Employers in Japan with more than 10 employees must write a contract which includes pay details, hours of work, breaks, rest days and leaves, shift timings and other terms and conditions related to employment. The employment contract must include eligibility for pay increases and bonuses and eligibility for retirement. Most employment contracts in Japan are of an unspecified period, with a probationary period of three to six months. Employers are not required to conduct pre-hire background checks but may choose to do so.

The national minimum wage in Japan is based on prefecture. The minimum hourly wage ranges between 896 JPY and 1,113 JPY. For Tokyo is 1,113 JPY, Osaka is 1,064 JPY, and Kyoto is 1,009 JPY.

The standard working hours in Japan are 8 hours per day, 40 hours per week.

Overtime

All work above the standard weekly working hours is paid as overtime and regulated by employment contract/collective agreements. In general, if an employee is expected to work overtime regularly, a written agreement must be filed with the Labour Inspection Office.

When an employee is requested to work overtime or work on holidays, the maximums are 5 hours per day, 45 hours per month, and 365 hours per year.Overtime work of up to 60 hours per month must be at least 25% of the normal hourly wage and overtime work that exceeds 60 hours per month must be at least 50% of the normal.

Employees in managerial and supervisory positions as defined under the Labour Standards Act are exempt from the aforementioned, however, the late-night work allowance is still applicable.Overtime payment is calculated as an additional payment to the hourly base salary as follows:

• Overtime (typically over 8 hours a day): additional 25.00%

• Nights (22:00 – 05:00): additional 25.00%

• Weekends and Holidays: an additional 35.00%

• Nights (continuing from overtime): additional 50.00%

• Holidays (continuing from night-time): additional 60.00%

Sick leave is not mandatory. Some companies may introduce their own sick leave policies, and employees often use their holiday to cover sick leave or claim social insurance.

Maternity Leave

All female employees are eligible for maternity benefits consisting of 14 weeks paid leave, six weeks before the due date, and eight weeks after.

The maternity payment is made by the Social Insurance based on the National Health Insurance rates, which are currently 420,000 JPY per child.

However, if the employee is enrolled in the employees’ health insurance, they may receive a maternity allowance of 2/3 of the regular salary rate from 42 days before birth until 56 days after delivery.

Paternity Leave

The father is entitled to paid paternity leave for up to one year after the birth as childcare leave. Paternity leave is referred to as ‘childcare leave’ in Japan, and new father employees are entitled to this benefit. However, the employee does not receive a salary while on leave unless stated in the employment contract. They are entitled to a partial allowance from social security.

Male employees are entitled to four weeks’ leave, in one or two installments, within eight weeks after birth (Childcare at Birth Leave). Benefits will be payable by social security at the same rate as maternity leave (67% of covered pay). This new Childcare at Birth Leave is in addition to the existing government-paid childcare leave entitlements for both parents, which may also now be taken in one or two separate installments (previously only one).

Childcare Leave

Childcare leave can be taken by the mother or the father and starts from the day after the maternity leave ends. Labor insurance covers childcare leave, and an employee can take childcare leave until the child is one year old. If both parents take childcare leave, the leave is then extended to when the child is one year and two months old.

Companies with 1,000 or more employees are required to publicly disclose annually the rate at which their staff take childcare leave.

Paid leave in Japan is set in the employment contract as dependent upon the years of employment. This paid leave is in addition to any public holidays.

• Employees with up to six months of service are entitled to 10 days of paid leave

• Employees with up to one and a half years of service are entitled to 11 days of paid leave

• Employees with up to two and a half years of services are entitled to 12 days of paid leave

• Employees with up to three and a half years of services are entitled to 14 days of paid leave

• Employees with up to four and a half years of services are entitled to 16 days of paid leave

• Employees with up to five and a half years of services are entitled to 18 days of paid leave

• Employees with up to six and a half years of services are entitled to 20 days of paid leave

Unused days expire after two years.

In Japan, in the event of the death of an immediate family member, an employee is entitled to bereavement leave. For the death of a father, mother, spouse, or child, an employee is entitled to five days of leave and three days of leave for the death of a grandparent, grandchild, sibling, child’s spouse, or spouse’s parent.

In addition, when the employee is the person in charge of funeral arrangements, they can request an additional two days’ leave.
Employees can also take family care leave, which is an unpaid leave to care for a spouse, child, parent, or grandparent for up to 93 days per family member concerned.

