Hire in Japan — without an entity
Horizons provides global employment solutions for businesses wanting to hire employees and distribute payroll in Japan. Through our Japan PEO and Employer of Record, we manage your company’s payroll, employment and tax compliance in Japan.
Without the need for a local entity, you can go to market faster and save potential tens of thousands in expansion and hiring costs.
Our Japan PEO simplifies your expansion
Horizons enables your business to expand its operations into Japan – without setting up a legal subsidiary.
Horizons ensures day-to-day guidance to help your business navigate Japan’s labor laws and regulations. We also provide mandatory monthly payroll requirements, and absorb all local employment liabilities. Partnering with our Japan PEO is the quickest and most cost-effective way to enter the Japan market.
Employment & Labor Laws in Japan
📝 Japan employment contract types
Whilst Japanese laws do not specify an exact format for employment contracts, employers should draft written contracts for all work arrangements. Contracts should provide employees with the terms and conditions relevant to their job role. Employers can fulfill these requirements by giving employees a written employment contract and/or a copy of the company’s ‘work rules’ (shuugyou kisoku).
All employees engaged through Horizons’ Japan PEO are onboarded with a locally compliant employment contract.
In Japan, it is best practice for employers to draft a written employment contract that clearly states employment terms. This should include the employee’s compensation, benefits, responsibilities, and rules around termination. Any letter of offer or employment contract should state the compensation and benefits in Japanese Yen, rather than a foreign currency.
⏰ Working hours in Japan
In Japan, a standard work week runs from Monday to Friday. Each day is generally eight hours, for a total weekly limit of 40 hours. For a full-time employee, these would be normal hours, unless otherwise agreed with a union or local employee representative. Work agreements must clearly set out the maximum hours of applicable overtime.
Minimum overtime rates are as follows:
- The standard overtime rate is 125% of an hourly wage
- For work on a designated rest day, the overtime rate is 135% of an hourly wage
- For late night overtime – between the hours of 10pm and 5am – the overtime rate is 150% of the hourly wage
- For late night overtime that is conducted on a rest day, the overtime rate is 160% of the hourly wage
- For any overtime work that exceeds 60 hours per month, the overtime rate is 150% of the hourly wage
- For late night overtime that exceeds 60 hours per month, the overtime rate is 175% of the hourly wage
Small and medium sized companies are exempt from the final two overtime rates above. Additionally, employees that hold positions of management or supervision are typically exempt from such overtime rates.
Note that, in addition to these pay requirements for overtime, there are strict limits on the amount of overtime allowed. As of 2019 (larger employers), and 2020 (small businesses), the ‘basic limit rule’ is 45 overtime hours per month, or 360 hours per year.
There is also an ‘extended limit rule’ which provides that in special circumstances (such as unexpected orders), the basic limit rule can be breached. However, in that case there is still a limit of 100 hours per month, with a maximum if 720 hours per year.
📅 Holidays in Japan
Aside from New Year’s Day, if a holiday occurs on a Sunday, the following Monday is recognized as a public holiday. Whilst it is not a legal requirement for salaried employees of foreign companies to be given the day off on public holidays, most employers will do so.
New Year’s Day
National Foundation Day
The Emperor’s Birthday
The Emperor’s Birthday Holiday
Vernal Equinox Day
Constitution Memorial Day
Constitution Memorial Day
Respect for the Aged Day
Autumnal Equinox Day
Labour Thanksgiving Day
🔎 Income tax
Employment income in Japan is subject to federal income tax as well as the “local inhabitants tax.” The national tax rate is typically applied at relatively progressive rates depending on the amount of income. The local inhabitants tax is applied at a flat rate that is set locally.
🏥 Health insurance
In Japan, there is the National Universal Health Care System. Through this system, employees generally receive four standard types of insurance:
- Health Insurance
- Welfare Pension Insurance
- Workers’ Compensation
- Unemployment Insurance
Both health and welfare pension insurance are classified as social insurance. As such, directors are also entitled to these benefits. Insurance premiums are jointly contributed by employers and employees.
🏖 Vacation leave
For employees that have been with a company longer than six months, they are entitled to a minimum of 10 day’s paid annual leave. This increases by one day per year, for the following two year’s service. For each subsequent year thereafter, annual leave rises by two days – to a maximum of 20 days per year. Annual leave that is unused expires after two years.
😷 Sick leave
In Japan, employers are typically not required to offer paid leave to employees who are absent from work due to illness or injury. However, there are exceptions to this rule if employment contracts explicitly state otherwise.
