How to Draft Side-Job and Remote Work Rules: Working Hours Management and When Restrictions Are Permitted

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

Consider a company that has a clause making side jobs subject to approval, but has not prepared an application form or any rules for aggregating working hours. When you look at the same company's remote work rules, you find only one sentence: "Work from home is permitted where the company deems it necessary." If there are no concrete standards for the range of permitted work locations, the method of tracking working hours, or the allocation of costs such as communication expenses, and these matters are left to the judgment of the staff on the ground, treatment will end up differing from one manager to another.

To run side jobs and telework smoothly, you need to connect broad provisions to concrete rules. For side jobs, you spell out the practical responses: aggregation of working hours, health protection measures, prevention of competition, and confidentiality. For telework, you pin down the place of work and the method of recording working hours. You also set rules on how costs are shared and on the security of devices and information. For both systems, the work is not limited to tidying up the wording of the rules; it starts with settling the day-to-day operational design: what the company will check internally, and what records it will keep to manage the system.

Grounds for Restricting Side Jobs and the Purpose of the System Design

When designing internal rules for side jobs, the first thing to clarify, even before the question of format (an approval system or a notification system), is the purpose: what the company intends to check and manage. If the purpose of the check is vague, then even with an approval system the review criteria will depend on whoever is reviewing, and even with a notification system the process will end as a formality, with the submitted information never being used for working hours management.

The Ministry of Health, Labour and Welfare's "Guidelines for the Promotion of Side Jobs and Concurrent Employment" (formulated in January 2018, revised in September 2020 and revised again in July 2022) recommend that companies which uniformly prohibit side jobs and concurrent employment, or make them subject to approval, consider individually whether the side job would interfere with their own business and, where there is no particular interference, move toward permitting side jobs and concurrent employment as a rule. The main points to check are whether the side job interferes with the provision of labor in the main job, whether there is a risk of leaking trade secrets or of competition, and whether the form of work requires working hours to be aggregated.

How employees use their time outside working hours is, in principle, up to the employees. Drawing on trends in court decisions, the Guidelines list four typical situations in which a company may restrict side jobs: where there is interference with the provision of labor; where business secrets would be leaked; where the company's interests would be harmed by competition; and where there is conduct that damages the company's honor or credibility or destroys the relationship of trust. These are typical grounds on which a restriction can be justified. Imposing a heavy disciplinary sanction or other disadvantage immediately, solely because the work rules contain a blanket prohibition or because the employee failed to give prior notice, can be a cause of disputes. Beyond a formal violation of the rules, it is important to carefully assess, case by case, the actual impact on workplace order and on the work itself.

A notification system is a mechanism for capturing these points through employees' self-reporting, without a prior decision to permit or refuse. In organizations where many side-job holders are employed by other companies and therefore require their working hours to be aggregated, or in companies that want to draw a clear line between employment and outsourcing arrangements, the practical dividing line in system design is whether the collected notifications can be fed smoothly into day-to-day working hours management.

Aggregation of Working Hours and Health Management

Whether working hours at the side-job or concurrent-employment destination must be aggregated and managed depends on the form of the side job. Article 38, Paragraph 1 of the Labor Standards Act provides that "working hours shall be aggregated for the purpose of applying the provisions concerning working hours, even where the workplaces differ," and "where the workplaces differ" is interpreted to include cases where the employers differ (Labour Standards Bureau Notice No. 769, May 14, 1948). Aggregation applies where an employee works under multiple employers as a worker subject to the working hours regulations of the Labor Standards Act, and that employee's working hours are aggregated and managed.

Where the side job takes a form to which the Labor Standards Act does not apply, such as freelance work under a service agreement, joint management of a business, or work as an advisor or consultant, that time is not subject to aggregation under Article 38, Paragraph 1. However, even if the contract is titled a service agreement, aggregation becomes necessary if worker status is recognized based on the substance, such as whether there is direction and supervision and the nature of the remuneration. You should also confirm the scope of the regulations for positions not subject to working hours regulations, such as supervisory and managerial employees. Even for forms of work that are legally outside aggregation, it is desirable to keep track of the overall work situation through self-reporting or similar means, in order to prevent health problems caused by overwork and interference with the main job.

