Hiring Talent And Managing Payroll In Japan

Hiring in Japan? Read on to find out the employment norms (like taxes, payroll and benefits) and EOR (Employer on Record) norms in Japan.

Employment Norms in Japan

The island country of Japan is one of the world's most technologically advanced countries. It has strong economic policies, and business owners have many advantages in Japan. That's why businesses based out of Japan are always looking for a skilled workforce to hire. Although the ease of doing business in Japan is very high, it has stringent employment regulations that must be considered.

General Information:

The currency of Japan is the Japanese Yen (JPY).
Tokyo is the capital of Japan.
There is no official language in Japan. Most of the local population speaks a variation of Japanese. Documentation for the purpose of employment can be in any language that two parties can understand and comprehend. However, most people use Japanese or English for documentation.
As of 2022, Japan's GDP (nominal) was reported to be USD 4.3 Trillion and USD 6.1 Trillion (PPP).

The Japanese Labour law is established within its constitutional framework, which means that labor laws must satisfy the constitutional demand by setting minimum labor standards. The Labour Standards Law (LSL) is one of the major laws which regulate working conditions and workplace safety norms. Also, the Labour Contract Act defines and regulates the relationship between the employer and the employee. It enumerated that the' employment contract' is the primary instrument of the relationship between the parties.

Table of Contents

Select Section

Agreements
Onboarding Process
Visa
Minimum Wage
Payroll Cycle
Annual Bonus
Health Benefits
Working Hours and Overtime
Leaves
Social Security
Taxes for Employers
Taxes for Employees
Probation
Termination
Severance Pay
Employees or Contractors
Final Words

Agreements Onboarding Process Visa Minimum Wage Payroll Cycle Annual Bonus Health Benefits Working Hours and Overtime Leaves Social Security Taxes for Employers Taxes for Employees Probation Termination Severance Pay Employees or Contractors Final Words

Agreements

The basis of employment agreement in Japan is the 'written contract' between the employer and the employee. This contract needs to be drafted in a language that both parties understand. The market practice is to use either Japanese or English. It should include the following:

Legal name of the parties
Date from when the contract comes into force
Detailed job description, including nature and place of work
Duration of labor contract
Working conditions- hours, breaks, shift rules.
Leaves and Holidays
Wages/payment amount and payroll cycle, including bonuses
Terms of termination

Onboarding Process

There is no statutory requirement for the onboarding process in Japan and how long it should take.
The market practice of onboarding revolves around an Employment contract. When it is finalized and signed by both parties, it takes around 3-10 days to welcome new team members.
All the documents must be completed one day before the start date (as stipulated in the contract).

Visa

Japan offers three types of work visas:

Regular Japan Work Visa: This is the most basic work visa offered to most professionals.
Japan Highly skilled Professional Visa: Point-based system visa offers longer stay for professionals.
Japan Working Holiday Visa: This offers the longest stay for professionals- up to 5 years. It is offered only to citizens of the nations with whom Japan has 'The Working Holiday' Agreement.

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Minimum Wage

There is no single minimum wage in Japan. It varies from region to region. As per the revised notification (from 1 October 2022) minimum wage varies from 853 YEN (lowest) to 1072 YEN (highest). Tokyo offers the highest minimum wage- 1072 YEN.

Payroll Cycle

Japan has a monthly payroll cycle. It is not a statutory requirement but a general practice.

Annual Bonus

It is customary in Japan to provide winter bonuses to employees. It is also known as the 13th month's pay, as it is equivalent to the month's salary. It is paid for around December every year.

Health Benefits

Workers who permanently reside in Japan for three months or more are eligible for health benefits.
If employers have more than one employee, they must provide their employees health benefits.
All full-time and part-time employees are eligible for health benefits. Part-time employees are eligible for health benefits only if they have worked for three-quarters of the time of full-time employees.
Health insurance covers the sickness or injuries of employees and their dependents.
Worker's compensation covers occupational sicknesses and injuries.

Working Hours and Overtime

Work hours: 40 hours per week or 8 hours per day- excluding break.
Break: If an employee is working for at least 6 hours, the employer is bound to provide a break for 45 minutes, which can extend up to 1 hour.
Overtime: In Japan, if an employee wishes to engage the employer for overtime or engage the employees working on a day off, then the employer should inform the local labor office through a written notification of the agreement. Failure to do so can invite heavy penalties.

Leaves

Sick Leave

There is no provision for sick leaves in Japan, but employees can utilize their paid vacations for such purposes.

Parental leaves

New mothers (including adoptive mothers) can take 14 weeks of paid leaves. Out of these, they can take six weeks before the child's birth.
Employees will receive 2/3 of their salary, and social security will be responsible for this pay.
Further, paternal leaves are eligible for both parents, which can be divided between both parents. This leave is available until the child is of 2 years of age. Parents can have 2/3 of their average wages, which the government labor insurance office pays.

