Japan

Japan PEO & Employer of Record

WeHG provides an International PEO and global Employer of Record service in Japan to companies willing to enter the Japanese market or hire local/expat employees in this country.

Traditional approach requires establishing a subsidiary in Japan.  However our solution allows you to start the operations in Japan within days hence save time and money.  WeHG would recruit candidates on your behalf while you maintain full operational control of their work. Thus, by law, they will be our employees, on our local payroll, 100% compliant, but they will work on your behalf.

Japan fast facts

Population, million: 126,476,461
Land area: 377,915 km²
Capital: Tokyo
Local currency: Japanese yen (YEN)

GDP per capita:$ 47200.00
GDP in currency:$ 4750.00 billion

The main laws regulating the employment relationship for Japanese nationals also generally apply to foreign nationals working in Japan, although the employer and employee can agree to apply a different law to the employment relationship (Law on the General Rules of Application of the Law). However, certain mandatory provisions may not be contracted out (for example, the provisions concerning dismissal and overtime).

Japan has entered into social security agreements with a number of countries, including Germany, the UK, the US, Belgium, France, Canada, Australia, South Korea, Brazil, India and The Netherlands. Individuals insured under pension and social security schemes from one of these countries may be exempt from enrolling in Japan’s pension scheme and paying social security insurance premiums, depending on the scope of the bilateral agreement.

Hiring, Negotiating and Doing Business in Japan

Necessity of written employment contract

Contracts can be made orally or in writing. A written contract or an employment letter is advisable. They can be minimal if supported by work rules. Work rules are specific rules for the workplace. They set out working conditions, including in relation to wages, working hours, holidays and the rules with which employees must comply, including disciplinary procedures.

Employers with ten or more employees at a given workplace must adopt work rules and file them with the local Labour Standards Inspection Office. Employers with fewer employees can do so on a voluntary basis.

Different forms of engagement: employment, contracting, work with private entrepreneur

Collective agreements between an employer and a labour union may be incorporated (expressly or impliedly) into the employment terms.

Enterprise-based bargaining is more frequent than industry-based bargaining. Collective agreements between employers and labour unions regulate matters such as:

  • Working conditions.
  • Pay.
  • Bonuses.
  • Fringe benefits.
  • Working hours.
  • Health and safety.
  • Dispute resolution procedures.
  • Redundancies or secondments.
  • Re-employment of elderly employees.

Collective agreements may also regulate the relationship between employers and unions. They may require labour-management consultation before certain decisions are made (for example, concerning redundancies, closures or business transfers).

Labour-management agreements are designed to exempt employers from criminal penalties under the Labour Standards Law (for example, the obligation to make and file an agreement to have the right to request overtime) or deal with the special treatment of employees (for example, restrictions on care leave eligibility).

Japan Employment Contract

Types of employment agreements

There are no restrictions on the circumstances in which fixed-term contracts can be entered into.

The maximum length of a fixed-term contract is three years (five years in the case of professional employees or employees aged 60 or over). If a fixed-term contract has been renewed one or more times and the employee has more than five years service, the individual can make a request for the contract to be converted into an indefinite term contact. The request must be made before the fixed-term contract ends.

In addition to the other employment conditions stated below, an employer of a fixed-term contract must state in writing whether or not the contract can be renewed when it expires and, if it can be renewed, the factors that will be taken into account in deciding whether or not to renew.

Japan working hours

The statutory working week is 40 hours per week or eight hours per day, excluding breaks. There are a number of business-related exceptions, under which 44-hour working weeks are acceptable. Employers must file a labour management agreement (called an “Article 36 agreement”) with the Labour Standards Inspection Office if they wish employees to work over the statutory working hours or on statutory days off. Strictly speaking, there is no legal limit on the extension of working hours (except for hazardous work) provided that an Article 36 agreement has been filed.

Overtime

Certain standards contained in the Labour Standards Law (LSL) are designed to moderate overtime work (although an Article 36 agreement will prevail over the standards). The standard overtime work limits are:

One week: 15 hours.
Two weeks: 27 hours.
Four weeks: 43 hours.
One month: 45 hours.
Two months: 81 hours.
Three months: 120 hours.
One year: 360 hours.

Employees working over the statutory working hours, on statutory days off or late-night hours (between 10pm and 5am) must receive overtime pay. Managers are not subject to the regulations on working hours, breaks and days off (except for late-night work), but the definition of “manager” in this context is very narrow.

In June 2017, the Labour Policy Council, a committee in charge of exploring options to curb overtime, proposed maximum overtime rules and other guidelines to the MHLW to cap overtime at 45 hours a month, with an annual cap of 360 hours. The proposal includes sanctions for breaches and a number of exceptions (temporary surge or work-type based) subject to a labour management agreement. In any case, annual overtime cannot exceed 720 hours (also subject to monthly average caps depending on the reference period).

