If you receive an annual executive compensation of 7.62 million yen as monthly salary, the employee's share of social insurance premiums is approximately 1.143 million yen. If you receive the same 7.62 million yen as a single bonus at settlement time, it costs only about 472,455 yen.
Raising executive compensation increases both taxes and social insurance premiums. Many CEOs think this way and keep their compensation at a mediocre level. Mr. Sugawara from the YouTube channel "Dats-Zeirishi Sugawara-kun" explains that this mediocre amount is actually the zone where you lose the most on social insurance premiums.
Social insurance premiums have caps for both monthly salaries and bonuses, and no premiums are charged on amounts exceeding these caps. This article summarizes the cap mechanism shown by Mr. Sugawara and how to combine salary and bonus payments.
Note: Rates are based on the Kyoiku Kenpo Tokyo branch for fiscal year Reiwa 8 (2026) for ages 40-64. Cap amounts are as of September 2026. Verification date: September 16, 2026.
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Now, let's get to the main topic.
Social Insurance Deducted from Salary is 15%. Breakdown: Health Insurance 5.85% and Pension 9.15%
Mr. Sugawara first shows the breakdown of social insurance premiums deducted from salary.
- Health Insurance Rate: 9.85%. At age 40, a long-term care insurance rate of 1.62% is added, making it 11.47%
- Child and Childcare Support Fund Rate: 0.23% for everyone starting April 2026. Mr. Sugawara calls this the "Bachelor Tax"
- Employees' Pension Insurance Rate: 18.3%. Flat rate regardless of age
Splitting the combined 11.7% (Health Insurance + Support Fund) between the company and the employee results in a 5.85% employee burden. Splitting the 18.3% pension results in a 9.15% employee burden. A total of 15% is deducted from the employee's salary, and the company also bears the same 15%.
Pension Caps at 635,000 Yen/Month; Health Insurance Caps at 1.355 Million Yen/Month
There are caps on monthly insurance premiums.
Employees' Pension: When the monthly remuneration exceeds 635,000 yen, the standard monthly remuneration is fixed at 650,000 yen. The employee burden is 650,000 yen × 9.15% = 59,475 yen. Whether the monthly salary is 1 million or 3 million yen, the pension premium remains 59,475 yen.
Health Insurance and Support Fund: When the monthly remuneration exceeds 1.355 million yen, the standard monthly remuneration is fixed at 1.39 million yen. The maximum employee burden is 1.39 million yen × 5.85% = 81,315 yen.
Calculating for a monthly executive compensation of 2 million yen, the burden rates are:
- Employees' Pension: 59,475 yen, approx. 3%
- Health Insurance and Support Fund: 81,315 yen, approx. 4%
- Total: 140,790 yen, approx. 7%
People earning around 635,000 yen/month bear 15%, while those earning 2 million yen/month bear only about 7%. Mr. Sugawara calls this a "reversal phenomenon." While the absolute amount stops increasing at the cap, the burden rate decreases as compensation rises. Income tax continues to rise progressively from 5% to 45%, moving in the opposite direction of social insurance.
Mr. Sugawara clarifies that arguments about "high social insurance premiums" only apply up to the cap. Beyond the cap, social insurance premiums do not increase by even one yen.
Note: The pension cap will be gradually raised to 680,000 yen in September 2027, 710,000 yen in September 2028, and 750,000 yen in September 2029 (Ministry of Health, Labour and Welfare).
Bonus Caps: Health Insurance 5.73 Million Yen/Year; Pension 1.5 Million Yen/Instance
The same rates apply to bonuses as to salaries. However, there are caps on bonuses too.
- Health Insurance and Support Fund: Up to 5.73 million yen cumulative per fiscal year (April to next March)
- Employees' Pension: Up to 1.5 million yen per month
Mr. Sugawara emphasizes that Health Insurance is capped "per year," while Pension is capped "per month." If you split the bonus into three payments, the pension cap expands to 1.5 million yen × 3 = 4.5 million yen. If you consolidate it into one payment, it stops at 1.5 million yen. Even if you receive a 6 million yen bonus in one go, the pension premium is calculated only on 1.5 million yen × 9.15%.
