Hiring guide in Japan

What should I know about hiring in Japan?

Legal framework

Types of employment contracts

Japanese employment practices have traditionally focused on lifetime employment, where workers often stay with one company until the mandatory retirement age. However, modern employment contracts in Japan have diversified, with indefinite-term contracts, fixed-term contracts, part-time contracts, and other types that govern more casual employment. 

Indefinite-term contracts remain the most common type, and they are not bound by a set expiration date. The contract lasts until terminated by either party, and they offer job security that aligns with the traditional approach to employment. 

Fixed-term contracts are increasingly used, and they have a maximum duration of three years, although they can extend for five years in certain cases. Employers can use these contracts without providing an objective reason for the arrangement, and they can be renewed or converted into indefinite-term contracts. 

Part-time contracts in Japan require clear terms about employee rights, including the possibility of pay raises, bonuses, and retirement allowances. The employer must ensure equal treatment for part-time workers in relation to full-time staff.In addition to these contracts, Japan also supports temporary or dispatch contracts, elderly employment contracts, and non-regular employment contracts, including seasonal and student jobs.

Content of an employment contract

Under Japanese labour law, employment contracts must outline key employment terms, ensure transparency, and protect workers’ rights. 

When entering into any form of employment contract, the employer must provide a written statement that includes wages, working hours, duration of employment, place of work, job description, termination terms, and other important terms that impact the employment.

Download a free employment contract for Japan through Native Teams.

Oral, written or electronic employment contracts

Under Japanese labour law, employment contracts can be oral, written, or electronic. Written contracts are mostly preferred and recommended for clarity, as they provide the key employment terms in writing and ensure legal compliance. However, oral and electronic contracts are still legally valid. 

The Labour Standard Act mandates that all the key terms, such as job duties, salary, and working hours, must be provided in writing, even if the contract itself is not formally written.

Working hours

The standard working week in Japan consists of 40 hours per week, eight hours per day. However, these limits can be adjusted through an agreement between the employer and an employee union or a worker representing the majority of employees. Employers can also require overtime work if a separate agreement is concluded with the union or the representatives.

Breaks and night work

Employers in Japan must provide at least one rest day per week and mandatory rest periods during working hours, at least 45 minutes after six nights of work, and one hour after eight hours of work.

Breaks must occur during working hours and can’t be scheduled at the beginning or end of a shift. They must also be provided simultaneously to all employees, unless a special exemption is granted through a labour-management agreement.

Annual leave

Employees in Japan are entitled to annual paid leave, increased based on the length of employment. 

Individuals who have been continuously employed for at least six months are entitled to paid annual leave that ranges from 10 to 20 days. After six months of continuous employment, employees are entitled to 10 days of annual leave, with one additional day added each year for the first two years. After two and half years of continuous service, employees are entitled to two additional days per year, up to a maximum of 20 days.

Public holidays

In Japan, there are 16 national holidays per year, including New Year’s Day, Coming of Age Day, National Foundation Day, Constitutional Memorial Day, Labour Thanksgiving Day, and many others.

Salary

Salary regulations in Japan cover payment methods, minimum wages, and overtime premiums. 

Wages in Japan are defined as any form of payment made by the employer to the employee, including salaries, allowances, and bonuses. The amount of these payments is often closely tied to the employee’s length of service with the company, educational background, and age. 

The regional minimum wage in Japan is specific to each of the country’s 47 prefectures, while the industry-specific minimum wage is determined based on the industry in which the company operates. 

As of now, the national average hourly minimum wage is ¥1,054.

To calculate the salary and taxes in Japan, click here.

Sick leave

In Japan, there is no statutory entitlement to paid sick leave nor legal disposition on the matter. Instead, employees typically use their accrued statutory annual leave to cover absences due to illness, provided they have sufficient days available.

However, sick leave provisions can be established through employment contracts, company policies, or collective labour agreements. Many companies include paid sick leave in their work rules to support their employees.

Parental leave

Japanese labour laws provide maternity and childcare leave to eligible employees for the duration of 14 weeks – six weeks before and eight weeks after childbirth. 

There is no statutory requirement for employers to pay wages during maternity leave. However, if the mother is covered by the employees’ health insurance, she is entitled to receive a tax-free payment equivalent to two-thirds of her average daily earnings. This benefit is funded by contributions shared equally between employees and employers through the health insurance system.

The duration of maternity leave can be extended in certain circumstances.

