Payroll & Employment Guide Japan

In Japan, written employment contracts are highly recommended and often required for clarity and compliance. Contracts should include job duties, working hours, wages, and termination conditions. Fixed-term contracts must meet strict criteria and can’t be used indefinitely.

Notice periods: Minimum 30 days or pay in lieu

Termination of employment: Employers must have valid reasons and follow proper procedures

Japan’s employment system offers generous statutory benefits, often enhanced by company-specific perks. Social insurance is mandatory and includes health, pension, and unemployment coverage.

Mandatory benefits: Health insurance, pension, unemployment insurance, workers’ compensation
Common perks: Commuting allowance, bonuses, housing assistance
Leave policies: Annual leave, sick leave (unpaid unless otherwise stated), parental leave

Japan has a multi-layered tax system. Employers must withhold income tax and social insurance contributions from employee salaries. Additional taxes may apply based on location or role.

• Personal income tax:
  • For income up to ¥1,950,000, the tax rate is 5% with no deduction.
  • Income between ¥1,950,001 and ¥3,300,000 is taxed at 10% with a quick deduction of ¥97,500.
  • For income between ¥3,300,001 and ¥6,950,000, the rate is 20% and the deduction is ¥427,500.
  • Income from ¥6,950,001 to ¥9,000,000 is taxed at 23% with a deduction of ¥636,000.
  • For the ¥9,000,001 to ¥18,000,000 range, the rate is 33% with a deduction of ¥1,536,000.
  • Income between ¥18,000,001 and ¥40,000,000 is taxed at 40% with a deduction of ¥2,796,000.
  • Any income exceeding ¥40,000,000 is taxed at 45% with a deduction of ¥4,796,000.
    

To calculate the tax owed, apply the appropriate rate to the total taxable income and subtract the quick deduction for that bracket.

Taxation also depends on residency status. Permanent residents are taxed on worldwide income. Non-permanent residents are taxed on income earned in Japan and may also be taxed on foreign income if it is sent to or received in Japan. Non-residents are taxed only on their income sourced within Japan.

VAT: VAT is generally 10%, with a reduced 8% rate on food, beverages, and qualifying newspapers. Certain exports and services to non-residents are zero-rated, while transactions like land sales or public services are non-taxable.

Japan’s labour laws are outlined in the Labour Standards Act. They cover employment types, overtime rules, contract terms, and termination procedures. Employers must keep detailed records and adhere to working hour restrictions.

Total employment cost: 16-26.63%

Minimum wage: ¥1,054 per month

Probation period: 3 to 6 months

Foreign citizens working in Japan are required to obtain the appropriate work permits and visas. The process, permit type, and costs are different depending on the applicant’s nationality, job role, and length of stay.

Types of permits: Visa and residence permit for highly skilled individuals

Process length: Up to 5 years

Process cost: 1800€

Using EOR services in Japan allows you to legally employ individuals in the country without opening legal entities there. The EOR takes over all the legal responsibilities as an official employer, including:

• Legal employment and contracts
• Payroll processing
• Tax withholding
• Benefits administration
• Onboarding/offboarding employees

Using PEO services in Japan provides HR and administrative support, while you remain the legal employer. PEO services are ideal for employers who already have legal entities in Japan but need support to manage their workforce operations, including:

• HR support and workforce administration
• Payroll and benefits management
• Compliance and local labour law guidance
• Employment contracts assistance

Native Teams provides a payroll calculator adjusted per Japan’s labour laws. Estimate gross-to-net salaries, tax withholdings, and employer costs in Japan with our localised calculator. Designed to meet all payroll and compliance requirements.