Employers must provide workers with at least 1 rest day per week or at least 4 rest days during a four-week period. In addition, a female employee with a child under 1 year of age is entitled to two unpaid 30-minute rest breaks to care for the infant. Work on rest days must be compensated at a rate of at least 35 percent higher than the employee’s ordinary pay.

Vacation leave in Japan

Employees who have been employed continuously for six months and worked at least 80% of all working days are entitled to ten days of annual leave. Holiday entitlements increase over time in proportion to the length of service (after one-and-a-half years of service, employees are entitled to 10 days, after two-and-a-half years, 12 days and so on). After six-and-a-half years and onwards, the entitlement is 20 days. Employers can be more generous. Employees can take annual paid leave on an hourly basis up to a number of hours equivalent to five days, where a labour-management agreement has been concluded. Most Japanese companies grant additional paid leave for weddings, the death of close relatives and when a spouse has given birth to a child.
There is no statutory unpaid holiday entitlement.

Japan Maternity Leave

Female employees are entitled to six weeks’ unpaid maternity leave before giving birth (14 weeks for multiple pregnancies). In principle, employers cannot require a female employee to work for eight weeks after delivery.

Parental rights

Employees are entitled to unpaid leave until their child’s first birthday (or until the child is 18 months, if certain conditions are met). An employee with a pre-school aged child or family member in need of full-time nursing is entitled to up to five days of unpaid leave (ten days for two or more children or family members) per year in order to nurse a sick or injured child. An employee may work reduced hours to care for his or her child under three years old. Employers may introduce limitations on eligibility under a labour management agreement.

Japanese Severance Laws

There is a minimum 30-day notice period before an employer can dismiss an employee under the Labour Standards Law. If the employer does not wish the employee to work any part of this notice period, it can pay the employee’s salary in lieu of notice. Although this procedure is cumbersome and seldom applied in practice, no notice is required where the employer summarily dismisses the employee for serious misconduct, provided that it has obtained the local Labour Standards Inspection Office’s consent. However, employers can only terminate an employment contract for just cause under the Employment Contract Law (the dismissal must be based on objectively reasonable grounds and must be socially acceptable).

Japan 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 categorised 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.

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).

The employee 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.

Health Insurance Benefits in Japan

The employee will be covered by health insurance or workers’ accident compensation insurance If the employee is unable to offer his services due to a physical or mental condition unrelated to work, the employer is allowed to terminate the employment relationship (the work rules often provide for a certain period of unpaid time off to allow the employee to recover and resume work). Employees on leave due to a work-related injury or illness cannot be dismissed during medical treatment and for 30 days after that treatment. If the period exceeds three years, the employee can be dismissed (set compensation is then payable).

Additional Benefits in Japan

Providing a safe and harmonious workplace is important in Japan. Employers are required by law to provide annual physicals and checkups for all employees. Depending on the type of work, employers may also be required to provide stress checkups.

Japan Holidays

Japan has designated 16 national holidays, partly to force employees to take holidays. Employers do not necessarily have to give a day off to employees on a national holiday, although this is common.

  • New Year’s Day
  • Coming of Age Day
  • Foundation Day
  • Vernal Equinox Day
  • Showa Day
  • Constitution Memorial Day
  • Greenery Day
  • Children’s Day
  • Marine Day
  • Mountain Day
  • Respect for the Aged Day
  • Autumnal Equinox Day
  • Health and Sports Day
  • Culture Day
  • Labour Thanksgiving Day
  • The Emperor’s Birthday

Why Choose WeHireGlobally

WeHG takes care of all the onboarding hurdles, payroll, compensation and benefits, tax filing, and termination of employment. Our Employer of Record solution allows you to manage your overseas teams efficiently while minimizing cost and risk.

FAQ Japan

  • Working hours in Japan

    The statutory working week is 40 hours per week or eight hours per day, excluding breaks.

  • What are the main holidays in Japan?

    • New Year’s Day
    • Coming of Age Day
    • Foundation Day
    • Vernal Equinox Day
    • Showa Day
    • Constitution Memorial Day
    • Greenery Day
    • Children’s Day
    • Marine Day
    • Mountain Day
    • Respect for the Aged Day
    • Autumnal Equinox Day
    • Health and Sports Day
    • Culture Day
    • Labour Thanksgiving Day
    • The Emperor’s Birthday
  • What are payroll taxes in Japan?

    Income tax is charged at progressive rates, which range from 5% to 45%.

    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.

     

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