Mr. Sugawara's conclusion is to pay the bonus in a single lump sum rather than splitting it. To utilize the health insurance cap, receiving more than 5.73 million yen in a lump sum lowers the burden rate.
Comparing Annual 7.62 Million Yen: Single Bonus Payment Saves Approx. 670,000 Yen
Mr. Sugawara estimates two ways to receive the same annual 7.62 million yen.
Pattern 1: Monthly Salary Only (635,000 yen/month)
7.62 million yen × 15% = 1.143 million yen annually (simple calculation from video). Calculating strictly according to the grade table with a standard monthly remuneration of 650,000 yen yields 1.17 million yen annually.
Pattern 2: No Monthly Salary. Single Bonus of 7.62 Million Yen at Settlement
This requires filing as "Pre-determined Fixed Compensation" with the tax office before payment.
- Health Insurance and Support Fund: Cap 5.73 million yen × 5.85% = 335,205 yen
- Employees' Pension: Cap 1.5 million yen × 9.15% = 137,250 yen
- Total: 472,455 yen
The difference is approximately 670,000 yen in simple calculations. Social insurance premiums are less than half in Pattern 2. Mr. Sugawara recommends "going all-in" on bonuses, noting that cash flow may be tight in the first year.
The Biggest Waste: "Moderate Salary Plus Bonuses"
What Mr. Sugawara advises avoiding is taking a salary of around 635,000 yen/month AND paying bonuses. This results in paying social insurance premiums on both the salary portion and the bonus portion.
Mr. Sugawara presents two options:
- Lean into Bonuses: Keep monthly salary low or zero, and consolidate the rest into a single bonus. If zero monthly salary feels uncomfortable, keeping a small salary still yields savings.
- Go All-In on Salary: If the salary already significantly exceeds the caps, skip bonuses and take everything as monthly salary.
When social insurance premiums decrease, taxable income increases, so taxes rise slightly. Nevertheless, Mr. Sugawara explains that "taxes rarely increase more than the savings in social insurance."
Mr. Sugawara's View on "Tax Office Rejection" Risks
Eliminating monthly salary and relying solely on a bonus often leads to claims that "the tax office will reject it." Mr. Sugawara states he has never heard of a rejection case and notes that some companies actually operate this way.
His reasoning is that this method does not reduce taxes. As social insurance premiums drop, taxable income rises, meaning the government actually collects MORE in taxes. He advises asking your accountant for specific examples if they warn of "rejection risk."
These are views based on Mr. Sugawara's experience; individual decisions should be confirmed with your tax accountant.
What to Do Before Setting Executive Compensation
From Mr. Sugawara's talk, here are four actions CEOs should take:
- Check if your current executive compensation is just below the pension cap (635,000 yen/month) or above the health insurance cap (1.355 million yen/month).
- If you are taking a salary around 635,000 yen/month AND paying bonuses, decide whether to lower the salary and lean into bonuses, or go all-in on salary.
- If paying a bonus, consolidate it into a single payment and file it as Pre-determined Fixed Compensation.
- Tell your tax accountant your desired annual total and ask them to simulate "how to allocate salary vs. bonus."
Around 635,000 yen/month is the zone where the social insurance burden rate is highest at 15%. If you set your current compensation because "social insurance premiums are scary," it is worth checking the cap positions and restructuring your allocation.
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We provide advisory services for companies wanting to maximize sales by fully utilizing Tatsuki Nanbara, for 70,000 yen per month. Here are some features:
・Only 70,000 yen per month
・Cancel anytime
・Non-business owners OK (Supporting everyone from university students to subsidiaries of listed companies.)
・No management issues needed (I do whatever I can to help improve sales.)
・Connect with active frontline executives
・Zoom available anytime
・I will visit your office
