Blogs

Japan – Employer of Record

EWS helps you to hire an international workforce quickly and compliantly, without setting up a legal entity locally. If you’d like to get in touch about our employer of record solution in Japan, click here

Country Introduction – Japan

Capital –  Tokyo
Currency –  Yen (JPY)
GDP –  $5500 Billion USD (2022)
People/Nationality- Japanese
Language –  Japanese (Nihongo)
Major Religions –  Shintoism and Buddhism
Population- estimated 125, 700 Million as of July 2022

Japan , famously known as the “Land of the Rising Sun”, is a nation in East Asia composed of 6,852 islands, most of which are mountainous. The government system is parliamentary with constitutional monarchy; the chief of state is the emperor, while the head of government is the prime minister.

Japan is a member of the Asia-Pacific Economic Cooperation (APEC) and the Trans-Pacific Partnership (TPP) with a market economy in which the prices of goods and services are determined in a free price system.

Up to this day, Japan remains to be a key market for international business, also famous as the “gateway into Asia” with a market-driven economy ideal for ventures and opportunity. Investment-wise and as far as registering your company, Japan is relatively accessible.

Contract of Employment

 Japanese employment laws mainly cover employer-employee relationships.

There is no “at will” employment in Japan. Japanese law requires that termination of regular employment shall be considered objectively, deemed reasonable, and appropriate upon social convention, which is read rigidly in light of Japanese judicial precedent.

While an employment contract may be in written or verbal form, when concluding an employment contract, the following conditions must be clearly provided in written form: term of employment; place of employment and job description; start and finish time, overtime work, rest period, days off, leave and change in shifts; determination, calculation and payment of wages (except retirement allowances and special wages); and resignation and exit policies and procedures (including grounds for dismissal).

Probation Period

While there are no legal requirements regarding the length of the probationary period, Japan’s common practice is a probationary period of three (3) to six (6) months for new hires, effective from the hiring date. A probationary period is presumed void if it is unreasonably long, as this goes against public order and morals.

Just like the usual set-up in other countries, the probationary period allows employers to review an employee’s qualities and abilities before the employee is able to transition into regular employment. Consequently, an employer is expected to decide whether to accept or reject the employee as a regular employee after the probationary period has concluded.

Termination

An advance notice of termination must be provided at least thirty (30) days prior to dismissal. An employer may also provide a payment in lieu of such notice, which corresponds to 30 days or more of the salary amount.

Notice periods can also be shortened by the number of days for which the payment in lieu of notice has been made. The advance notice period is not applicable when the employer dismisses an employee under the probationary period, within fourteen (14) days after the date of the commencement of the probationary period.

Working Hours

Generally, the statutory working hours are 8 hours per day and 40 hours per week. Flexible working hours arrangements are allowed as well, subject to certain requirements.

In addition, the flexible working hours system is possible by providing in the work rules and labor-management agreements, that employees have the discretion to determine their start and finish times under certain conditions. The discretionary working system can be applied for expert employees who possess special skills, or employees in a certain position that involves engaging in planning, proposing, researching and analyzing matters of business operations.

Overtime

The compensation for overtime work are as follows:

Overtime (typically over 8 hours a day); Additional 25%
Night-time (22:00 – 05:00); Additional 25%
Night-time (continuing from overtime); Additional 50%
Weekends and Holidays; Additional 35%
Holiday (continuing from night-time); Additional 60%

In Japan, all work must be duly paid for but in most cases, employees in managerial and supervisory positions as defined under the Labour Standards Act are exempt from the above-mentioned overtime provision.

Annual Leave

Employers must grant paid annual leave to regularized employees. The statutory minimum number of days of paid annual leave depends on the employee’s length of continuous service:

6 months of service = 10 days of paid annual leave
1 year and 6 months = 11 days
2 years and 6 months = 12 days
3 years and 6 months = 14 days
4 years and 6 months = 16 days
5 years and 6 months = 18 days
6 years and 6 months or more = 20 days

The unused paid annual leave can be carried forward to the next year. It may be taken in half or full day units. However, employers may allow the employees to take leave in half day units. Employees are obligated to take a minimum of 5 days paid annual leave per year.

