Current Situation of Disability Employment: Expanding scope of firms subject to the quota
In April 2024, the government raised the statutory quota for disability employment for private companies from 2.3% of total employees to 2.5% and expanded the scope of companies subject to the quota to include companies with at least 40 employees. Furthermore, it plans to increase the quota to 2.7% and lower the minimum number of employees to 37.5 for firms subject to the quota in July 2026. In April 2025, for industrial sectors that have been identified as having difficulties in employing individuals with disabilities, the exclusion rate for the number of employees used to calculate the disability rate has been reduced by 10%. The reduction of the rate requires each relevant company to share the responsibility or burden of employing individuals with disabilities more widely within its entire organization. The increased burden is accompanied by support measures such as an increase in subsidies and human resources support for small and medium-sized enterprises (SMEs).
Recent data indicate both progress and challenges. According to the Ministry of Health, Labour and Welfare, the number of people with disabilities employed at private companies as of June 1, 2025, increased by 27,148.5 year on year to 704,610 accounting for a record 2.41% of total employment. On the other hand, the percentage share of companies that had achieved the statutory disability employment quota remained unchanged at 46.0%, meaning that there are still many companies failing to achieve the quota. For companies with from 40 to fewer than 100 employees, the disability employment rate was limited to only 1.94%. Of companies in the employment size category that failed to achieve the disability employment quota, as many as 90% had no employees with disabilities. The data, despite being affected by the 10-point cut in the exclusion rate, demonstrated how difficult it is for these companies to employ the first employees with disabilities. Employing and retaining the first employees with disabilities at SMEs is the essential issue for the promotion of disability employment. In fact, many companies fail in the initial stage where they must secure recruitment channels, select appropriate roles for employees with disabilities, and choose personnel to train them.
Many of the companies subjected to the quota from 2024 have little experience in hiring people with disabilities. The low quota achievement rate among them demonstrates not only their lack of motivation to achieve the quota but also high initial barriers, such as a lack of recruitment channels, uncertainty regarding what types of preparations or accommodations would be necessary, and underdevelopment of internal role-sharing systems. The effectiveness of expanding the scope of companies subject to the quota may depend on how much support these companies receive to help them learn and engage in trial and error within a short initial period.
An International Approach: Systems alone cannot solve everything
Relevant support measures around the world are broadly divided into (1) support for the improvement of education and training systems, workplace environments, and vocational rehabilitation, and (2) regulatory measures such as an anti-discrimination law and an employment quota system to encourage companies to employ individuals with disabilities. However, the existence of a system does not necessarily lead to increased disabled employment. Research on anti-discrimination law shows that no clear improvement is observed in disability employment after introduction. Some studies point out that such laws make companies more cautious about employing individuals with disabilities due to concerns about costs regarding dismissal restrictions and reasonable accommodations. The same applies to disability employment quota systems. If penalties or enforcement are lax under such laws or systems, companies tend to prefer to pay fines and take no action. If they are too strict, companies tend to abide by quotas only superficially. The balance between how the system is designed and implemented dictates corporate behavior regarding disability employment, and increases in disabled employment are not automatic.
Japan's mechanism: A combination of levy and incentive payments
In addition to the statutory disability employment quota, Japan has adopted a system in which companies that fall short of the quota must pay a levy of 50,000 yen per month per person shortfall, while companies that achieve or exceed their quota receive adjustment payments (incentives). The system uses levies from companies below the quota to support those at or above the quota and forms a mechanism of mutual support among employers. The government encourages compliance by providing guidance to companies with particularly low achievement rates and publishing their names if no improvement is seen.
For many years, the government had excluded companies with up to 300 employees from paying the levy, making the quota a matter of best effort for SMEs. As a result, large companies progressed in increasing disability employment while SMEs lagged behind. In order to change this situation, the government has gradually expanded the scope of companies subject to the levy. In April 2015, the scope was expanded to include companies with more than 100 employees, meaning that SMEs with more than 100 employees became subject to the quota and its associated financial burdens.
