If you change 'retirement allowance' to 'monthly salary', both recruitment and retention will improve
The other day, I read an article on Toyo Keizai Online about companies moving to abolish retirement allowances.
Large companies are increasingly reducing or eliminating retirement lump-sum payment systems. The background to this is the difficulty in recruiting, the need to secure funds for wages, and the diversification of work styles. While young employees welcome this, saying, 'I would rather have that amount added to my current salary,' there is fierce backlash from middle-aged and older employees who have worked for a long time—that is the content of the article.
While reading it, I kept thinking about dental clinics.
In fact, quite a few dental clinics have introduced retirement allowance systems. However, I suspect there are not many clinic directors who can immediately answer when asked about the 'purpose' of these systems.
Today, I will delve into that.
To begin with, why were retirement allowances created?
First, a little bit of history.
The roots of retirement allowances are said to be the 'noren-wake' (sharing the shop curtain) practice of merchants in the Edo period. It involved giving independent funds or the shop's name to servants who had served for many years. The origin is 'reward for long-term service'.
This spread as a system from the late Meiji period to the early Showa period. In an era when industrialization was progressing and skilled craftsmen and experienced workers were being poached one after another, companies tried to retain talent by creating a 'system where the longer you work, the more you benefit.' Before the war, laws were enacted to make retirement savings mandatory for companies, and after the war, it became established throughout Japan as a set with lifetime employment and seniority-based wages.
In other words, the essence of retirement allowances consists of three main points.
First, reward for meritorious service. A reward for many years of contribution.
Second, deferred payment of wages. Keeping monthly salaries low and paying them in a lump sum upon retirement.
Third, and the biggest purpose, is retention (a measure to keep employees from leaving). Preventing the outflow of talent by making them think, 'It would be a waste to quit now'.
In short, a retirement allowance is a device designed to encourage employees to 'work at one workplace for their entire life,' based on the premise that they will do so. Please remember this, as it will be relevant later.
Dental clinic retirement allowances are often included for 'tax savings' and 'just because'
So, what is the reality in the dental industry?
You might be surprised, but quite a few dental clinics have introduced retirement allowance systems. According to a survey on the working conditions of dental hygienists (FY2019), approximately 46.5% of dental clinics responded that they 'have a retirement allowance.' Since 39.2% said 'none,' it is calculated that nearly half of the industry has some form of system.
Even in private clinics with only a few staff members, it is not uncommon for them to be enrolled in the Small and Medium Enterprise Retirement Allowance Mutual Aid (Chutaikyo).
Furthermore, in my experience, even if it is not organized as a clear system, the impression is that the actual number is slightly higher if you include clinics that pay a certain amount upon retirement and clinics where the director themselves does not fully grasp whether a system exists or not.
By the way, we have previously summarized in detail on our company blog the market rate for retirement allowances (about 1 to 4 months of monthly salary) and specific ways to prepare them, such as Chutaikyo or endowment insurance. Please refer to this for the practical aspects of system design.
However, when you ask clinic directors the reason for its introduction, it generally falls into two patterns.
One is for tax saving purposes. Since the premiums for Chutaikyo can be fully deducted as expenses (or necessary expenses for private clinics), this is the case where they joined because their tax accountant recommended it, saying, 'If you are making a profit, you should join.' This is the most common impression.
Another reason is 'just because it's a business custom.' It was in the template provided by the labor and social security attorney when creating the work rules, other clinics in the area are doing it, or it just makes the clinic look better as a welfare benefit.
Neither of these is wrong. Tax saving is rational management, and having a system itself is not a bad thing.
However, have you noticed? Neither reason includes 'human resources strategy'..
Although retirement allowances were originally created as a 'device to retain people,' in dental clinics, that original purpose has been lost, and they are being operated as tools for tax purposes or for the sake of appearances. I believe there is room to rethink this.
A 'retention device' does not work on young dental hygienists
So, should we return to the original purpose and redesign it as a 'retention measure'?
I don't think that's the answer either.
Seeing the reactions of job seekers every day, I feel that what dental hygienists and dental assistants in their 20s are looking at in job postings is overwhelmingly 'the present.' Monthly salary, bonuses, number of holidays, whether there is overtime, and the atmosphere of the clinic. Money that might be received years from now is not a factor in their decision-making.
