems. However, the procedures to introduce the system for these employees are more stringent, where 80% or more of the majority approval in a labor-management committee is required.
What is changing?
For professionals, companies did not need consent from each individual. Until recently, if a company desired to adopt the discretionary working system, it had to sign a labor-management agreement with an employee representative (or a union) and submit it to the labor standards office. Then, all professionals included in the scope of work in the agreement automatically became discretionary workers.
Effective from April 1, 2024, in addition to the above, companies must obtain consent from each applicable employee to implement the system. Otherwise, companies may not apply exemptions for overtime calculation to the employee without consent. If a company has a labor-management agreement currently in effect, it needs to update the agreement in accordance with the new format and resubmit it to the labor standards office by the effective date.
In connection with the above, the labor-management agreement needs to provide the steps for the withdrawal of employee consent and the company's agreement not to treat employees unfairly for such withdrawal or for declining consent to the discretionary work.
While such consent has been required for workers in corporate management, companies need to set out the procedures for withdrawal of consent in the committee resolutions.
Necessary actions for companies
If a company has adopted the discretionary working system for professionals, it has to renew its labor-management agreement and submit it to the labor standards office before April 1, 2024. The new agreement must provide that consent is required, procedures for withdrawal of consent, and that companies may not treat employees unfairly for withdrawing or not consenting to the system. To implement the discretionary working system, the company needs to obtain consent from applicable employees.
If a company has adopted the discretionary working system for workers in corporate management, it needs to set out the procedures for withdrawal from the system in the committee resolutions. In addition, the committee rules must include the evaluation and compensation mechanism of qualified employees and certain other matters as provided in the regulations.
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