Methods of employment termination

Termination of employment contracts varies depending on the grounds for termination and which party initiates the process. 

Employment contracts can be terminated at the initiative of either the employee or the employer. However, to uphold job security, it’s extremely challenging for an employer to unilaterally and lawfully terminate permanent employment. 

Disciplinary dismissal is the most severe form of termination for both parties. It generally requires a 30-day prior notice or payment in lieu thereof and must be based on “sufficient reasons” that meet stringent legal standards. Upon request, the employer is obligated to promptly issue a certificate stating the reasons for dismissal. 

To terminate an employment contract, it’s mandatory to provide a reasonable cause. If the employer’s decision to terminate lacks objectively reasonable grounds or fails to align with the norms, it constitutes an abuse of rights and is deemed invalid. The primary legal remedy is reinstatement, although the employee may opt to claim damages instead. 

Arbitration is also prohibited for employment disputes including unlawful dismissal cases.

Ordinary dismissal by employer

The employer may terminate an employment contract with notice if a valid reason exists. However, the preferred approach is through resignation.

Resignation is typically based on mutual agreement between the employer and the employee and can be initiated by either party. Employers often propose resignation to employees and negotiate a compensatory amount in exchange for voluntary resignation. The terms, including the amount paid to the employee, are determined through mutual negotiation and agreement. 

In such cases, the employee effectively agrees not to pursue claims of wrongful termination in return for a lump-sum payment. This payment usually combines notice or payment in lieu of notice and severance pay. However, for employees who have passed their probationary period, companies commonly offer three months’ salary or more, often averaging six months, for an amicable resolution.

Before initiating resignation negotiations, it’s recommended that employers provide clear performance warnings and allow the employee a reasonable opportunity to improve. 

In practice, it’s common for employees to initially reject an offer for resignation with a favourable package. However, they often reconsider and accept after the employer improves the resignation terms.

Notice period and challenging the dismissal

Employees in Japan are generally entitled to a notice period before dismissal and have the right to challenge the dismissal in court if they believe it was unlawful. 

Dismissals typically require at least 30 days’ notice before it takes effect. However, this period may be shortened if the employer compensates the employee by paying the average wage for each day of reduction. In addition to this, written notice is recommended but not legally required.

Rights and obligations of unemployed individuals

In Japan, the rights and obligations of unemployed individuals are primarily governed by the Employment Insurance Act. Hence, workers who meet eligibility criteria and lose their jobs are entitled to unemployment benefits through the Employment Insurance system. 

The amount of duration of these benefits depends on factors like employment history, age, and the reason for job termination. Typically, the benefit amount ranges from approximately 50% to 80% of the average daily wage earned in the six months prior to unemployment. The duration of benefits can vary from 90 to 360 days, based on the length of insured employment and the reason for job loss. 

To be eligible for unemployment benefits, employees must meet some criteria, such as being currently enrolled in the Employment Insurance system, having contributed to it for at least 12 months within the past two years, actively seeking employment and other requirements.

Severance pay

Under Japanese law, employees may be entitled to severance pay if their dismissal is deemed unlawful by the courts. 

Typically, there is no statutory severance pay or fixed formula, except when payment is made in lieu of notice. However, many companies choose to include severance pay in their contracts to incentivise voluntary resignation, avoiding the risks associated with unilateral dismissal.

Prohibition of competition

Non-compete clauses in Japan are enforceable to protect a company’s legitimate business interest, but they must be reasonable in scope, duration, and compensation to be considered valid by the courts. 

Under non-compete clauses, employees are prohibited from engaging in activities that compete with their employer during the course of their employment. 

Regarding the validity of non-compete clauses, courts tend to apply strict scrutiny. Consequently, the scope of the obligation must be reasonably limited to what is necessary to protect the legitimate interests of the company. 

When assessing the validity of a non-compete clause, there are some factors that should be considered, such as the nature, specificity, and significance of proprietary information, the employee’s job position, the confidentiality and importance of the services provided, and other factors.

Probationary period

Probationary periods in Japan are often included in employment contracts to allow employers to assess the employee’s performance, skills, and cultural fit while also enabling employees to evaluate whether the role meets their expectations. Although such cases are not mandatory, they’re common for permanent employees. 

The length of the probationary period is not legally fixed, and its renewal is not prohibited. However, in practice, it generally lasts up to three months and can be extended to a maximum of six months, provided that this is agreed upon with the employee. 

