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Pacific Bridge, Inc. - Asian HR eNewsletter

Volume 5, Number 11 (December 1, 2005)

COMPANIES WORKING TO COMPLY WITH THE NEW RETIREMENT AGE IN JAPAN

In April 2006, Japanese companies will be required to give their employees the option to work until they turn 65. Revisions to the Law Concerning the Stabilization of Employment for the Aged in 2004 included provisions for raising the retirement age in Japan. Beginning in 2006, companies must guarantee jobs for 62 year old employees. Companies can raise their retirement age, abolish age restrictions, or rehire those employees set to retire in order to comply with this policy.

With the deadline fast approaching, companies must now begin developing new hiring schemes. Some companies have already made small increases in their retirement ages. Other companies have developed new programs where 55 year old employees can inform the company if they want to work past the age of 60. Companies have also been trying to find ways to comply with the legislation without increasing labor expenses.

Japan faces a potential labor shortage with the large baby boomer population that is quickly approaching 60 years old. The Japanese government proposed this new legislation in order to deal with the country’s aging society. Japanese officials believe that increasing the birth rate would be too difficult and the key to solving the aging dilemma is to boost elderly participation in the workforce. However, this means companies in Japan must now work on plans to deal with the raise in the retirement age.

CHINA CRACKS DOWN ON INCOME TAX EVASION WITH NEW REGULATION

The Chinese State Administration of Taxation (SAT) began its crackdown on income tax evasion when Circular 120, Administrative Measures for PRC Individual Income Tax, took effect on October 1, 2005. Circular 120, issued in July 2005, outlines a number of new provisions to standardize the collection and enforcement of individual income tax in China.

The Administrative Measures require all companies and individuals, including expatriates working in China, to report all income to the tax bureaus. Tax bureaus will be required to create files for every individual taxpayer and for every income tax withholding entity, so that the two sets of records can be reconciled for any discrepancies. In addition, the Measures call for greater digitization of data and coordination across government agencies to develop more complete profiles for each taxpayer. In particular, cross-referencing individual income tax data with immigration data will allow the tax authority to determine who owes income tax and the amount they owe. Individuals who evade tax payments, for example, may be prevented from leaving the country.

Another provision targets high income-earning individuals, such as celebrities, athletes, entertainers, and high-level executives. In the past, some of these high income individuals, including expatriates living in China, have been able to evade tax collection by underreporting their income. These high net worth individuals will now be scrutinized and supervised more carefully.

Tax collection in China has not been an efficient process, with many loopholes allowing people to escape tax payments and lax enforcement. Individuals were “trusted” to pay the proper amount of income tax, and there was no individual income monitoring system. There was also no communication among the tax bureaus, immigration authorities, and other government entities.

To move towards a more standardized and efficient income tax collection system, the Chinese government implemented a tax amnesty program last year. The program allowed foreign companies that owed back taxes to come forward and pay their outstanding tax bills without incurring any penalties. In addition, the minimum income threshold for tax exemption was recently increased from RMB800/month ($99) to RMB1,500/month ($185) to give tax relief to the very poor.

KOREAN LABOR UNIONS POSE PROBLEMS FOR FOREIGN COMPANIES

Foreign companies can face difficulties when acquiring and assimilating Korean companies into their own organizations. A significant obstacle is the strength and militancy of labor unions in Korea. With any merger or acquisition, there will likely be a transition period as different working environments and corporate cultures are integrated into one. However, this transition has been complicated by strong resistance from powerful Korean labor unions.

Difficult labor relations have consistently been an obstacle to foreign investment in Korea and impacted its global competitiveness. Korea’s two largest labor umbrella groups, the Federation of Korean Trade Unions and the Korean Confederation of Trade Unions, called for a general strike on December 1, 2005 to protest the government’s labor policies on non-regular workers.

OUTSOURCERS IN INDIA ARE STRUGGLING TO RETAIN WORKERS

Over the past few months, more and more outsourcing companies in India have struggled with labor shortages and high employee turnover rates. Experts claim that labor retention has become a problem in all industries in India. In fact, the annual rate of attrition in India is 15 to 30 percent, compared to 10 percent in Eastern Europe and about 8 percent in China. The problem, however, is most severe in the outsourcing industry.

On the whole, outsourcing companies employ workers in lower-skilled jobs, such as answering phones in call centers. Once these workers are trained, they tend to move to other jobs. With a high demand for workers in the Indian outsourcing industry, employees know that English skills and training will enable them to easily find jobs at other outsourcing companies. Even with strong wage increases in India, outsourcers are struggling to hold on to their employees. The supply of jobs in the outsourcing industry is greater than the demand for work.

As a result, many outsourcing companies in India have started new programs designed to help retain workers. Some companies have developed policies allowing employees to change positions and move from one department to another. In addition, other top outsourcing companies have started offering employee stock option plans, sophisticated benefits packages, bonuses, and flexible schedules. And, in order to maintain worker satisfaction, several outsourcers now host workplace social events. These policies have helped decrease employee turnover rate at some outsourcing companies; however, they have also increased company costs. With these new challenges, outsourcing companies in India must work hard to develop sophisticated hiring and retention strategies in order to keep their employees.