Labor Standards Act: Article 57 (Compensatory Leave System)
An employer may, in lieu of paying additional wages, grant leave to a worker to compensate for the extended, night and holiday work prescribed in Article 56, pursuant to a written agreement with the workers’ representative.

1. Requisites to Utilizing a Compensatory Leave System

There shall be a written agreement between the employer and the employee representative. Without such an agreement, the system shall not be legally in effect. If there is a labor union organized by the majority of employees, the union shall represent all workers. If there is no union, then an employee representative shall represent the workers. The written agreement shall be a document signed by both parties concerned.

2. Criteria for using leave as compensation

Wages paid for extended work, night work, and holiday work, and leave rendered as compensation, shall be of equal value. Accordingly, an additional allowance mentioned in Article 56 of the LSA shall be considered. This means that, if two hours were spent in extended work, wages would be valued at 3 hours, including additional allowances. In cases where extended work, holiday work, and night work overlap, wages including each additional allowance shall be compensated with leave.
The parties concerned shall agree upon whether compensatory leave should be rendered as total wages with an additional allowance or only as an additional allowance.

3. Providing Compensatory Leave

Leave, according to the regulations, shall be rendered within contractual working hours. Whether the leave shall be used in a unit of hours or days in regards to accumulation depends on the agreement between the parties concerned.

4. Items to be Considered in a written Agreement

In the Act, where the system of using leave as compensation is regulated in a written agreement, details shall be specified in separate written agreements between the parties concerned. They include: ① whether the rendering of leave will be decided by the employee or the employer, and ② whether the leave will be applied to all employees uniformly or selectively. It also considers ③ whether the employer shall allow workers to ask for allowances, and ④ whether the employer will allow workers to ask for leave, if they are not allowed to ask for allowances.
Accordingly, in cases where all employees agree upon using leave uniformly in the written agreement, the employer shall not have to pay an allowance for each employee, since Article 56 of the Labor Standards Act (Extended, Night or Holiday Work) is not being violated.

5. Obligation to Pay Allowance for Unused Leave

Using leave as compensation is a system in which an employer provides leave instead of allowances, which means the employer shall have to pay allowances if the leave cannot be granted. Unlike annual paid leave, the employer cannot waive wage payment with measures to promote the use of leave.
The right to ask for an allowance is given from the day following the expiry date of the unused leave. If this rule is violated, it is regarded as a violation of Article 56 of the Labor Standards Act. It is not a violation of the Act if the employer pays the allowance sometime between the expiration date of leave and the regular payment date of wages in the first following month.

Labor-Management Agreement regarding the Compensatory Leave System