How to handle employees when you close the business — dismissal notice, company-reason separation, and the state advance payment of unpaid wages

In short: The labour of letting employees go when you close a business turns on carrying out three things in order — "a dismissal notice at least 30 days ahead (or 30 days' average wage as notice pay)," "a separation certificate as a specified eligible recipient (company reason)," and "the advance payment of unpaid wages where wages or retirement allowances cannot be paid." The dismissal notice is under Labor Standards Act Article 20; if you do not give notice 30 days ahead, you pay the shortfall in days as average wage (notice pay). A closure due to management difficulty does not, in principle, immediately amount to the "unavoidable cause" that would dispense with notice, so notice or notice pay is required. For the separation certificate, a separation due to the abolition of the establishment amounts to a specified eligible recipient (so-called company reason); no benefit restriction applies to the basic allowance, and the prescribed benefit days can be more generous. Where wages or retirement allowances remain unpaid and it reaches insolvency, under Article 7 of the Act on Securing Payment of Wages the Japan Organization of Occupational Health and Safety advances part of the unpaid wages. This article sets out, within a Shakai Hoken Roumushi's work, the dismissal notice, the notice-pay calculation, company-reason separation, the advance payment of unpaid wages, and the order of loss procedures for social and labour insurance.

"I've decided to close with no successor, but how do I tell the staff and what do I process first?" and "cash flow is tight — I'm not sure I can even pay the last wages, let alone retirement pay" — these are questions we often hear from owners of small and medium enterprises that have decided to close or dissolve. This page organises the employee-side procedures at closure (dismissal notice, company-reason separation, the advance payment of unpaid wages, and social-insurance loss) as a labour design. The petition for bankruptcy or special liquidation itself, and the dissolution/liquidation registration, are outside this article's scope (the domain of an attorney and a judicial scrivener) and are touched on only in passing.

How should you treat employees when you close? (dismissal notice, 30 days ahead)

Where you end employment contracts on closure, it is in principle a "dismissal." Labor Standards Act Article 20 provides that when an employer is to dismiss a worker, it must give notice at least 30 days ahead, or, failing notice, pay 30 days' or more average wage (notice pay).

Approach	Content
Notice 30 days ahead	Give notice of the dismissal 30 or more days before the dismissal date (safer to record in writing)
Notice short of 30 days	Pay the shortfall in days as average wage (e.g. notice 20 days ahead → 10 days)
Immediate dismissal	Paying 30 days' or more average wage lets you dismiss without a notice period

Note that a closure due to management difficulty does not in principle amount to the "unavoidable cause" that would dispense with notice. The proviso to Article 20, paragraph 1 lets you dispense with notice/notice pay — with the permission of the labour standards inspection office director — where continuing the business has become impossible due to a natural disaster or other unavoidable cause, or for a dismissal attributable to the worker; but a closure due to worsening cash flow or no successor is not usually the object of this certification. So even on closure, notice or notice pay is required. An individual dispute over a dismissal (contesting the dismissal's validity) is the work of an attorney; a Shakai Hoken Roumushi handles the procedure and labour design. On whom to consult about a dismissal, see should you consult a Shakai Hoken Roumushi or an attorney about a dismissal.

How much is the notice pay, and how is it calculated?

Notice pay is calculated on "average wage." Average wage is, under Labor Standards Act Article 12, in principle the total wages paid over the immediately preceding 3 months divided by the total days (calendar days) of that period.

Item	Content
Average wage	Total wages of the preceding 3 months ÷ total days of that period (Article 12)
Reckoning	From the day of the dismissal notice (from the last wage closing date where there is one)
Notice-pay amount	(30 days − notice days) × average wage. At least 30 days for immediate dismissal
Prescription	The extinctive prescription of a wage claim is 3 years for the time being (Article 115 and Supplementary Provisions)

For example, if you give notice 10 days before the dismissal date, you pay 20 days' average wage (30 minus 10) as notice pay. The average-wage calculation is easy to get wrong over the wage closing date, commuting allowance, commission pay and absence deductions, so calculate with the wage ledger in order. For the thinking on average wage and wage calculation, see how much does it cost to entrust wage calculation to a Shakai Hoken Roumushi.

Will the separation certificate be a company reason? How does the unemployment benefit change?

A separation due to closure (abolition of the establishment) ordinarily amounts to a specified eligible recipient (so-called company reason) as the employment-insurance separation reason. Correctly stating the separation reason on the certificate affects the employee's basic allowance (unemployment benefit).