👶 Maternity and childcare leave
In Japan, female employees are entitled to maternity leave within six weeks of the expected birth date, and eight weeks after childbirth. Female employees are not allowed to recommence work within eight weeks of childbirth – unless they meet the following criteria:
- The employee wishes to resume her work after six weeks – as opposed to eight weeks – post giving birth.
- Any resumption of work will not cause medical problems, as certified by a doctor.
Unless an employment contract states otherwise, it is not mandatory for employers to pay maternity leave to their employees.
Employees in Japan are eligible for family care leave – of up to 93 days per family member. Unless stipulated in a contract or work rules, family care leave is not paid.
Employees are also eligible to receive childcare leave, during the period in which maternity leave ends and the day before a child turns one. In some circumstances, this period can be extended, up until the day a child becomes one and a half year’s old.
Childcare leave benefits:
1) JPY 420,000 of lump-sum benefit for childbirth
2) Exemption of social insurance premium
3) Maternity allowance: Approximately 2-3 month’s salary during maternity leave
4) Childcare leave benefit: Approximately 2-3 month’s salary during childcare leave
💰 Termination and severance
Termination laws in Japan offer a significant degree of legal protection for employees. It is extremely difficult for employers to terminate an employee working in Japan. As such, there are restrictions surrounding what is considered as a ‘justified termination’. Dismissals can even be deemed as an abuse of an employee’s rights under the country’s local laws.
Throughout the previous decades, it has been challenging for employers to successfully prove a valid legal cause for termination. The exceptions to this rule include: employees committing crimes or violations such as theft, violence, excessive insubordination, dishonesty regarding their professional credentials, or long-term poor performance in their work role.
The tradition in Japanese business culture is to place poor performing employees on a 3-6 month probationary period. If the employee continues to underperform or not meet the expectations of the company, they can then be terminated, without it being deemed unacceptable under Japan law.
Employers are legally required to provide employees with at least 30 day’s notice of termination. This stipulation is commonly included in the ‘work rules’ that are provide to the employee at the time of hire.
Navigating employee terminations and handling severance packages can be complicated for companies expanding overseas for the first time. Horizons’ Japan PEO can mitigate risk for foreign companies and provide guidance through this process.
💳 Japan compensation and benefits
Japan compensation laws
Japan’s compensation laws vary by cities and regions. As an example, Tokyo’s minimum wage is the highest in the country – 958 Yen.
In Japan, employees are paid monthly, as opposed to weekly or fortnightly. Wages commonly start low, although workers are rewarded by seniority. Promotions are generally based on a combination of experience and ability.
Unlike many Asian countries, Japan does not have a mandated 13-month bonus. However, sales employees have the opportunity to earn commissions that can be likened to those in the US.
Minimum Wage Country Comparison Chart
(Per month in USD)
Guaranteed benefits in Japan
Because wages in Japan can start quite low, employers often rely on additional benefits to entice prospective employees. Guaranteed benefits in Japan include paid annual leave of 10 days – after six month’s company service. Employees receive a leave increase of one day per year, for the following two years. This continues for each subsequent year, until they reach the maximum of 20 day’s paid annual leave.
Employees have access to excellent health care coverage under Japan’s social security system. As a result, many employers do not provide supplemental health benefits.
Employment law in Japan requires employers to offer annual physicals to all employees. This can be extended to ‘stress checkups’, if related to the nature of work. Employers are advised to budget between 10% and 15% – on top of an employee’s salary – to be allocated towards benefits.
Japan benefit management
For employers that conduct benefit management themselves, it’s important they understand both Japan’s guaranteed benefits and what is accepted as the ‘norm’. Employers should start by researching what other businesses provide for their employees. Based on this research, employers can then decide what works best for their business. However, it should be acknowledged that this process often involves a great deal of time and travel to Japan.
Alternatively, employers can elect to work with a benefits outsourcing company. By partnering with a company that has experience in Japanese benefit management, this can make the process much more straightforward. A global PEO like Horizons’ Japan PEO will make sure that employees receive their correct entitlements and that your business maintains employment compliance.
Benefits and compensation restrictions
Because Japan’s compensation laws vary by city, it is vital that employers keep up-to-date on regulations in their area. Additionally, employers must comply with Japanese tax laws – so as not to face fines and penalties.
There are also strict maternity leave restrictions in Japan. Female employees are entitled to maternity leave within six weeks of their expected birth date and then another eight weeks post childbirth. A woman is prohibited from returning to work within eight weeks of childbirth, unless the following criteria are met:
- The female employee wants to resume her work at least six weeks after giving birth
- The female employee has doctor’s certification that resuming work will not cause medical problems
Rather than struggling to handle Japan benefit management on your own, it pays to work with Horizons. We make sure that all employees receive sufficient benefits and that your business remains compliant with Japanese employment laws.