When aggregating working hours for an employment-type side job, the standard method is as follows. First, before the side job begins, the prescribed working hours are aggregated in the order in which the employment contracts were concluded, and you check whether any portion exceeds the statutory working hours. After the side job begins, the daily non-prescribed working hours are aggregated in the order in which they actually occurred, the portion constituting statutory overtime is identified, and the party responsible for paying the overtime premium is determined. Because this standard method requires tracking actual working hours at the other company as often as necessary for legal compliance, the management burden becomes heavy for both labor and management, for example when the side job involves many working days.

To reduce this burden, the Guidelines present a simplified method, the "management model." Under the management model, the company that concluded its contract first manages its own statutory overtime hours, and the company that concluded its contract later manages all of the working hours it has the employee work. As for overtime premiums, the first-contract company pays for its own statutory overtime hours, and the later-contract company pays premiums for all hours worked at that company. To adopt this method, with the agreement of the employee and both employers, upper limits must be set within the range of each employer's required Article 36 agreement, and the framework must be observed under which the total of the first-contract company's statutory overtime hours and all working hours at the later-contract company is kept below 100 hours in any single month and at or below an average of 80 hours over each period of two to six months. If the management model is properly introduced, each employer, as long as it has the employee work within the agreed upper limits, is relieved of the burden of tracking the actual daily working hours at the other company each time.

When selecting the employees subject to health protection measures, employers are not, as a rule, required to make the determination by aggregating working hours at the side-job destination. However, in cases where the side job was started on the employer's instruction, it is considered appropriate to calculate aggregated working hours based on information sharing with the side-job destination or reports from the employee, and to take measures such as health checkups and interviews with a physician. Because each employer owes a duty of care for safety under its own employment contract (Article 5 of the Labor Contracts Act), it is important to have an operation in place under which employees report their work situation on a regular basis, regardless of whether aggregation is required, so that the employer does not leave the situation unattended while aware that the overall workload has become excessive.

Place of Work for Telework and Extended Stays in Japan and Abroad

For employees who telework within Japan, labor standards-related laws, including the Labor Standards Act, the Minimum Wage Act, the Industrial Safety and Health Act and the Industrial Accident Compensation Insurance Act, apply in the same way as for office work in Japan (Ministry of Health, Labour and Welfare, "Guidelines for Promoting the Appropriate Introduction and Implementation of Telework," current published version). Employers are obliged to specify the place of work when concluding an employment contract (Article 15 of the Labor Standards Act and Article 5, Paragraph 1, Item 1-3 of the Ordinance for Enforcement of that Act). Where the employee is to work from home from the outset of employment, the home, a designated satellite office or similar location is specified as the initial place of work; where the employer may order telework in the future, it is specified as part of the range within which the place of work may be changed. Having an employee work at a location outside the range set in the contract or work rules is, as a basic matter, based on the employee's individual consent; where this is done by amending the work rules, the requirements of reasonableness and notification under Articles 9 and 10 of the Labor Contracts Act must be met.

As for working hours management, the ordinary working hours system, variable working hours systems and the flextime system can all be adopted for telework. Among these, the flextime system allows employees themselves to adjust their daily starting and finishing times flexibly, which makes it easier to keep a steady rhythm between work-from-home days and office days, so it can be said to be a particularly good fit.

On the other hand, the deemed working hours system for work outside the workplace (Article 38-2 of the Labor Standards Act) is not a system that automatically applies just because the employee works from home. The telework Guidelines state that, to apply this system to telework, both of the following must be satisfied: the information and communication equipment is not required, on the employer's instruction, to be kept in a state in which communication is possible at all times; and the employee is not performing work based on the employer's specific instructions given from time to time. That said, even if the communication line is constantly connected, the requirements are not immediately unmet as long as the operation allows the employee to step away or choose when to respond at their own discretion. As for instructions, the condition is that they remain at the level of the basic framework of the work, such as its purpose, goals and deadlines, and do not tightly bind the day-to-day schedule. The premise for application is that working hours are difficult to calculate because the work is performed outside the workplace.