Aspect	Self-reason separation	Company-reason separation (specified eligible recipient)
Trigger	The worker's reasons (changing jobs, etc.)	Abolition of the establishment, insolvency, dismissal, etc.
Benefit restriction	In principle there is a restriction period	No benefit restriction
Prescribed benefit days	Relatively short	Can be more generous by age and insured period
Procedure	Correct classification of the separation reason on the certificate is a premise	Same

When preparing the separation certificate on closure, classify the reason correctly as abolition of the establishment. Processing it wrongly as a self-reason separation risks depriving the employee of benefits they would otherwise receive. For the restriction mechanism, see how does the benefit restriction for self-reason separation change in 2025 under employment insurance. Preparing and filing the certificate is a procedure with Hello Work (the public employment security office), and a Shakai Hoken Roumushi can act on your behalf.

When you cannot pay wages or retirement allowances, can you use the advance-payment system?

Where you cannot pay wages or retirement allowances at closure and it reaches insolvency, the advance payment of unpaid wages may be usable. Under Article 7 of the Act on Securing Payment of Wages (Act No. 34 of 1976), the Japan Organization of Occupational Health and Safety advances part of the unpaid wages.

Item	Content
Implementing body	Japan Organization of Occupational Health and Safety
Covered insolvency	Legal insolvency (decision to commence bankruptcy proceedings, etc.) / de facto insolvency (certification by the labour standards inspection office director for SMEs)
Covered workers	Those who left between the day 6 months before the petition date (for de facto insolvency, the certification-application date) and the following 2 years
Covered wages	Unpaid regular wages and retirement allowances whose due date fell between 6 months before the separation date and the day before the advance-payment claim. Total of 20,000 yen or more. Bonuses are excluded
Advance-payment amount	80% of the total unpaid wages (subject to an age-based cap)

The advance-payment cap is set by age on the separation date.

Age on separation date	Cap on unpaid wages	Advance-payment cap (80%)
Under 30	1,100,000 yen	880,000 yen
30 to under 45	2,200,000 yen	1,760,000 yen
45 or over	3,700,000 yen	2,960,000 yen

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The certification of de facto insolvency is obtained by applying to the labour standards inspection office director (for SMEs). The advance-payment claim is made to the Organization. Note that the advance payment is the state system covering part of the wages; it does not fully compensate the unpaid wages. The bankruptcy or special-liquidation petition itself is the work of an attorney, and the dissolution/liquidation registration of a judicial scrivener; a Shakai Hoken Roumushi handles confirming the unpaid wages and supporting the advance-payment claim, and the labour- and social-insurance procedures. For unpaid wages and payment to bereaved family where an employee dies, see what happens to unpaid wages and benefits to the family when an employee dies.

What is the order of loss procedures for social and labour insurance?

On employees' separation, loss procedures for social insurance (health insurance, employees' pension) and labour insurance (employment insurance, workers' accident insurance) are needed. On closure, beyond each employee's loss of eligibility, you proceed to the procedure for abolishing the establishment itself (full loss).

Procedure	Submit to	Rough timing
Health insurance / employees' pension loss-of-insured-status notification	Pension office (or health-insurance society)	Within 5 days of the fact of separation
Employment insurance loss notification / separation certificate	Hello Work	Within 10 days from the day after separation
Health insurance / employees' pension full-loss notification for the establishment	Pension office	Promptly after abolishing the establishment
Labour insurance — declaration and settlement of the fixed premium	Labour standards inspection office / labour bureau	Within 50 days of closing the business

In order, you first carry out each employee's loss of eligibility (health insurance, employees' pension, employment insurance) and issue the separation certificate, and lastly proceed to the establishment's full loss and the labour-insurance fixed settlement. For the whole picture of the social-insurance full-loss procedure, see how do you proceed with the social-insurance full-loss procedure when you wind up a company. The timing is set by the system, and delay hampers the employee's switch to National Health Insurance / National Pension and the receipt of unemployment benefit, so proceed on a plan.

Whom should you separate the work to?

On closure, who decides divides by role. Separating the roles and entrusting each to its professional is safer.