This is not because young people are short-sighted, but because they are rational. The career of a dental hygienist is based on the premise of changing jobs. Marriage, childbirth, moving. Changing workplaces at each life stage is actually standard, and the premise of 'working at one clinic for a lifetime' does not fit their life plans in the first place.
Retirement allowance is a device from the era of lifetime employment. It is natural that a retention device will not work for a profession where lifetime employment is not a premise. The composition is exactly the same as the Toyo Keizai article where young employees welcomed the abolition of retirement allowances.
Therefore, redesign the 'presentation' and 'allocation'
This is the main point.
For clinics that are thinking about a system from now on, or clinics that have room for review, what I want to convey is let's show the money where it will be effective for recruitment.
For example, the source of funds is the same whether you set aside 20,000 yen per month for a retirement allowance or increase the monthly salary by 20,000 yen. But the way it looks on a job posting is completely different. What job seekers search for and compare on Job Medley or Guppy is the monthly salary figure, not whether or not there are retirement allowance regulations. If it's the same money, it should be placed where it will increase applications.
Recruitment is an investment. As long as it is an investment, the principle is to allocate funds where returns are visible. Retirement allowance is a 'measure that might be effective in 30 years,' while monthly salary is a 'measure that is effective for the number of applications next month.'
Of course, there is a balance with tax benefits. If you stop the small and medium-sized enterprise retirement allowance mutual aid and add it to the monthly salary, the burden of social insurance premiums will increase. Therefore, it is not a zero-sum game, but I think the realistic solution is to leave the 'retirement allowance as a tax-saving framework' while placing the main battlefield for recruitment funds on monthly salary and bonuses. This is something to work out with your consulting tax accountant.
However, cutting existing promises is a different story
Here is one important warning.
Just as middle-aged and older employees strongly opposed it in the Toyo Keizai article, reducing or abolishing existing retirement allowance regulations is a completely different issue. It may constitute a disadvantageous change in working conditions, and as a general rule, careful explanation and consensus building to obtain the staff's consent are absolute requirements. Unilateral changes are an area that can lead to lawsuits.
For veteran staff who have supported the clinic for 10 or 15 years, the retirement allowance is a 'promise for their hard work.' If you unilaterally cut it, what you lose is trust itself, which goes beyond the issue of money. The impact of one veteran quitting at a small clinic is incomparable to that of a large company. If you are going to review it, please be sure to consult with a labor and social security attorney.
Designing something from scratch and cutting back on what already exists are similar, yet completely different things.
The tax system is also designed to be cold toward those who change jobs.
Another point in the article that I found interesting was the discussion on the tax system.
The tax deduction for retirement allowances is designed to provide greater benefits once you exceed 20 years of service. Even if two people work for 30 years, there is a significant difference in the deduction amount between someone who stayed at one company and someone who changed jobs. The national system itself remains in a form that 'favors long-term employment and treats job changers coldly,' and even years after the government announced a review, no reforms have been realized.
This means that for dental hygienists, for whom changing jobs is a premise of their career, the system is structurally disadvantageous. The very mechanism of a retirement allowance was created since the Meiji era for 'people who work at one workplace for a long time,' and even the tax system is designed accordingly. Dental healthcare workers are among the professions furthest from those benefits.
That is precisely why I believe it is better for clinics to design compensation that rewards employees through their current salary and current environment, rather than in the form of a retirement allowance, as this better matches the reality of those working.
Summary: From 'Vague Systems' to 'Strategic Systems'
Let's summarize.
Retirement allowances are mechanisms born to 'retain people' based on the premise of lifetime employment. Many dental clinics introduce them as tax savings or business customs without being aware of their original purpose. On the other hand, they do not function as a retention tool for the young hygienists who matter most—this is where we stand today.
Large companies are now beginning to move toward 'shifting retirement allowances into current salaries' against the backdrop of recruitment difficulties. I think it is time for dental clinics to face the same question.
You can keep the retirement allowance as a tax-saving framework. But the battle for recruitment is decided by monthly salary, holidays, and ease of work—in other words, the 'now.' Deciding where to show your limited personnel budget is a sound recruitment strategy.
Why not take a moment to rethink the 'systems you introduced just because' by asking, 'What is this system for?'
I often receive consultations during recruitment agency services about how to design salary structures for clinics and where to show the money on job postings. I have summarized the practical ways to create a retirement allowance system in this article, so please take a look.
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