Annual leaves

Employees who have spent six months in an organization will get ten days off annually.
Employees will earn one additional day off with every year spent in an organization.
The maximum number of days off available will be 20 years.

Public Holidays (for the Calendar year 2024)

Japan observes 16 public holidays annually. Employers are encouraged to offer these holidays, though they are not obligated to do so.

These dates may change as per official government announcements.

New Year's Day - 1st January
The Second Day of the Year - 2nd January
Coming of Age Day - 8th January
Foundation Day - 11th February
Emperor's Birthday - 23rd February
Vernal Equinox - 20th March
Showa Day - 29th April
Constitution Day - 3rd May
Greenery Day - 4th May
Children's Day - 5th May
Marine Day - 15th July
Mountain Day - 11th August
Respect for the Aged Day - 16th September
Autumn Equinox - 22nd September
Sports Day - 14th October
Culture Day - 3rd November
Labour Thanksgiving Day - 23rd November
Bank Holiday - 31st December

Public Holidays (for the Calendar year 2025)

Japan observes 16 public holidays annually. Employers are encouraged to offer these holidays, though they are not obligated to do so.

These dates may change as per official government announcements.

New Year's Day - 1st January
The Second Day of the Year - 2nd January
Coming of Age Day - 13th January
Foundation Day - 11th February
Emperor's Birthday - 23rd February
Vernal Equinox - 20th March
Showa Day - 29th April
Constitution Day - 3rd May
Greenery Day - 4th May
Children's Day - 5th May
Marine Day - 18th July
Mountain Day - 11th August
Respect for the Aged Day - 15th September
Autumn Equinox - 23rd September
Sports Day - 13th October
Culture Day - 3rd November
Labour Thanksgiving Day - 23rd November
Bank Holiday - 31st December

Other leaves

Menstrual leave
In Japan, employers are obligated to provide menstrual leaves to women every month. The law is silent about the number of leaves per month. It is up to the employer whether to provide paid or unpaid leaves.
Hospitalization/ Carer's leave
Employees can take unpaid leaves for up to 3 months to take care of sick or injured family members.
Bereavement leaves
In Japan, bereavement leave is paid and dependent upon the degree of relativity
- 5 days off for 1st-degree relatives
- 3 days off for 2nd-degree relatives
- 2 days off for 3rd-degree relatives
The employees can get unpaid time off to fulfill civic duties like voting, and jury duty.
There are also other types of leaves such as milestone celebratory leaves, heartbreak leave, and marriage leaves- but they are not statutory requirements and are upon the employer's discretion.

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Taxes for Employers

Employers in Japan are obliged to contribute to various funds:

Public Health Insurance - 4.9%
Pension - 9.15%
Unemployment Insurance - 0.60%
Long-Term Care Insurance - 0.90%
Worker's compensation - 0.30%
Childcare allowance - 0.36%
Work injury - 0.25% - 8.8%

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Taxes for Employees

Employee's tax contribution includes:

9.15% Pension contribution
4.93% of Health insurance
0.3% Unemployment insurance
0.36% Child allowance

Personal Income tax in Japan varies as per the income

Employees who earn up to 1.95 million JPY must pay a 5% income tax.
When the income ranges from 1.95-3.3 million JPY, then income tax is 10%.
When the income ranges from 3.3-6.95 million JPY, then income tax is 20%.
When the income earned is from 6.95-9 million JPY, then income tax is 23%.
When the income earned is from 9-18 million JPY, then income tax is 33%.
When the income earned is within 18-40 million JPY, then the income tax is 40%.
When the income earned exceeds 40 million JPY, then income tax is at a maximum of 45%.

Probation

Japan has no statutory requirement for a probation period, but market practice ranges from 3-6 months. In certain situations, the probation period is extended for another duration, although it is very rare.

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Termination

In Japan, the employer cannot terminate the employee at will; they would need a just cause. Just causes are:

voluntarily termination by the employee
mutual termination by the employer and the employee
When the probation period is ended, and there is no offer of a permanent job
the employer gave the objective reason
disciplinary action by the employer
sub-par performance by the employee
expiration of contract

There is a statutory requirement of providing a 30-day notice period by the employer for termination of employment.

Severance Pay

There is no statutory regulation for severance pay, but usually, organizations offer full salary during the notice period.

Employees or Contractors

The courts of Japan determine whether the employment type is a full-time employee or a contractor based on the following provision:

Job offer details
Level of freedom in performance
Response relationship with the business owner
Working hours and flexibility of the engaged person
Who and how handles the damages

In case of the wrong classification of employment or engagement, stringent punishment is awarded to the employer.

Final Words

Japan offers economic prosperity to its workforce, and their protection is regulated through labor laws. To navigate through the labyrinth of labor laws, organizations can engage in EOR services to outsource their employment compliances.