Employees with a child under three years old have certain rights. If they ask to be excused from unscheduled work, they should not be required to work beyond their regular hours. If they wish to adopt a reduced working hour system, their request should be granted. Furthermore, if an employee has a preschool-aged child and asks to be excused from unscheduled work, they should not be required to work more than 24 hours of overtime in a month or 150 hours in a year.

They are 16 public holidays in Japan. While there are no legal requirements to pay for public holidays, it is common to grant those days as paid days off.

If a national holiday falls on a Sunday, the next working day will become a public holiday. In addition, companies are usually closed from December 29th to January 3rd.

Date Day Holiday

1 Jan 2024 - Monday - New Year’s Day

8 Jan 2024 - Monday - Coming of Age Day

11 Feb 2024 - Sunday - National Foundation Day

23 Feb 2024 - Friday - Emperor’s Birthday

20 Mar 2024 - Wednesday - Vernal Equinox Day

29 Apr 2024 - Monday - Shōwa Day

3 May 2024 - Friday - Constitution Memorial Day

4 May 2024 - Saturday - Greenery Day

5 May 2024 - Sunday - Children’s Day

15 Jul 2024 - Monday - Marine Day

11 Aug 2024 - Sunday - Mountain Day

16 Sep 2024 - Monday - Respect for the Aged Day

23 Sep 2024 - Monday - Autumnal Equinox Day

14 Oct 2024 - Monday - Sports Day

3 Nov 2024 - Sunday - Culture Day

23 Nov 2024 - Saturday - Labor Thanksgiving Day

Japan provides universal healthcare. Citizens and residents are required to enroll. Employees may be required to make out-of-pocket payments for some medical treatments and procedures. Visitors staying less than three months should have travel insurance coverage for medical emergencies.

The termination process varies according to the employment agreement and collective agreement in place. It is based on the type of contract, the job role, the region, and the reason for termination. Due to the complexity of termination in Japan, dismissal is almost always done via a mutual agreement and with additional compensation.

Notice Period

The employer must provide a minimum of one month notice but this cannot necessarily be enforced on an employee providing notice to the company. Although a contract may stipulate one month notice, the company cannot terminate without due cause (which is difficult to justify under Japanese labor law) even with the provision of notice.

Severance Pay

There are no statutory requirements for severance payments in Japan. Given the severe limitations on the employer’s right to terminate an employee, most employees are offered a severance payment in exchange for a waiver and voluntary resignation.

Probation Period

The probation period in Japan for permanent employees is generally between 3 and 6 months.

Employer Payroll Contributions
9.15% - Pension (applied on salary up to 650,000 JPY  per month)

4.99% – 6.57% - Health Insurance (applied on salary up to  1,390,000 JPY per month). Each region has its own health insurance rate, and rates are slightly higher for individuals between the ages of 40 and 65 (generally 1.57%).

0.8% - Nursing Care Insurance (applied on salary up to 1,390,000 JPY per month)

0.95% - Unemployment Insurance

0.25% – 8.8% - Work Injury

0.36% - Family Allowance (applied on salary up to 650,000 JPY  per month)

16.5% – 26.63% Total Employment Cost

Employee Payroll Contributions
9.15% - Pension

4.99% - Health Insurance (applied on salary up to  1,390,000 JPY per month). Each region has its own health insurance rate, and rates are slightly higher for individuals between the ages of 40 and 65.

0.6% - Unemployment Insurance

0.8% - Nursing Care Insurance (applied on salary up to 1,390,000 JPY per month)

15.54% Total Employee Cost

Income Tax

5.00% - Up to 1.95M JPY

10.00% - 1.95M – 3.3M JPY

20.00% - 3.3M – 6.95M JPY

23.00% - 6.95M – 9M JPY

33.00% - 9M – 18M JPY

40.00% - 18M – 40M JPY

45.00% - Over 40M JPY

10.00% - Local Income Tax (calculated based on prior year income)

20.42% (flat rate) - Non-residents are subject to a national income tax on gross compensation with no deductions available. A non-resident taxpayer may be subject to the local inhabitant’s tax at a rate of 10% if they are registered as a resident as of January 1st of the current year.

