Labor Data Management and Substantiating Metrics to Support Human Capital Disclosure at Startups

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

When you hear "human capital disclosure," you may think of it as a system relevant only to listed companies. However, even unlisted startups face more and more situations in which they are asked whether they can give a coherent explanation of their organization and people as their financing rounds progress, or as they begin preparing for an IPO, entering business alliances with large companies or considering M&A.

When it comes to human capital initiatives, many people probably think of outward-facing communication such as the messages on a recruiting website, culture decks and employee interviews. Such external communication is important, but from a legal and labor perspective, the foundation is whether day-to-day labor data is properly in order. If the company cannot accurately grasp internally its records of working hours, paid leave, salaries and performance evaluations, as well as the classification of employment types, uptake of childcare leave, turnover, training histories and occupational safety and health records, then no matter how many positive words it lines up, they will not be backed by reality.

The Figures and Policies Examined in Human Capital Disclosure

Companies that file annual securities reports are required, within their overall approach to and initiatives on sustainability, to describe their policies on human resource development and improvement of the internal environment, as well as specific metrics and targets.

Under related legal frameworks as well, obligations to publish metrics have been expanded in stages. Under the Act on Promotion of Women's Participation and Advancement in the Workplace, companies regularly employing 301 or more workers were already required to publish the gender pay gap, but from April 1, 2026, the scope expanded to companies regularly employing 101 or more workers, which are now required to publish both the gender pay gap and the ratio of women in management positions. Under this new obligation, companies publish figures based on the results of the first fiscal year ending on or after April 1, 2026, generally within about three months after the end of the fiscal year. Meanwhile, the obligation to publish the rate of male employees taking childcare leave has applied since April 1, 2025, under the Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members, to companies regularly employing more than 300 workers. The company-size thresholds and the scope of covered workers need to be understood separately for each system.

In addition, on February 20, 2026, the Financial Services Agency promulgated amendments to the Cabinet Office Order on Disclosure and related rules, including a review of human capital disclosure. These apply from annual securities reports and similar filings for fiscal years ending on or after March 31, 2026, and the disclosure items include a description of human resource strategy linked to consolidated business strategy, the policy for determining employee salaries and the like, and the year-on-year rate of change in the average salary at the filing company.

This amendment concerning annual securities reports applies to companies that file such reports, and is not imposed as is on all unlisted startups. The scope of application and start date of the sustainability disclosure standards issued by the Sustainability Standards Board of Japan (SSBJ) should also be checked separately. Even so, after distinguishing statutory obligations from voluntary external communication, being in a position to answer questions from investors and business partners about the company's figures and policies with supporting evidence is meaningful in building trust in the organization.

The Problem of Scattered Labor Data

When a company tries to explain its organizational figures externally, the first stumbling block is often internal data scattered across different places. It is not uncommon for working hours to be in an attendance management tool, wages in payroll software, evaluation sheets in cloud storage, hiring results in an applicant tracking system, training records in the responsible department's files and harassment consultation records in individual notes. When records are kept in different places, not only does aggregation take extra time, but the basis supporting the figures also becomes unclear.

In addition, for metrics such as the gender pay gap, the ratio of managers, the turnover rate and average overtime hours, the figures themselves can change significantly if the definitions used for calculation differ. Confirming the underlying assumptions is essential: whether only full-time employees are covered or contract and part-time workers are included, which period's data is used for the denominator and numerator, how positions are defined and so on. For statutory publication, follow the definitions and calculation methods prescribed by the relevant system; when presenting original metrics voluntarily, explain their scope and calculation method. From the perspective of investors, audit firms and large corporate business partners, what matters is not just how high the figures appear on the surface but their reliability, that is, what definitions and aggregation procedures produced them. For that reason, before moving to full-scale disclosure or explanations, it is important to organize once the storage locations of the data, access rights, update procedures, calculation definitions and calculation logs.

Gaps Between Recruitment Branding and Legal Expression

At growth-stage startups, there are also situations where the messaging in recruitment branding runs ahead of internal systems. Catchphrases such as "flexible working," "fully remote," "pure performance-based pay" and "flat evaluations" have the power to attract candidates. From a labor management perspective, however, it is essential to check whether such external expressions are consistent with the work rules, employment contracts, actual attendance management and wage regulations.

For example, if a company promotes "remote work as you like" externally but in practice conducts evaluations and meetings on the assumption that employees come to the office, it creates a mismatch between expectations and reality after people join. If a company claims to be performance-based but has not put into writing its evaluation criteria or how they are reflected in pay, this can lead to distrust over treatment. In recruitment branding and external explanations, along with efforts to convey the company's appeal positively, choosing expressions that do not diverge from how the systems actually operate is essential.

Items Startups Should Put in Order Early

What early-stage startups should tackle first is not preparing large-scale disclosure materials but getting their current labor management onto a solid footing. First, they need to firm up the basic framework, such as employment contracts, work rules and wage regulations, and put in place performance evaluation, attendance management, the harassment consultation desk, and procedures for leave of absence, return to work and resignation in line with actual operations. Only with that foundation in place can records from hiring through assignment, compensation decisions and departure be accumulated without gaps.

Another point to consider at the same time is the handling of labor data and protection of privacy. Labor records linked to names or employee numbers constitute personal information. Figures that have been aggregated as statistics and cannot identify a specific individual even through easy matching with other information do not themselves constitute personal information, but the raw data from which they are aggregated includes information requiring particularly careful handling, such as individual salary amounts and health conditions. The basic stance is to avoid indiscriminately disclosing such raw data outside or within the company, and to manage aggregated statistical figures separately from individual private information. Internal operating rules also need to be made clear on how far HR staff, executives, department heads and outside professionals may view the data, whether there are measures to prevent use beyond the intended purpose, and whether records are stored in accordance with the statutory retention period for each type of record and the necessary retention purpose.

Before being asked for explanations in connection with financing, recruiting or IPO preparation, decide who is responsible for aggregation and the review procedure. So that changes in figures can be explained, it is important to keep not only the calculation results but also the records on which they are based.

At LegalAgent, we help startups put their labor management in order, draft work rules and employment contracts, design incentive plans, and check the legality of data management and recruitment branding. We prefer to proceed in the order of putting in place systems that can actually be operated within the company, and then building external explanations in line with that track record.