Where an employee wishes to work remotely from a parent's home, a place of stay in a regional area, or overseas, you also need to check the rules on place of work. For remote work in distant locations within Japan, respond by clarifying the procedures required to change from the defined range, the communication system in the event of an industrial accident, the criteria for paying commuting allowances, and so on.

By contrast, whether to permit remote work from overseas requires a multifaceted review that goes beyond Japanese labor law. On the tax side, the risk of being found to have a permanent establishment (PE) in the other country, and tax relationships in Japan and abroad depending on the individual's residence status, can become issues. On the social insurance side, you need to check whether Japanese health insurance and employees' pension coverage continues and whether there is a social security agreement to prevent double coverage; on the labor side, you need to sort out the mandatory application of local labor law and the scope of performance of the duty of care for safety. It is also unavoidable to check whether continuing to work on a tourist visa would violate local immigration laws. As for the handling of information, the act of a company's own employees accessing domestic systems from overseas is understood not to constitute "provision to a third party in a foreign country" under the Act on the Protection of Personal Information (APPI), but security measures for the communication environment and a check of clauses in confidentiality agreements with customers restricting the taking of information overseas are indispensable. Where data is provided to a separate legal entity or other party located in a foreign country, the standards of Article 28 of that Act must be met. Because overseas remote work thus involves compound judgments, the appropriate approach is to consider whether to permit it on a case-by-case basis while working with experts familiar with the local legal system, such as tax accountants and attorneys.

As a basic rule, working hours are tracked through objective records that reflect starting and finishing times, such as computer usage logs. If the records do not reflect actual working hours, tracking through self-reporting may also be considered. If there is a large gap between the self-reports and the objective records, investigate the actual situation and make corrections, and avoid any treatment that discourages accurate reporting, such as capping the hours that may be reported.

Decide in advance how to treat breaks taken in the middle of the workday. Methods include treating such breaks as rest periods and, at the employee's request, pushing back the finishing time, or, on the premise of a labor-management agreement, allowing the employee to use hourly annual paid leave on request. Including the method of not tracking such breaks and treating the period from start to finish, excluding ordinary rest periods, as working hours, set out the rules in the work rules or similar documents. The company should not make employees use annual paid leave unilaterally.

Communication Costs, Work Supplies and Information Security

It is desirable to set out in advance, in the work rules or similar documents, rules on bearing the costs associated with telework. In particular, where there is a provision requiring employees to bear the costs of information and communication equipment, work supplies or the like, it falls under the matters that must be stated in the work rules, which must be prepared and filed (Article 89, Item 5 of the Labor Standards Act).

Where employees use lines contracted in their own names or utilities in connection with working from home, one possible method is for the company to calculate the business-use portion of the actual costs in a reasonable and objective way and pay it as reimbursement of actual expenses. As for the withholding income tax treatment of such costs, the National Tax Agency's "FAQ on Bearing Costs Related to Working from Home (Withholding Income Tax)" (version updated April 1, 2026) provides practical guidance. Payments in the nature of reimbursement of actual expenses that meet certain criteria are treated as non-taxable, but if a fixed amount is paid without any requirement to return the unused portion, it is taxed as salary, so I recommend consulting a tax accountant in advance when working out the specific design.

As for information security measures, it is important to decide whether telework is permitted for each type of work and, with reference to the Ministry of Internal Affairs and Communications' "Telework Security Guidelines" and similar resources, to put in place measures suited to the nature of the work and to provide employee training. In particular, where personal information or confidential data is handled, build into the rules measures against risks such as screens being viewed by others when working at home or at external facilities, unauthorized storage of data on personal devices, and careless use of public Wi-Fi. For the legal distinctions that apply when entrusting data containing personal information to outside parties, you can carry out your check from the same perspective as the criteria for entrustment, third-party provision and cross-border transfer discussed in What Companies Should Check First on AI Services and Personal Information Protection.

Management Practice Using Application Forms and an Operations Ledger

To make side jobs and telework function properly, it is effective to prepare application forms linked to the provisions of the rules, and an operations ledger that gives an overview of the situation across the company.