If the employee fails to meet expectations, the employer may terminate the contract during the probationary period with minimal notice, typically between one to two weeks, as specified in the employment contract.

Intellectual property rights

Under the Japanese Patent Act, the right to an employee’s invention typically belongs to the employee. However, following some amendments, if an advance contract between the parties specifies that the patent rights will belong to the employer, these rights are transferred to the employer as soon as they arise. 

An employee’s invention refers to an invention that is primarily within the employer’s business field, arising from activities related to the employee’s job activities.

If the employee’s invention is assigned to the employer or if an exclusive usage right is granted to the employer, the employee is entitled to reasonable remuneration or other economic benefit. 

The law doesn’t specify exact compensation amounts but provides certain factors that must be considered, and the amount must be deemed reasonable.

Employee data privacy

The Personal Information Protection Act governs the collection, use, disclosure, and storage of employees’ personal information in Japan. 

This legislation strictly prohibits employers from using employees’ personal data for purposes that are not disclosed or authorised. The collection and processing of employees’ data by employers must comply with some legal requirements, such as purpose limitation, informed and voluntary consent, data minimisation, data security measures, secure data transmission, and others.

Employees have the right to request access to their personal data held by the employer, correct inaccuracies, request deletion of data in certain circumstances and seek to transfer their data to another entity.

Remote working policy

Remote work in Japan isn’t explicitly defined in legislation but is regulated through guidelines issued by Japan’s ministerial authorities. In addition to the ministerial guidelines, employers must apply the laws and regulations governing all employment relationships. 

To ensure that remote work arrangements are fair, transparent, and compliant, there are general policies that address aspects like working hours, record-keeping, rest periods, communication protocols, performance expectations, expense reimbursements, and others.

“Remote working” vs “Work at a separate workplace”

The distinction between “remote working” and “working at a separate workplace” in Japan is not explicitly defined in a single legal framework but is guided by the Ministry of Health, Labour and Welfare’s guidelines. 

The key difference between these concepts lies in the work environment – remote work typically occurs in the employee’s home or other non-company-controlled spaces, while work at a separate workplace involves a physical location that the employer owns or manages. 

While remote working in Japan is not explicitly regulated, it’s addressed within broader employment regulations, and employers are obligated to ensure the health, safety, and well-being of remote workers, just as they do for on-site employees. Compliance with general labour laws regarding working hours, rest/break times, overtime, and work conditions is also required.

In addition to this, the Ministry of Health, Labour, and Welfare provides guidelines for remote arrangements, covering issues like establishing clear work conditions, providing necessary equipment, safeguarding employees’ mental health, and others.

Health and safety at home

Under the Industrial Safety and Health Act of Japan, employers are responsible for maintaining a safe and healthy working environment, which extends to remote work settings. This means taking proactive measures to prevent work-related health issues, including mental health concerns, to ensure the safety of remote workers and provide appropriate support and resources for employees working off-site.

What are the advantages of hiring employees from Japan vs other countries?

Hiring employees in Japan offers several advantages when compared to other countries, particularly for roles that require precision, reliability, and strong technical experience. 

Japan has a highly educated workforce with expertise in fields like engineering, software development, manufacturing, and design. In addition to this, Japanese professionals are renowned for their dedication, discipline, and commitment to quality. The cultural emphasis on excellence and “Kaizen” ensures high standards of any work they undertake.

Japan’s stable economy and infrastructure make it an ideal country to hire from, ensuring reliable access to talent with minimal disruption from economic instability. 

When compared to other countries, Japan stands out for its combination of technical expertise, cultural discipline, and a commitment to quality – qualities that are especially valuable in today’s competitive global industries.

Why use Native Teams for hiring in Japan?

Native Teams lets you employ team members ‘like a local’ meaning you get all the benefits of a global team, wherever you are based. Here are the reasons why you should use Native Teams for hiring:

• No paperwork: We will handle all the necessary paperwork for you.
• Save on taxes: We help you handle your taxes.
• No company set up: You can expand your business using our company entitles.
• Online onboarding: We’re here to ensure your onboarding process is trouble-free.
• No accounting: We will handle all of your accounting needs, including invoicing, payroll, and more.
• Increase your profit: We assist you in growing your business and maximising your profits.
• Compliance expertise: we can assist your company in navigating the regulatory environments and ensure you meet all relevant requirements.
• Local support: We can assist you in understanding and complying with the relevant local laws.

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