Payroll Cycle

The payroll cycle in Japan is generally monthly.

13th Salary

In Japan, it is customary to pay a “13th month,” or even “14th month” salary as a summer bonus paid in June and as a winter bonus paid in December. However, more international companies today are adopting a straightforward 12 month pay period setup.

Authority Payments

Authority Payment Due Date Method

Tokyo Tax Office - Monthly; 10th of next month - Pay-easy

Local Ward Office - Monthly; 10th of next month - E-banking (local payment)

Pension Office - Monthly; last day of next month - Pay-easy (local payment)

Tokyo Labor Bureau - Annually; 31st August (once a year). - Pay-easy (local payment)

Normally the payment deadline is on July 10th

Before arriving in Japan, foreign nationals who want to work in Japan need a work visa from their local Japanese embassy or consulate. There are many different statutes for residence visas allowing the holder to only work in the specified industry.

It is expected that a university degree or extensive professional experience in the specialist field is needed to qualify for a working visa, which usually requires an employer to sponsor.

All foreign workers need an ‘Individual Number’ for administrative procedures for social security, taxation, and disaster response.

The standard rate of VAT in Japan is 10%.

Setting up a legal entity

Setting up a business involves registering a place of business. It is recommended to appoint a local accountant and lawyer to assist the set up.

Registration requires the following information:

1. Name and address of every incorporator

2. Amount of investment from each of incorporator

3. Name of the company

4. Registration address

5. Purpose of the business

6. Directors (can be a non-resident)

7. Auditors (if needed）

8. Representative director

9. Capital

10. Unit of investment

11. Fiscal year

12. The first fiscal year

Once an office opens and employs anyone including a Director, the entity is legally obliged to register for National Social and Labour Insurance programs. Japan has five types of social and labour insurances: Health Insurance, Pension, Nursing Care (applicable for employees over the age of 40 only) Workman’s Compensation and Employment Insurance. Setting up of a subsidiary can take time, and can be costly, as each part can take from a few days to several weeks. Companies cannot hire employees until all paperwork is completed and processes followed (office, bank account etc). Japan operates a PAYE scheme with an employer obligation to deduct tax from salary

A new business must submit a “Notification on the establishment of a salary paying office” form within one month of establishing a new office or commencing activities that involve paying salaries. A business must also submit a “Notification on the Relocation/Closure of a salary paying office” form within one month of ceasing business, ceasing to have employees, or relocating the premises.

Japanese payroll input is done in Japanese language (kanji and katakana plus hiragana), the English language is not used very often in Japan (Japanese students are now choosing Chinese as their second language).

Employment rights are often driven by Union Agreements. Employers should provide contracts of employment (Labour Contracts) to all employees and must be in written form

Additional information is available here

Registration as an employer

Japan operates a PAYE scheme with an employer obligation to deduct tax from salary

A new business must submit a “Notification on the establishment of a salary paying office” form within one month of establishing a new office or commencing activities that involve paying salaries. A business must also submit a “Notification on the Relocation/Closure of a salary paying office” form within one month of ceasing business, ceasing to have employees, or relocating the premises.

Japanese payroll input is done in Japanese language (kanji and katakana plus hiragana), the English language is not used very often in Japan (Japanese students are now choosing Chinese as their second language).

Employment rights are often driven by Union Agreements. Employers should provide contracts of employment (Labour Contracts) to all employees in writing.

New Employee Registration

Once you have one employee you need to provide social insurance covering health, pension, unemployment, and workers’ accident compensation insurances.

To provide social insurance, you need to run a Japanese payroll which requires tax withholding, social insurance, and insurance payments

Payments for tax withholding and social insurance need to be paid from a domestic Japanese bank account. Bank accounts must be owned by either an individual who is resident in Japan or by a Japanese company

New starters should provide the following:

• Copy of Passport

• Signed Contract

• Work Permit

• Attached Registration Form

• Registration Card

• My Number Card

Employers are required to register new starters with:

1. Notification of start of cover for Workers Accident Compensation Insurance and Employment Insurance, is sent to local Public Employment Security Office within 10 days of commencing employment

2. Notification of cover for Health Insurance & Employees’ pension insurance to be sent to the local Pension office within 5 days of start of employment

3. Application of Local Tax Collection (if applicable) collect taxes

4. Many insurances also cover dependents