The side-job and concurrent-employment application form should mainly include the following items so that the information needed for labor management is captured without omission.

• The business of the side-job destination and the specific work the employee will perform
• Whether it is an employment contract or a service agreement, and whether aggregation of working hours under the Labor Standards Act is required
• Where aggregation of working hours applies, the contract conclusion date and term, prescribed working days, prescribed working hours, starting and finishing times, and expected non-prescribed working hours
• The procedure for reporting actual working hours at the side-job destination and the frequency of reporting to the company

For telework applications, have employees state the specific place of work where they will work (home, satellite office, etc.), the desired frequency, confirmation of the cost-bearing rules, emergency contact details and similar items. Where the deemed working hours system for work outside the workplace is applied, set up an operation in which the actual circumstances that satisfy the requirements of the deemed system, such as whether the employee can decide on their own to step away or respond and whether instructions remain within a basic scope, can be checked against the application form.

In the operations ledger, centrally record for each employee whether aggregation of working hours is required for the side job, whether the management model applies, the status of health protection measures, the telework location, the record of cost payments, the application status of the deemed system, and so on. Updating the ledger each time a contract is renewed or the actual work situation changes, and establishing a mechanism for regularly comparing the application details with the actual situation, is the first practical step toward preventing trouble. The basic procedures of preparing the work rules, hearing the opinion of the majority representative, filing with the Labour Standards Inspection Office, and notifying employees are the same as those explained in Startup Work Rules and Fixed Overtime Pay, and when establishing or revising side-job and telework rules, the necessary procedures should be carried out according to the number of employees at the workplace and other factors. Distinguish between the filing obligation and the contractual effect that depends on notification, reasonableness and similar factors. You can check the overall risk items that accompany an expanding workforce in Labor Risks Startups Tend to Put Off and Responding to Customer Harassment. The scope of our retainer services, including the preparation of work rules and side-job rules, is explained on Startup Legal and Fundraising Support.

Frequently asked questions

Is a work rules provision that prohibits side jobs across the board invalid?

It cannot be said to be invalid across the board. Under court precedents, how workers use their time outside working hours is in principle up to them, and it is understood that a company may restrict this only where one of the following applies: the side job interferes with the provision of labor, trade secrets would be leaked, the company's interests would be harmed by competition, or the worker engages in conduct that damages the company's honor or credibility or destroys the relationship of trust (Ministry of Health, Labour and Welfare, "Guidelines for the Promotion of Side Jobs and Concurrent Employment"; Miki Kawaguchi, Rodo-ho (Labor Law), 8th ed., p. 238). Where a restriction goes beyond this necessary and reasonable scope, it is likely to be contrary to public policy or the principle of good faith, and the work rules provision would not become part of the terms of the employment contract.

Where an employee takes on a side job as a contractor or freelancer, must working hours be aggregated under Article 38, Paragraph 1 of the Labor Standards Act?

Such hours are likely not subject to aggregation. The aggregation of working hours under Article 38, Paragraph 1 of the Labor Standards Act covers working hours where a person works as a worker under the Labor Standards Act for multiple employers, and time spent at side jobs or concurrent engagements in forms to which the Labor Standards Act does not apply, such as freelancing, independent business, co-management or service agreements, is not included (Ministry of Health, Labour and Welfare, "Guidelines for the Promotion of Side Jobs and Concurrent Employment"). That said, from the perspective of preventing overwork from interfering with work, it is considered desirable to keep track of the hours worked through self-reporting or similar means and to take care that they do not become excessive.

If we introduce remote work, can we apply the deemed working hours system for work outside the workplace?

It is unlikely to apply automatically. To apply the deemed working hours system for work outside the workplace to telework, both of the following must be satisfied: the information and communications equipment is not required by the employer's instructions to be kept in a state in which communication is always possible, and the work is not performed based on specific instructions from the employer given from time to time (Ministry of Health, Labour and Welfare, "Guidelines for Promoting the Appropriate Introduction and Implementation of Telework"). Practices that require a constant online connection or give detailed instructions on daily tasks may fail to meet these requirements.