Verification of effects on SMEs: Did employment increase?
How has the expansion changed SMEs’ behavior? Matsumoto et al. (2026), which analyzed the levy coverage reform in 2015, found that although it was difficult to see a significant change in the overall average, company responses to the reform diverged depending on their pre-reform quota compliance status. Firms that had already met the quota increased their hiring even before the reform took effect to avoid future levy payments, while others only began increasing disability employment after the reform took effect. Among firms that had close to the 100-employee threshold, the number of employees with disabilities increased by an average 0.2–0.3 individuals and the probability of employing at least one person with a disability rose by 12–15 percentage points. The finding indicates that the levy-incentive-payment system can induce certain behavioral changes in SMEs.
However, the effects weakened within about seven years. Moreover, there was no clear evidence that the incentives (adjustment payments) for companies that achieved the quota encouraged a further increase in disability employment. By industry, the effects were larger in the manufacturing sector, indicating that the standardization of operations and the accumulation of know-how in the sector made it easier to respond to the expansion of the scope. Overall, the main implication is that the penalty of levy payments, rather than the receipt of incentive payments, was what encouraged the initial post-implementation increase in disability employment, especially for companies that had not met the quota.
Even more important is the small size of the estimated scale of the effects. At that time, the statutory disability employment quota was 2.0%, meaning two employees for companies with 100 employees. However, the estimated average increase was limited to 0.2-0.3 individuals. In contrast, Mori and Sakamoto (2018) reported that larger companies with 300 to 1,000 employees increased disability employment by an average 0.8-0.9 persons. This contrast suggests that it is difficult for institutional incentives alone to achieve the same results in SMEs as in larger companies. To further expand SME disability employment, it is essential to provide support that makes it easier for individuals with disabilities to work, meaning factors that lie outside the formal system.
Future issues: Transforming external pressures into retention and work quality (Note 1)
The key lesson from the verification of the effects of the reform is that while external pressures such as the levy can trigger disability employment, they cannot guarantee sustained employment. This is particularly the case for SMEs, where multi-skilled work structures of people that are capable of performing multiple tasks are common, making it difficult to determine specific roles for employees with disabilities. As a result, the burden of supporting employees with disabilities falls disproportionately on on-site managers and colleagues. If the adaptation cost after hiring disabled workers remains high, their employment tends to be cut short, diminishing the effectiveness of the disability employment quota. Since SMEs have limited capacity to absorb new workers with disabilities, employment might begin before necessary support systems or restructuring are in place, also complicating retention. The recently cited expansion of agency services may represent some distortion caused by a biased focus on numerical quotas.
In recent years, therefore, the focus of evaluation is shifting from numbers hired to employee retention and successful integration. For SMEs, a practical solution is to design disability employment practices on the premise of utilizing external resources, such as the Public Employment Security Office (“Hello Work”), regional vocational centers for people with disabilities, and job coaches, rather than trying to internally manage such processes. Instead of waiting for a perfectly prepared internal system, SMEs are required to adopt an agile mindset, making use of external support and to build improvements incrementally.
On the policy front, it is particularly important to not only provide support measures, but to determine which combination of measures aid in retention. For example, the introduction of workplace training, the redesign of business processes, the training of supervisors and colleagues, and the establishment of regular interviews can all be implemented with relatively small investments. It is necessary to use data to continue verifying how these measures can help increase retention rate and expand the scope of responsibilities these employees can undertake.
The next focus of disability employment promotion is not whether to strengthen penalties, but the extent to which complementary support measures for disability employment could boost such employment through the retention and successful performance. The question is how the initial post-introduction employment gains can be converted into sustainable employment? As the disability employment quotas continue to rise, the key to maintaining trust in the system will be creating a virtuous cycle of practical workplace support measures and evidence from their ongoing evaluation, so that companies experience additional benefits in addition to increasing burdens.
February 3, 2026
>> Original text in Japanese
