“My company gave me a raise, but when I look at my bank statement, the amount deposited hasn’t changed much…”
“We raised our employees’ salaries, but the company’s social insurance contributions have increased, squeezing our profits…”
These cries of frustration are being heard all across Japan right now.
It’s a system where, even when the government encourages wage increases and companies comply, somehow no one ends up better off.
The root cause lies in social insurance premiums, which account for about 15% of “labor costs.”
In this article, we’ll explain why pay raises don’t translate into higher take-home pay, from the perspectives of both management and employees.
1. The “15% Barrier” That Prevents “Pay Raises = Higher Take-Home Pay”
Have you ever looked at your pay stub and been surprised by the difference between the gross amount and your take-home pay?
Between the “total labor costs” paid by the company and the “take-home pay” received by the worker lies a massive social insurance premium “shredder.”
The Frightening “Employer-Employee Split” System
In Japan, social insurance premiums (such as health insurance and the Employees’ Pension Insurance) are generally split equally between the employer and the employee—meaning the company and the employee each bear half the cost.
From the employee’s perspective, the premiums are deducted from their salary, reducing their take-home pay.
From the company’s perspective, they must pay an additional amount equal to the salary in premiums, causing labor costs to balloon.
For example, if a monthly salary is increased by 10,000 yen, the actual situation would look like this:
[Simulation: What’s Behind a $100 Monthly Pay Raise]
- Increase in company costs: Approximately 11,500 yen (salary + employer’s share of social insurance premiums)
- Increase in employee take-home pay: Approximately 7,500–8,000 yen (after deducting income tax, resident tax, and the employee’s share of social insurance premiums)
*Even though the company pays 11,500 yen, employees end up with less than 8,000 yen in their wallets. This “missing 3,500 yen” is the reason why take-home pay isn’t increasing.
2. The Rising Burden of “Statutory Welfare Expenses” on Business Owners
For business owners, social insurance premiums are fixed costs that are essentially the same as “taxes.”
Although they are referred to as “statutory welfare expenses” in accounting terms, in reality, they are unmistakably “labor costs.”
The Cycle Where Wage Increases Strangle Companies
- We are raising base salaries in response to government requests and to maintain our competitiveness in the job market.
- As base salaries rise, the company’s social insurance contributions will increase accordingly.
- Overtime pay rates will also rise, further increasing social insurance costs.
- Profit margins will deteriorate, making it impossible to invest in equipment or implement further wage increases.
As long as this system remains in place, even if a company “raises labor costs by 2%,” much of that increase will be absorbed by the government due to higher social insurance contribution rates and changes in calculation standards.
3. Why Is It Hard for “Take-Home Pay” to Increase?
① Gradual Increases in Social Insurance Contribution Rates
Over the past 20 years, contribution rates for the Employees’ Pension Insurance and other programs have been gradually raised.
In addition, health insurance and long-term care insurance premiums are also on the rise due to an aging population.
② Progressive Income Taxation
The higher your salary, the higher your income tax rate becomes.
Since higher tax rates are applied after social insurance premiums have already been deducted, the “growth” from pay raises slows down.
③ Reduction of Tax Deductions
Substantial tax increases continue, such as revisions to the spousal deduction and changes to the dependent deduction.
As a result, a reversal is occurring where, even if gross salary increases, “disposable income (money available for personal use)” remains flat or even decreases.
4. Are There Any Solutions? Adopting a “Total Labor Cost” Perspective
Under these circumstances, for both companies and employees to survive, it is necessary to strategically consider the balance between “total labor costs” and “take-home pay” rather than focusing solely on “gross salary.”
- Utilizing the Optional Defined Contribution Pension Plan (Optional DC)
This approach involves diverting a portion of an employee’s salary into a savings account, thereby reducing the base amount used to calculate social insurance premiums and balancing the burden between the company and the employee. - Optimizing Tax-Exempt Allowances
We explore methods to provide effective compensation while minimizing social insurance costs by utilizing commuting allowances (within tax-exempt limits) and business trip per diems. - Lifting Restrictions on Side Jobs and Dual Employment
Supporting employees in expanding their personal income streams without increasing the company’s social insurance burden can be considered a form of “employee benefits” in today’s era.
Summary: Social Insurance Premiums Are a “Shared Challenge for Employers and Employees”
The fact that “even when wages are raised, take-home pay doesn’t increase” is neither an individual employee’s problem nor a result of the company being stingy.
It is a structural issue inherent in Japan’s social security system.
Business owners must assess costs based on “total labor costs, including social insurance premiums,” while employees must build their assets by “understanding the system, not just the face value.”
Without this shared understanding, wage increases will end up being nothing more than a “cost increase.”