What is done	Whose domain
Dismissal notice and notice-pay calculation, the company-reason separation certificate, social- and labour-insurance loss and full loss, support for the advance-payment claim	Shakai Hoken Roumushi (四葉社会保険労務士事務所)
Bankruptcy / special-liquidation petition, disputes over dismissal or unpaid wages	Attorney
Dissolution / liquidation registration	Judicial scrivener
Liquidation final tax return and tax	Tax accountant

四葉社会保険労務士事務所 handles labour as an independent business entity. Bankruptcy and disputes go to an attorney, registration to a judicial scrivener, and tax to a tax accountant, each under a separate contract — a separate-engagement arrangement. No referral fees are exchanged. For the labour of business succession and company split, see how are employment contracts succeeded in a company split or business transfer. Consultation is free. For fees, see the fee schedule; for FAQs, see the FAQ.

FAQ

Q. On closure, do we not need to give a dismissal notice?
A. In principle you do. A closure due to management difficulty or no successor is not usually the "impossibility of continuing the business due to a natural disaster or other unavoidable cause" that would dispense with notice (Article 20, paragraph 1 proviso). Notice at least 30 days ahead, or average wage for the shortfall in days (notice pay), is required.

Q. How is the notice pay calculated?
A. On average wage. Average wage is the total wages of the preceding 3 months divided by the total days of that period (Article 12), and the notice pay is (30 days − notice days). Giving notice 30 days ahead means no notice pay; immediate dismissal means paying 30 days' or more.

Q. If we reach insolvency unable to pay wages or retirement pay, do employees receive nothing?
A. The advance payment of unpaid wages may be usable. The Japan Organization of Occupational Health and Safety advances 80% of unpaid regular wages and retirement allowances whose due date fell between 6 months before the separation date and the day before the claim (total of 20,000 yen or more; bonuses excluded), within an age-based cap on the separation date (Act on Securing Payment of Wages, Article 7). It does not compensate the full amount.

Q. Can the separation certificate be a company reason?
A. A separation due to abolition of the establishment ordinarily amounts to a specified eligible recipient (so-called company reason). No benefit restriction applies, and the prescribed benefit days can be more generous. Processing it wrongly as a self-reason separation risks depriving the employee of benefits they would otherwise receive, so classify it accurately.

Sources

• Labor Standards Act (Act No. 49 of 1947), Article 12 (calculation of average wage), Article 20 (dismissal notice — notice at least 30 days ahead or 30 days' or more average wage; the unavoidable cause and a cause attributable to the worker are exceptions by the labour standards inspection office director's certification), Article 115 and Supplementary Provisions (extinctive prescription of wage claims; 3 years for the time being)
• Act on Securing Payment of Wages (Act No. 34 of 1976), Article 7 (advance payment of unpaid wages) and its enforcement order. The advance payment is implemented by the Japan Organization of Occupational Health and Safety at 80% of the total unpaid wages (subject to a cap by age on the separation date: under 30, 1,100,000 yen → 880,000 yen; 30 to under 45, 2,200,000 yen → 1,760,000 yen; 45 or over, 3,700,000 yen → 2,960,000 yen). Covered are unpaid regular wages and retirement allowances whose due date fell between 6 months before the separation date and the day before the claim (total of 20,000 yen or more; bonuses excluded)
• Japan Organization of Occupational Health and Safety, "Advance payment of unpaid wages" guidance (cap, advance rate, covered workers, claim procedure; referenced 12 October 2026. The cap can be revised, so confirm with the Organization's published materials before claiming)
• Employment Insurance Act (specified eligible recipient = scope of separation due to insolvency, abolition of the establishment, etc.). The certification of de facto insolvency is done by the labour standards inspection office director for SMEs (enforcement order of the Act on Securing Payment of Wages)
• The submission destinations and deadlines for the loss notification, full-loss notification and separation certificate under the Health Insurance Act, Employees' Pension Insurance Act and Employment Insurance Act are per the guidance of the Japan Pension Service and Hello Work. The number of days for the deadlines is set by the system, but individual handling is confirmed with the competent pension office, Hello Work and labour standards inspection office

This article does not decide whom to consult. The dismissal notice and notice-pay calculation, the company-reason separation certificate, social- and labour-insurance loss and full loss, and support for the advance-payment claim are the work of a Shakai Hoken Roumushi. The bankruptcy / special-liquidation petition and disputes over dismissal or unpaid wages are for an attorney; the dissolution / liquidation registration for a judicial scrivener; the liquidation final return and tax for a tax accountant. 四葉社会保険労務士事務所 is an independent business entity, contracted separately from the attorney, judicial scrivener and tax accountant.

This article is general information. A judgment on individual circumstances is made by a qualified professional after a consultation. Written by Joji Uramatsu (Shakai Hoken Roumushi, Gyoseishoshi, Registered Real Estate Transaction Specialist).