Payroll & Employment Guide Japan

Under Japanese law, employment contracts include indefinite-term, fixed-term, part-time, dispatch, elderly employment, and non-regular contracts, each with specific legal frameworks. Contracts should include job duties, working hours, wages, and termination conditions. Fixed-term contracts must meet strict criteria and can’t be used indefinitely.

Contract formalities:

• Form: Contracts can be oral, written, or electronic. However, written contracts are highly recommended to avoid disputes.
• Mandatory written notice: Regardless of the contract form, the Labour Standards Act (LSA) mandates that key terms must be provided in writing.

Key content requirements: Employers must provide a written statement covering:

1. Employment duration or term.
2. Place of work.
3. Job description and duties.
4. Starting and finishing hours (including overtime rules).
5. Rest periods.
6. Holidays and leave entitlements.
7. Wage determination, calculation, and payment dates.
8. Termination rules (resignation, retirement, dismissal).

Fixed-term contracts:

• Duration: Typically capped at 3 years (5 years for specialists or those over 60).
• Conversion: Employees who renew fixed-term contracts for over 5 years may request conversion to an indefinite-term contract.
• Renewal: Employers must provide written criteria for renewal.

Probationary period: A probationary period typically lasts three to six months. It allows employers to evaluate suitability while bound by strict legal safeguards. After the first 14 days, standard dismissal notice periods (30 days) apply.

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.

Social security (mandatory): Employers must contribute to mandatory social insurance programs calculated on monthly income:

• Health insurance
• Pension insurance
• Unemployment insurance (Benefits depend on employment history/age; usually 50–80% of daily wage).
• Workers’ compensation (Industrial accident compensation insurance).

Leave policies:

• Annual paid leave: Entitlement starts at 10 days after 6 months of continuous employment (if 80% attendance is met). It increases with tenure up to a maximum of 20 days.
• Public holidays: There are 16 national holidays. These are not legally binding for the private sector, but work on these days often commands premium pay (usually 1.35x).
• Sick leave: There is no statutory entitlement to paid sick leave. Employees typically use accrued annual leave. Long-term illness may be covered by the "sickness and injury allowance" under health insurance (2/3rds of the average daily salary).
• Parental leave:
  • Maternity: 6 weeks before birth (14 for multiples) and 8 weeks after.
  • Paternity: Up to 4 weeks within the first 8 weeks after birth.
  • Childcare: Until the child is 1 year old (extendable to 2 years).

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.

Japanese employers must process payroll monthly and submit taxes and insurance payments on time. Bonuses are common (often biannual), and payroll processes must comply with local labour and tax laws.

Salary payment deadline: By the 25th of the month or the last day of the month

Taxes and contributions payment deadline: By 15 March of the following year

Payroll declarations deadline: By the 10th of the following month

Payroll currency: Japanese Yen (JPY)

Payment method: Wages must be paid in full, directly, in cash (or bank transfer), and at least once a month on a fixed date.

Minimum wage: The national average hourly minimum wage is ¥1,054 (varies by prefecture and industry).

Bonuses: Not legally mandated but commonly provided (e.g., customary 13th-month bonus).

Wage reduction: Strictly regulated; requires consent or disciplinary justification (capped at 10% of daily wage per infraction).

Overtime & Premium pay calculation:

• Standard overtime: 125% of regular wage (for hours beyond 8/day or 40/week).
• Night work (10 PM – 5 AM): Additional 25%.
• Holiday work: 135% of the regular wage.
• High volume overtime: 150% for overtime exceeding 60 hours/month.

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%

Employer’s social security contributions:

• Pension Insurance (Kosei Nenkin): 9.15%
  • Employment insurance (Koyo hoken): ~0.9%
  • Workers’ accident compensation (Rosai hoken): ~0.3% – 8.8% (varies by industry)
  • Child/Family allowance: 0.36%
  • Employer’s health insurance costs: ~4.955% (varies by prefecture; increases to ~5.75% for employees aged 40–64, including nursing care)
• Employees’ social security contributions:
  • Pension insurance: 9.15%
  • Employment insurance: ~0.55% Employees’ health insurance costs: ~4.955% (increases for employees aged 40–64 with 0.795% Nursing Care contribution)

Social security contributions: Rates are set by the Japan Pension Service and regional associations and shared between the employer and the employee.

Working hours:

• Standard: 8 hours per day and 40 hours per week.
• Breaks: Minimum 45 minutes for 6+ hours of work; 1 hour for 8+ hours.
• Rest days: At least one day off per week (or 4 days per 4 weeks).

Termination of employment: Termination is governed by the Labour Standards Act (LSA) and is subject to strict scrutiny.

• Dismissal: Requires "objectively reasonable grounds" (e.g., inability to perform duties, serious misconduct, business necessity). Dismissals for performance are rarely upheld without proof of remedial efforts.
• Notice period: 30 days' notice or payment in lieu of notice.
  • Exceptions: No notice required for natural disasters, summary dismissal for crime/serious breach (with approval), or during the first 14 days of probation.
• Resignation: Preferred method of termination. Employees generally provide 14 days' notice unless the contract states otherwise.
• Severance: Not statutory (except payment in lieu of notice), but commonly offered to incentivise voluntary resignation.

Remote working:

• Regulation: Not explicitly defined in legislation but guided by the Ministry of Health, Labour and Welfare (MHLW) guidelines.
• Expenses: Reimbursement is not legally required, but is good practice.
• Safety: The Industrial Safety and Health Act (ISHA) applies to home offices. Employers must ensure safety and mental health protections for remote workers.

Intellectual property: Under the Patent Act, rights generally belong to the employee unless an advance contract assigns them to the employer. If assigned, the employee is entitled to "reasonable remuneration."

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.