Japan at a Glance
Estimated Population: 126.3 million
Currency: JPY Japanese Yen
GDP: USD 5 trillion
Key Things to Consider Before Hiring in Japan
Understanding the employment landscape in Japan is crucial before engaging in the hiring process. The main focus of labor laws in Japan revolves around the relationship between employers and employees. Rather than nationality, an individual's status as an employee is determined by their direct affiliation with an employer. Consequently, independent contractors are not recognized as employees under Japanese labor law.
Japan has implemented various laws to safeguard employees from discrimination, unfair treatment, and wrongful termination. Moreover, the government provides generous benefits to workers in the country.
However, comprehending the intricate and comprehensive employment and labor laws in Japan can be challenging. To streamline your expansion efforts and optimize resources, it is advisable to collaborate with an experienced Employer of Record who specializes in hiring and employing in Japan. No Boundaries experts can provide further insights and assistance.
Below are some key provisions of Japan's Employment Laws:
- Labor Standards Act:
- The Labor Standards Act serves as a primary source of employment regulations in Japan. It establishes guidelines for maintaining a healthy work environment, ensuring employees' well-being. Additionally, it sets standards for employment contracts and the overall rules governing employment in Japan.
- Labor Contract Act:
- The Labor Contract Act defines the relationship between employers and employees. It outlines the fundamental principles of labor agreements, offers reasonable protection to both parties against contract breaches, and establishes the contract as the primary framework for their relationship.
- Labor Union Act:
- The Labor Union Act grants all workers the right to form labor unions and collectively bargain with employers. Its aim is to elevate unions' status to that of employers, enabling them to negotiate for improved working conditions, better wages, and enhanced benefits. This act encourages collective action among labor unions.
- Employment Security Act:
- The Employment Security Act serves multiple purposes in Japan. Its primary objective is to ensure equal opportunities for skilled individuals to secure employment. Employment Security Offices allow individuals to choose suitable jobs as long as they do not compromise public welfare. Additionally, this act protects employees from discrimination based on race, nationality, religion, gender, social status, family background, previous occupation, or union membership.
Timings, Vacation, and Leave Policies in Japan
- Standard Working Hours:
- The standard working week in Japan is 40 hours, or 8 hours per day. However, certain businesses are allowed up to 44 hours per week, with a maximum of 8 hours per day.
- Rest Period:
- Employees working more than 6 hours are entitled to a minimum rest period of 45 minutes per day. If the work exceeds 8 hours, the rest period should be at least 1 hour.
- Paid Public Holidays:
- Japan has numerous national holidays that are generally observed by employees. Some of the national holidays in Japan include New Year's Day, Coming of Age Day, National Foundation Day, The Emperor's Birthday, Vernal Equinox Day, Showa Day, Constitutional Memorial Day, Greenery Day, Children's Day, Marine Day, Health Sports Day, Mountain Day, Respect for the Aged Day, Autumnal Equinox Day, Culture Day, and Labor Thanksgiving Day.
- Maternity Leave, Paternity Leave, and Other Leave:
- Maternity leave in Japan is 14 weeks, with 6 weeks allowed before childbirth and 8 weeks after the child is born.
- Fathers can take paternity leave for up to a year, usually in two installments. The first installment can begin within eight weeks of the child's birth.
- Japan does not have specific sick leave, but bereavement or condolence leave is typically granted for five days.
- Annual Leave Entitlement:
- The amount of annual leave an employee is entitled to in Japan depends on their length of service. Employees with six months of service are entitled to 10 days of annual leave, and this increases up to 20 days for those with 6.5 or more years of service.
Contractors vs. Full-time Employees
Differentiating between independent contractors and full-time employees in Japan is a subjective matter. Independent contractors generally fall outside the scope of employment laws. Japanese courts consider various criteria to determine whether an individual should be classified as an independent contractor or an employee. Some key factors used to make this determination include:
- The individual's discretion to accept or refuse job offers.
- The level of freedom the individual has in deciding how to perform or offer services to the employer.
- Whether the individual reports directly to the employer or not.
- Who has the authority to determine the working hours, the employer or the purported employee.
- The party responsible for damages or liabilities that may arise.
While employees in Japan enjoy several protections and benefits under the law, these benefits do not extend to independent contractors. Therefore, although hiring full-time employees may impose more financial obligations on companies, it is generally preferred by individuals due to the additional benefits and protections they receive.
In Japan, negotiating employment terms has traditionally been limited. Compensation packages and benefits offered to candidates are typically standardized, with little variation among similar positions. However, for higher-level positions, there is a greater scope for negotiation, and candidates may have more influence. No Boundaries can handle your contracts in Japan, providing comprehensive assistance.
Hiring in Japan
When hiring in Japan, employers typically use internal teams to identify suitable candidates based on job descriptions. These candidates undergo background screenings before being shortlisted. Shortlisted candidates then participate in multiple panel interviews, including technical and HR interviews, to assess their qualifications and suitability for the company and its culture. After a thorough evaluation, the most suitable candidates are selected and offered a letter of intent or employment.
While hiring through employment websites, social media posts, or advertisements in Japan offers access to a larger pool of potential candidates, it also involves the challenge of filtering numerous applications to find the right fit. LinkedIn has limited reach in Japan and should not be relied upon as the sole platform for sourcing talent. Partnering with an Employer of Record (EOR) like No Boundaries can expedite the recruitment process, ensure compliance with employment practices, and provide virtual onboarding tools.
Probation & Termination
Terminating employment in Japan can be exceptionally challenging due to restrictions that do not apply in other countries. Redundancy-based terminations are strictly prohibited, and individual justifications must be provided. Partnering with an EOR like No Boundaries ensures compliant actions and minimizes future disputes.
