Hiring and paying employees in Japan requires a clear understanding of the country’s legal and cultural frameworks. This guide provides an in-depth overview of the key considerations for international businesses looking to establish or expand operations in Japan. Read on for our detailed guide to how to hire and pay an employee in Japan.
Understanding Japanese employment law
Key regulations
- Labour Standards Act (LSA): Governs employment contracts, working hours, holidays, and wages. Employers must ensure contracts comply with the LSA.
- Equal Employment Opportunity Law: Prohibits discrimination based on gender, age, and nationality.
- Labour Contract Act: Requires employers to provide clear terms of employment.
- Minimum Wage Act: Enforces region-specific minimum wages set annually.
Types of employment contracts
- Permanent contracts: Offer full-time employment with no fixed end date.
- Fixed-term contracts: Typically limited to one year but renewable.
- Part-time contracts: Governed by the same laws as full-time roles but tailored for reduced hours.
Working hours and overtime
- Standard workweek: 40 hours (8 hours per day, five days per week).
- Overtime: Employees working beyond 40 hours must receive overtime pay:
- 125% of base salary for regular overtime.
- 150% of base salary for work during holidays.
- 200% of base salary for work exceeding 60 hours in a month (applies only to large enterprises).
Termination laws
Japan has strict rules protecting employees against unfair dismissal:
- Dismissal requires just cause, such as misconduct or redundancy.
- Notice period: A minimum of 30 days or equivalent pay in lieu.
- Severance pay: Not legally required but customary in many organisations.
Steps to hire and pay an employee in Japan
1. Register a local entity
Foreign businesses must establish a legal presence in Japan, such as a Kabushiki Kaisha (KK) or a Godo Kaisha (GK). This is a prerequisite for obtaining tax and social security registration.
2. Draft compliant employment contracts
Contracts must be written in Japanese and clearly outline:
- Job description.
- Compensation structure.
- Working hours and leave entitlement.
- Termination conditions.
3. Advertise the position
Leverage local recruitment channels, including:
- Job boards (e.g., Rikunabi, Mynavi).
- Recruitment agencies (e.g., Robert Walters, Hays Japan).
- Social platforms like LinkedIn, although less commonly used than in Western countries.
4. Conduct interviews
Japanese hiring culture values formality. Interviews often focus on technical skills, team fit, and cultural compatibility. Be prepared for several interview rounds.
5. Complete onboarding
Ensure new hires are registered with social insurance and tax authorities before their first day.
Payroll process in Japan
Registration requirements
Employers must register for:
- Social Insurance System: Covers health insurance, pension, and unemployment insurance.
- Labour Insurance: Includes workers’ compensation and unemployment insurance.
- National Tax Agency: For income tax deductions.
Salary structure
- Base salary: Typically paid monthly.
- Bonuses: Commonly two bonuses per year (summer and winter), equal to 1-2 months’ salary each.
- Allowances: May include transport, housing, or family support.
Tax deductions
- Income tax: Progressive rates from 5% to 45%.
- Resident tax: Flat rate of around 10% based on the previous year’s income.
Social insurance contributions
| Contribution Type | Employer Rate | Employee Rate |
|---|---|---|
| Health Insurance | ~9.9% | ~9.9% |
| Employees’ Pension Insurance | ~9.15% | ~9.15% |
| Unemployment Insurance | ~0.6% | ~0.6% |
| Workers’ Compensation | ~0.3-0.9% | N/A |
Payroll frequency
- Monthly payments: Common practice, typically on the 25th or last day of the month.
- Payslips: Must be provided with clear breakdowns of gross pay, deductions, and net pay.
Employee benefits in Japan
Mandatory benefits
- Health insurance: Covers 70% of medical costs.
- Pension insurance: Provides retirement benefits after a 10-year contribution.
- Unemployment insurance: Offers financial support during job transitions.
- Workers’ compensation: Covers work-related injuries or illnesses.
Common supplementary benefits
- Commuting allowance: Reimbursement for public transport costs.
- Housing allowance: Support for rent or mortgage payments.
- Professional development: Funding for training and certifications.
Cultural considerations
- Seniority-based pay: Traditional systems reward loyalty and tenure, though merit-based models are becoming more common.
- Lifetime employment: Historically a hallmark of Japanese business culture, but less prevalent today.
- Work-life balance: Efforts to reduce overwork (karoshi) have led to the promotion of flexible hours and teleworking policies.
Outsourcing payroll in Japan
Managing payroll in Japan can be complex due to legal and administrative requirements. Many businesses choose to outsource to payroll providers such as those included in our international payroll providers list.
These providers handle compliance, tax filing, and employee benefits, ensuring smooth operations for international businesses. This can be a very straightforward way to hire and pay an employee in Japan.
Conclusion
Hiring and paying employees in Japan involves navigating a mix of legal, cultural, and administrative challenges. By understanding the country’s employment laws, payroll requirements, and workplace culture, international businesses can successfully build a compliant and motivated workforce in one of Asia’s most dynamic markets.
FAQ
No, you do not need to be physically present, but you must establish a legal entity or partner with a professional employer organisation (PEO) to hire employees in Japan. PEOs can manage legal, payroll, and compliance matters on your behalf.
Japanese employees must be paid in yen unless explicitly agreed upon otherwise, and the payment is made into a Japanese bank account. Most employees expect salaries in yen to avoid exchange rate risks.
Yes, probationary periods are common and typically last three to six months. However, dismissing an employee during or after probation still requires valid reasons under Japanese labour laws.
Failure to register for social insurance can lead to penalties, back payments, and reputational damage. Employers are legally required to enrol employees in social and labour insurance schemes immediately upon hiring.
Remote work is increasingly common in Japan. However, employers must ensure that remote employees receive the same entitlements (e.g., health insurance, pensions) as in-office employees. Clear guidelines for working hours and overtime should also be set.
Yes, foreign employees require a valid work visa, which is tied to their job role and employer. Employers must sponsor visas and comply with immigration requirements. Non-compliance can result in fines or visa revocation.
Yes, but background checks must respect privacy laws. Employers typically verify employment history and qualifications. Criminal record checks are rare and must be justified by the nature of the job.
Disputes are usually resolved through:
Internal mediation: Managed by company HR teams.
Labour standards offices: Employees can lodge complaints with these offices.
Courts: Legal action is a last resort due to its cost and time requirements.
While bonuses are customary, they are not mandatory unless specified in the employment contract. Allowances, such as transportation or housing, are common but depend on company policies.
For expatriates working in Japan, taxes are withheld at source through the Japanese payroll system. Tax obligations depend on residency status:
Non-residents (less than 1 year): Taxed only on Japan-sourced income.
Residents (1 year or more): Taxed on worldwide income.
Japan has 16 national holidays, and employees working on these days are entitled to premium pay. Employers should ensure payroll schedules accommodate these holidays, as banks and offices may close.
Unused statutory annual leave can be carried over to the next year, but only for a maximum of one year. Non-statutory leave policies depend on company discretion.
Yes, performance-based pay systems are allowed and increasingly adopted, especially in multinational companies. Ensure the system is transparent and clearly defined in employment agreements.
To minimise legal risks:
Conduct a performance review process with documented warnings.
Offer retraining or alternative roles.
Use termination as a last resort and provide appropriate notice or pay in lieu.
“Shakai Hoken” refers to the Japanese social insurance system. It covers health, pension, unemployment, and workers’ compensation insurance. Both employers and employees contribute, and it is mandatory for all eligible workers.