Sick leave

In Japan’s legislation, there is no provision to grant the sick leave credits. Generally, when employees get sick they use up their paid vacation leave. Some foreign companies grant sick leave credits to their employees as a special benefit, the number of days is purely based on the company’s policies and discretion.

Maternity and Paternity Leave

A pregnant employee can take up to six weeks (or 14 weeks in the case of multiple fetuses) of maternity leave before childbirth, and eight weeks after childbirth, under the Child Care and Nursing Care Act. The employer is not obliged to pay the employee during maternity leave and child care leave.

Furthermore, employers shall not have a woman work within 8 weeks after childbirth. However, in the case where such a woman has so requested to work; provided, that 6 weeks have passed since childbirth, and the work activities to be performed are such that a doctor has approved as having no adverse effect on her, then this Act shall not prevent an employer from having the woman return to work.

In addition, an employee (regardless of gender) who has been employed for at least one year or more, is entitled to take child care leave for a child aged less than one year (or until the child becomes one year and two months old, one and a half years old, or two years old). This is subject to certain conditions respectively, and does not include certain employees, such as those with fixed-term employment that would not continue after the child turns one and a half years old.

VAT / GST:

The VAT Rate in Japan is 10%

Income Tax:

Income tax is charged at progressive rates, which range from 5% to 45%. Employers are responsible for withholding the applicable income tax for their employees and making a year-end adjustment for employees who earn JPY20 million or less per year.

Employees earning more than JPY20 million make the relevant year-end adjustment themselves. Certain payments (which are categorized as special income, such as retirement allowance and severance pay) are subject to concessionary tax treatment.

Non-residents who earn salary income which is paid for services rendered in Japan that are not subject to withholding tax in Japan must file a tax return and pay tax at a rate of 20.42% on that salary income.

13^th Month Salary

Japan does not have a mandated 13th-month bonus.

Employer/Employee Contributions

Social Security Contributions

Employers must make contributions into the following insurance schemes:

The labour insurances, which comprise:

–  Workers’ accident compensation insurance (which covers work-related illness and accidents);
–  Unemployment insurance.

The social insurances, which comprise:

– Health insurance and nursing care insurance (which cover medical and nursing care expenses);
– Pension (which covers old-age and welfare benefits in the event of death or disability).

Employers also pay child benefit contributions (that is, contributions to a social welfare child benefit system that is independent from the welfare benefits offered to workers).

Employees must also make contributions to the above insurance schemes, except to the workers’ accident compensation insurance and child benefit contributions

Employers pay premiums by withholding the employees’ portion and paying this, together with the employer’s premiums, to the authorities.

Public Holidays

Japan observes 16 national holidays annually. On these days, schools and public offices are closed, many employers also grant employees a day off.

January 1- Japanese New Year
January 10- Coming of Age Day
February 11- National Foundation Day
February 23- The Emperor’s Birthday
March 21- Vernal Equinox Day
April 29- Shōwa Day
May 3- Constitution Memorial Day
May 4- Greenery Day
May 5- Children’s Day
July 18- Marine Day
August 11- Mountain Day
September 19- Respect for the Aged Day
September 23- Autumnal Equinox Day
October 10- Health-Sports Day
November 30- Culture Day
November 23- Labor Thanksgiving Day

Severance Pay

There are no legal rights to severance payments. Employers make severance payments based on the work rules or on individual employment contracts. There are no procedural requirements for dismissal other than the requirement to give notice or payment in lieu of notice

Work and Residence Permits (Expatriates)

Foreign workers are required to have the proper visas and work permits in Japan, as established by immigration laws.  Workers entering Japan generally enter through a points based highly skilled visa) or one of the industry specific categories for working visas. These categories include areas such as ‘business manager’ or ‘intra-company transferee’

Work permits must be secured for employees, and sponsored by a locally licensed and incorporated entity, which can be a problem for companies just entering the Japanese market.  If you have yet to complete the incorporation process you can use an outsourced management company or engage with EWS to sponsor the employee for the necessary permits.

Interested in global expansion? click here