EOR solutions offer numerous benefits. By outsourcing your human resources requirements in Japan, you can save time and resources for other expansion plans. No boundaries’ Japan EOR solution enables cost-saving and efficient expansion without the need to establish a new entity.
You may choose to set up an entity and take up the staffing, employee management, and payroll management activities yourself, but it could be overwhelming and may run the risk of legal hurdles. Why take chances when you can collaborate with a trusted partner and employer of record. Talk to No Boundaries now.
Outsourcing Employment Through an EOR in Japan
Working with an Employee of Record (EOR) saves valuable time by handling the hiring process, payroll management, tax compliance, and other services. No Boundaries, a reputable EOR, provides tailor-made contracts, compliance with local laws, and convenient document handling.
Types of Visas in Japan
- Working Visa
- Allows professionals to work in Japan for 3 months to 5 years.
- Highly Skilled Professional Visa
- Granted to overseas professionals with specialized skills for a period of 5 years and offers certain privileges.
- General Visa
- For visitors engaging in cultural activities, valid for 3 months, 6 months, 1 year, or 3 years. A certificate of eligibility is required.
- Business Visa
- Issued for 90 days to individuals visiting Japan for market surveys, conferences, business talks, contract signing, or business liaison, subject to seniority criteria.
Foreign nationals wishing to work in Japan require a work permit sponsored by the employer and applied for by the individual.
Payroll & Taxes in Japan
Compliance with local rules and regulations is essential when setting up payrolls in Japan. Understanding employee profiles helps determine the applicable laws. Working with an EOR saves time and costs, allowing focus on expansion goals and objectives.
Taxation is also a necessary process you have to pay special attention to. Here too, working with an EOR will help save time and initial costs so that you can focus on the goals and objectives of the expansion.
- Tax Identification Number
- Japan uses a 12-digit ID known as My Number for various purposes, including taxation.
- Choosing a Payroll System
- Consider factors like benefits accommodation, business growth vision, and requirements when selecting a payroll system.
- Note Down All Employee Information
- Record basic details, wages, and regular work hours. Utilizing software or cloud-based services simplifies data entry and maintenance.
Taxation in Japan
- Income Tax applied on an employee’s salary
- Up to 1950000 JPY 0%
- Between 1950000 JPY and 3300000 JPY 10%
- Between 3300000 JPY and 6950000 JPY 20%
- Between 6950000 JPY and 9000000 JPY 23%
- Between 9000000 JPY and 18000000 JPY 33%
- Between 18000000 JPY and 40000000 JPY 40%
- Greater than 40000000 JPY 45%
- Financial Year End date: 31st March
- Tax rebate: Yes, for employees with Net taxable income less than or equal to 1950000 JPY
- Corporate tax
- The corporate tax rate is 15% if the revenue if up to 4000000 JPY and 23.30% if it is more than 8000000 JPY.
- Withholding Tax (For Non-residents)
- Dividends: 20%
- Interest: 15-20% of interest
- Rent: 20%
- Royalties: 20%
- Sales Tax: 8%
- Employer Contribution Towards Social Security: 14.685 - 16.63%
- Employees’ Contribution Towards Social Security: 14.35 - 15.69%
Establishing a Subsidiary in Japan: A Guide
The process of establishing a subsidiary in Japan can be lengthy and costly, demanding meticulous attention to detail to avoid delays.
The initial step involves reserving a unique trading name for your subsidiary. It is crucial to ensure that the chosen name is not already owned by another company in Japan. Typically, you will need to submit multiple name options for approval, and the Trade Register will select one based on priority.
The subsequent step entails preparing the incorporation documents. It is advisable to seek legal counsel to draft the articles of association for your company and have them notarized. Additionally, you must provide relevant company details and registration certificates. These documents will also need to be translated into Japanese, as required for all foreign entities in Japan.
Opening a corporate bank account in Japan follows suit. This account will serve as the registered bank account for your subsidiary, containing the share capital. The setup of this account is subject to specific statutory charges.
Once your bank account is established, you can proceed to apply with the Japanese tax authorities for social security, employment, and taxation registrations. With the subsidiary duly registered, you can easily apply for additional licenses and permits specific to your field of operation.
Professional Employer Organization (PEO)
A Professional Employer Organization (PEO) offers similar expertise in areas such as recruitment, payroll management, benefits administration, and employee management. However, the key distinction between a PEO and an Employer of Record (EOR) lies in their role. A PEO acts as a co-employer of your company's employees, whereas an EOR functions as the legal employer.
When partnering with a PEO, the organization retains final decision-making authority in all human resource matters. While this allows for thorough review, it can also be time-consuming, especially during periods of expansion.
No boundaries’ EOR solutions eliminate the need for organizations to establish a legal entity in the target country. No Boundaries takes full responsibility for navigating the complexities of documentation and employment contracts at every stage.
Conclusion: Why No boundaries’ Japan Solutions Stand Out
Understanding local laws and their implications on employment processes is paramount when establishing a remote team in Japan. Factors such as knowledge of regulations governing different employee types, regional variations in laws, familiarity with Japanese negotiation practices, payroll setup, and navigating the intricacies of taxation can significantly prolong the expansion process.
Rather than creating a new entity and deciphering the impact of each law on the employment process, it is simpler to collaborate with a trusted partner who can handle your HR needs. This ensures compliance with local legal requirements and prevents any inadvertent non-compliance.
With No boundaries’ globally distributed teams and extensive experience, hiring exceptional talent in Japan becomes effortless. No Boundaries manages payroll, benefits, and supports compliance and taxation through a Unified Employment Platform. No Boundaries has earned the trust of renowned remote employers and continues to seek ways to facilitate smoother expansion plans.
Contact No boundaries to give your business expansion plans the boost they need.